KUCHING: Sapura Energy Bhd’s (Sapura Energy) exploration and production (E&P) operation is in the limelight on slow offshore job recovery.
According to AmInvestment Bank Bhd (AmImvestment Bank) currently, the drilling division’s utilisation is below breakeven at 33 per cent while the engineering and construction segment will only begin to be profitable next year from the newly secured Pegaga central processing platform and additional three wellhead platform jobs.
“However, with crude oil prices now trading above US$70 per barrel, the limelight has returned to Sapura Energy’s E&P operation, with its proposed listing becoming much more likely and reinvigorates the group’s overall re-rating process,” the research firm said in a note yesterday.
AmInvestment Bank noted that the group’s commencement of 100 million cubic feet per day gas production from the SK310 B15 development in October last year is expected to generate earnings before interest, tax, depreciation and amortisation (EBITDA) of US$25 million.
This is assuming oil price of US$65 per barrel, which will more than offset the natural decline of Sapura Energy’s oil producing assets, raising production by 23 per cent y-o-y to 4.3 million barrel of oil equivalent (boe) in financial year 2019 forecast (FY19F).
“E&P’s FY20F production is expected to fall by 12 per cent y-o-y from natural decline. Subsequently, the Gorek, Larak and Bakong gas fields in the US$200 million Phase 1 of the SK408 production sharing contract are targeted to commence production in FY21F, radically transforming annual gas output from two million boe by 10-fold to 12 million boe and propel overall hydrocarbon production to 13.4 million boe, up 3.8-fold from 3.5 million in FY18.”
AmInvestment Bank highlighted that while final investment decision for Phase 2 for the Jerun field in SK408 has not been reached, its commencement in FY24F is expected to boost the group’s overall production even further to 20 million boe, 5.7-fold current output.
“Sapura is also actively exploring E&P prospects overseas, which includes its 30 per cent stake Block 30 in the Sureste Basin and Blocks 11 and 13 in the Burgos Basin, Gulf of Mexico together with farm-in agreements to five offshore exploration permits in Taranaki Basin, New Zealand.”
The research firm further highlighted that currently, 95 per cent of E&P’s wholly local net reserve of 253 million boe is based on gas fields off Sarawak with the balance oil off Terengganu.
Assuming Brent crude oil price of US$65 per barrel, oil production cost (including royalties and petroleum taxes) of US$55 per barrel, gas price of US$3.25 per mmbtu and gas production cost of US$1.50 per mmbtu, AmInvestment Bank’s revised E&P asset value of US$2 billion is 56 per cent above the segment’s FY17 net asset of RM5 billion.
AmInvestment Bank said that this translated to sum-of-parts (SOP) of RM2.76 per share, which was 73 per cent above book value and 3.8-fold above the current share price.
“Even though the share price has rebounded by 80 per cent from the all-time low of RM0.41 in mid-March this year, there is still ample upside to further raise our fair value given that the stock is currently trading at a huge 73 per cent discount to our SOP.”