SapuraKencana Petroleum announced  yesterday  that it  has  made four significant  gas  discoveries  in  SK408,  which  are  among  the  10  wells committed  to  the  SK408  PSC  agreement.  We  maintain  our  FY15/16 earnings estimates  as the development of SK408 will not kickstart until CY16. Maintain BUY, with our SOP-based FV at MYR5.61, implying a 22x FY15 P/E, in line with other big-cap stocks under our coverage.

• Four new wells.  SapuraKencana  Petroleum (SapuraKencana)’s whollyowned  subsidiary,  SapuraKencana  Energy  Sarawak  Inc  (SKE),  has made four significant discoveries of non-associated natural gas in one of the  two  gas  fields  it  acquired  from  Newfield,  the  SK408  production sharing  contract  (PSC)  area  in  offshore  Sarawak.  These  comprise:  i) Teja-1,  with a gross gas column (ggc) of 219m, ii) Gorek-1 with a ggc of 225m, iii) Legundi-1  with  a  ggc  of  139m, and iv) Larak-1  with  a  ggc of 333m.  SK408 is located within the Central Luconia Gas Province,  which is  known to contain high natural gas reserves. These four wells are the first  among  the  10-well  commitment  signed  under  the  SK408  PSC agreement. SapuraKencana has a 40% working interest (WI) in  SK408 whilst Petronas Carigali has 30% and Sarawak Shell 30%.    
• A  good  start  with  the  Newfield  assets.  The  announcement  did  not state the net pay of the total four well discoveries. However, we noted that management had earlier estimated that the total contingent reserve (2C)  of  both  natural gas fields  were approximately 1.5–3.0  trillion cubic feet  (tcf)  –  which  is  c.270–540  million  barrels  of  oil  equivalent.Management is hopeful about  inking  the gas sales agreement (GSA) by the  end of this year,  which would turn  the reserve from 2C to proven & probable  (2P).  The  development  cost,  expected  to  be  incurred  by SapuraKencana  in  developing  SK408,  was  earlier  estimated  at USD88m (c.MYR282m) based on its WI of 40%.     
• Maintain BUY with a  SOP-based FV MYR5.61.  We leave our FY15/16earnings  estimates  unchanged  for  the  moment.  Contributions  from SK408 will not kick  in  immediately,  as  development  is only  expected to start  by  CY16.  We  maintain  our  BUY  call  and  SOP-based  FV  of MYR5.61. This implies a FY15 P/E of 22x, which is in line with other bigcap stocks under our coverage that are trading at a range of  14x-30x. We  still  like  the  stock  as  we  believe  its  long-term  value  –  which  lies mainly in Newfield’s undeveloped gas fields off East Malaysia  –  has not been  fully  unlocked.  We  also  expect  1QFY15  results  to  be  strong, booking in the maiden contribution from Newfield’s oil-producing assets.

Source: RHB