News

SKPETRO announced that its wholly-owned subsidiary, SapuraKencana Energy Inc (SKE) has secured a Field Development Plan (FDP) approval from Petronas for the SK310 B15 gas development project.

SKE will commence the development phase and the first gas delivery is targeted at 4QCY17.

The B15 field which was discovered in Dec 2010 is expected to produce 100m standard cubic feet per day (MMscfd) of hydrocarbon gas for Petronas LNG’s complex in Bintulu, Sarawak.

SKPETRO is the operator of SK310 PSC with a 30% participating interest. Other partners include Petronas Carigali Sdn Bhd with a stake of 40% and Diamond Energy Sarawak Sdn Bhd, a subsidiary of Mitsubishi Corporate with 30%.

Comments

We are positive on news as it marks a step forward in monetising the assets acquired from Newfield Malaysia back in 2013. SKPETRO aims to sign the gas sales agreement (GSA) by end of the year.

We were guided that the GSA has a duration of 5.5 years and the field is estimated to generate a total EBITDA of USD83m (USD25m at SKPETRO’s 30% stake) per annum for the field assuming the field is able to ramp up to full production within 3-6 months from commencement of operations at current oil prices.

Hence, significant earnings contribution is expected to be only seen in 2018 as the first gas delivery is aimed at 4QCY17,

CAPEX needed for the B15 project is estimated at USD300m, spanning up to 4QCY17. SKPETRO has already secured the funding for its stake of USD90m through multi-currency facilities. Hence, there will not be any further increase to the gearing level.

Outlook

SKPETRO’s latest orderbook stands at RM23b, mainly comprising international T&I and fabrication jobs, including Brazil.

For now, its drilling division Teknik Berkat’s tender barge has yet to win any contract. Besides, three other semi-submersible rigs (West Berani, West Menang and West Jaya) will have to seek new contracts in the market later this year and the renegotiated rates of new contracts may be under downwards pressure given the weakness in the rig market. More headwinds for the division are expected for FY17 as four more tender rigs are expected to come off charter next year coupled with the challenging rig market outlook.

Two Petrobras PLSVs (Diamante and Topazio) is now working in Brazil’s deepwater oil basin. The assets are currently running at full utilisation and Petrobas sees no sign of slowdown in its projects with timely payments from Petrobras. Its 3rd PLSV (Onix) has been delivered and operations commencing recently, pointing to contribution in 2H16.

On its Pan Malaysia HUC contract, work orders have been secured from Petronas and other PSCs, keeping the group busy albeit at a lower rate, allaying near-term worries over a significant slowdown in its HUC contract. Meanwhile, its E&C division remains strong with multiple international projects at hand.

Its Vietnamese upstream asset acquisition is still pending approval from the Vietnamese government. It still has until early 2016 to satisfy the conditions stipulated in the SPA signed last year. Economics of the field remains viable as its EBITDA breakeven is at c.USD15-17/bbl.

Forecast

Earnings and forecast are maintained.

Rating

Maintain MARKET PERFORM

Valuation

TP is upgraded to RM2.38 from RM2.04 as we increase our target CY16 PER to 14x from 12x PER to factor in better prospects from its gas projects.

Risks to Our Call

Lower-than-expected margins for business segments

Lower-than-expected contract replenishment.

Source: Kenanga Research - 5 Nov 2015