By Chong Jin Hun & Gho Chee Yuan / The Edge Financial Daily | July 12, 2016 : 9:01 AM MYT
KUALA LUMPUR: National oil company Petroliam Nasional Bhd (Petronas) is taking back control to develop the Berantai gas field, which is located off Terengganu, from UK oil services provider Petrofac Energy Developments Sdn Bhd and SapuraKencana Petroleum Bhd after five years.
In a statement yesterday, Petronas said the cessation of the risk service contract (RSC) contract will allow it to minimise the project’s long-term value erosion and optimise the development and production activities in Malaysia, in line with its efforts to reduce costs and increase the efficiency of its operations.
Petronas had earlier announced that it aimed to cut up to RM50 billion in operating and capital expenditure over the next four years in the face of sliding global oil prices. Oil has slipped from about US$50 (RM199.5) a barrel to below US$45 in the last month. Brent crude, the international oil benchmark, traded at US$46.26 yesterday.
In separate filings with the exchanges yesterday, London-listed Petrofac Ltd and Bursa Malaysia-listed SapuraKencana said a mutual agreement among the three parties was reached to terminate the Berantai RSC.
“With the cessation of the RSC, which will be effective on Sept 30, Petronas will reimburse all outstanding capital and operational expenditures to the contractors by June 2017. As part of the arrangement, the ownership of Berantai floating production, storage and offloading (FPSO) vessel will be transferred to Petronas,” they added.
“We continue to support Petronas in its efforts to reduce costs and optimise its operations with a view to preserving the long-term value of the project. Together with our partner, we have managed to operate the facilities over the past four years safely,” said SapuraKencana president and group chief executive officer Tan Sri Shahril Shamsuddin in a separate statement yesterday.
Meanwhile, Petrofac said it will use the cash proceeds for general corporate purposes. The company added that as a result of the cessation of the RSC and the FPSO transaction, it will incur a small impairment charge.
On Jan 31, 2011, Petronas had awarded the RSC for its Berantai field to Petrofac to lead the development and production of petroleum from the Berantai field. It was the first RSC awarded by Petronas and had marked the start of development for the country’s marginal oil and gas (O&G) fields. Petronas remains the project owner, while Petrofac has a 50% stake in the RSC, alongside local partners — SapuraKencana’s wholly-owned subsidiaries Kencana Energy Sdn Bhd and Sapura Energy Ventures Sdn Bhd — both of which hold a 25% equity interest.
The Berantai partners were to develop the field and subsequently operate the field for a period of seven years after first gas production. When fully operational, the field was expected to produce about 150 million standard cu ft of gas per day (mmscfd) and 10,000 barrels of oil.
In November 2012, Petronas announced that natural gas production from the Berantai field was successfully brought on stream on Oct 20, 2012. The gas is processed at the Berantai FPSO and exported to the existing onshore terminal at Kerteh. The full field development, excluding delivery of the FPSO, was anticipated to require capital investment of approximately US$800 million, of which Petrofac’s share was 50%.
SapuraKencana shares closed up one sen or 0.72% at RM1.40 yesterday as the market was largely neutral on the news. Its market capitalisation stood at RM8.33 billion. The stock has slid steadily for more than a year in response to the slump in oil prices, and reached an all-time low of RM1.32 on June 27.
JF Apex Research oil and gas analyst Lee Cherng Wee said SapuraKencana will be able to recover its investment and reduce overall operating costs following the disbursement from Petronas.
“This could also boost cash flow and gearing when the money comes in June next year,” he told The Edge Financial Daily in an email reply.
As at April 30, 2016, SapuraKencana’s total borrowings stood at RM17.34 billion versus its cash and cash equivalents of RM2.34 billion. Its net-debt-to-equity ratio stood at 1.3 times for the financial year ended Jan 31, 2016 (FY16).
An analyst who declined to be named said the cessation is positive to SapuraKencana’s balance sheet as the company could use the cash proceeds to pare down its debt.
“Under the current operating environment, cash conservation is very important for any company so that they can look out for new opportunities,” said the analyst, estimating that SapuraKencana may need another four years to recoup its investment in the Berantai field should the contract continue.
Another analyst believed that the termination could be due to the low oil price environment. “Brownfield projects come at a higher production cost. At the current oil price of US$45 to US$50 per barrel, it is either the company did not make money or made razor thin profits from the oil being produced.”
A third analyst said his FY17 earnings forecast for SapuraKencana has factored in the termination of the Berantai field as the management had indicated it during a recent results briefing. SapuraKencana slipped to a net loss of RM791.56 million for FY16 from RM1.43 billion in FY15, due to impairment provisions on O&G assets totalling RM1.14 billion and deposit on acquisition written off worth RM172.5 million.
This article first appeared in The Edge Financial Daily, on July 12, 2016.