A better option than ipo for Sapura in proposed tie-up with omv
Published on: Tuesday, September 18, 2018
Kuala Lumpur: Sapura Energy Bhd's latest corporate manoeuver with Austrian oil and gas major, OMV AG, will bring about several potential benefits, including making the proposed exercise even better than an initial public offer (IPO) for Sapura Upstream Sdn Bhd, its exploration and production (E&P) arm. OMV is now in the final stage of closing the proposed deal to buy a strategic 50 per cent stake in Sapura Upstream that will see the Austrian company having a stronger business presence in South East Asia.The proposed deal, says Macquarie Research Malaysia, is better than an IPO because of better valuation, lower costs, swifter conclusion and less regulatory requirements for Sapura Upstream.
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Through the alliance, Sapura Energy would gain a strategic partner to secure upstream work for its drilling and engineering and construction segments, something which the local entity wants to see more business activity after the oil and gas (O&G) industry stagnated momentarily from 2014 until recently.Over the past one year or so, Sapura Energy has been mulling over the possibility of floating its E&P arm through an IPO to monetise its assets and strengthen the finances of the group.But the latest proposed corporate exercise with OMV can kill two or even more birds with one stone as Sapura Energy gets to access much-needed working capital to monetise even more ventures it has been building up, extend its global reach and shave off its debts.Macquarie Research also said the financial benefits over the immediate horizon from the OMV exercise was poised to bring in proceeds of US$800 million or RM3.32 billion out of Sapura Upstream's market value of US$1.6 billion or RM6.64 billion.
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Together with a planned capital raising exercise, via a rights issue estimated at around RM4 billion, it should bring in about RM7 billion for Sapura Energy in ample funds which can be used as working capital or reduce its debts to a gearing ratio of about 0.5 times from the present 1.6 times.With the favourable financial implications, Sapura Energy would appear to have leap-frogged to capitalise on the much-improved conditions in the O&G industry to form a strategic alliance with an established player to address a bigger market potential, it said.
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Chief among these is Sapura Upstream's ability to tap into OMV's expertise to yield better returns in the E&P segment as global demand for energy continued to be strong amid the backdrop of harder-to-find diminishing resources.The recovery in oil prices would also encourage greater demand for production drilling and engineering and construction (E&C) activities in the coming months and open up new possibilities for Sapura Energy's entire portfolio straddling from Malaysia to across Australasia, Latin America, North America, Africa and Europe. The impending collaboration would also enable more efficient capabilities to be put together to extract oil and gas reserves from even deeper depths and the synergy would cut short a lot of guesswork in the high-investment business where every dollar saved is a dollar gained running into hundreds of millions. As prospects for an upstream oil services provider like Sapura Energy depended on capital expenditure (capex) and the amount of exploration/production work undertaken by oil and gas majors which, in turn, is influenced by the perceived direction of oil prices and demand, the outlook is positive. Especially when crude oil prices are hovering at almost US$80 a barrel from their lows of below US$50 a barrel three or four years ago. OMV AG is one of Austria's largest listed industrial companies with an annual group sales of 20 billion euros and a workforce of more than 20,000 employees.In the upstream business, OMV AG has a strong base in Romania and Austria, and a balanced international portfolio in the North Sea, Middle East & Africa and Russia.In 2017, its daily production stood at 348,000 barrels of oil equivalent per day.OMV's proposed acquisition of half of Sapura's Upstream portfolio reflected its current aggressive stance to have a strong presence in South East Asia and would provide its first exploration assets in the region, which may add an estimated production entitlement of over 33,000 barrels of oil equivalent per day (boe/d) by 2025.There are also exploration synergies in Australia and New Zealand between OMV's existing portfolio and Sapura Upstream's projects in hand. OMV had reportedly spent nearly US$4 billion this year alone to add its production entitlement of 150,000 boe/d.Presently Sapura Upstream's portfolio in Malaysia consists of gas fields in blocks SK408 and SK310 B15, offshore Sarawak.Following the upturn in crude oil prices in the last 12 months, the growing optimism in the O&G industry has provided more room for Sapura Energy to expand its expertise further afield in New Zealand, Australia and in the Gulf of Mexico. This is where both Sapura Upstream and OMV can produce win-win results from their respective strengths.For CIMB Research, it says that Sapura Energy's prospects in the global arena clearly suggest that its hopes are not misplaced with the potential of more engineering and construction bids in various locations.It believed that Sapura Energy was likely to announce additional E&C contract wins in the coming months as well as more drilling contracts.The company may seek a potential strategic drilling partnership over the longer term, which may take the form of a non-cash merger between two drilling companies, or a partial stake sale of Sapura Drilling, it added. Stay up-to-date by following Daily Express’s Telegram channel.
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