Sapura Energy’s losses widen to RM2.5b in FY18 on impairments, lower revenue

The company sees its net loss widening to RM2.3b for 4Q18, against a loss of RM172.3m in 4Q17


Sapura Energy Bhd registered the highest net loss for a full fiscal year since it became a public company and was listed on Bursa Malaysia in 2012, as the after-effect of the 2014 oil drubbing continues to haunt the oil and gas services provider.

The company saw its net loss widening to RM2.28 billion for its fourth quarter ended Jan 31 this year (4Q18), against a loss of RM172.32 million in 4Q17, owing to the higher impairment and lower revenue recognised.

This was primarily driven by the RM2.13 billion provision made for impairments on property, plant and equipment, significantly higher than the RM287.7 million in impairments recognised in 4Q17.

Revenue for the quarter declined by 34.2% year-on-year (YoY) to RM1.19 billion due to the lower contributions brought in from its engineering and construction, as well as drilling divisions.

For the full financial year 2018 (FY18), the company, which is also engaged as an exploration and production (E&P) player, operated at a net loss of RM2.5 billion owing to the RM2.1 billion in impairments incurred primarily on the drilling rigs.

Turnover for the year was down by 23% YoY at RM5.89 billion on lower contribution from its services segment and the absence of contributions from the terminated Berantai risk-service contract.

Sapura Energy president and group CEO Tan Sri Shahril Shamsuddin said the group assesses its asset lifecycle periodically based on market changes, and therefore impairments are a healthy industry practice.

As the industry gradually experiences renewed optimism, we are confident that our strong track record and proven technical capabilities will position us for further growth, says Shahril

“The impairments recorded, which have no impact on cash, create a lighter asset base for the group by reducing the total carrying value and depreciation charge of our drilling rigs going forward,” Shahril said in a statement yesterday.

“This enables us to operate at a lower cost base in the future, while enhancing our competitiveness for growth and at the same time improving profitability.”

Sapura Energy will continue to optimise cost, including impairing assets, especially in the drilling segment which is foreseen as taking a longer period to recover, while looking at new and existing markets to replenish its orderbook.

At present, it sits on an RM16.6 billion orderbook after securing RM2.7 billion in engineering and construction contracts over the last two months which are expected to contribute to group revenue in FY19.

Current cash and cash equivalents in FY18 were at RM1.7 billion.

The industry is expected to recover gradually from the low levels of activity experienced in the last three years, as reflected by the higher crude oil prices and increased levels of bidding and contracting activities globally.

“As the industry gradually experiences renewed optimism, we are confident that our strong track record and proven technical capabilities will position us for further growth,” Shahril said.

The industry recovery is predicted to improve the group’s prospects in the mid-to-long term as low levels of capital spending continues to weigh on the group in the near term.

Revenue from the engineering and construction division was lower by 42% YoY at RM670.3 million, owing to the low activity levels in the segment in 4Q18, while drilling revenue fell 42% to RM230.4 million as several rigs went off contract during the quarter.

The E&P division, however, noted stronger revenue by 4.5% at RM286.5 million due to the higher barrels of oil lifted, coupled with the higher average realised oil price.

The group is now focused on the potential development of the SK408 field for its E&P segment, which is expected to enhance the value and long-term earnings visibility of the business following the completion of its SK310 B15 development.

Sapura Energy’s share price came off a record low of 41 sen on March 14 this year, and over the past week has performed above the 50 sen market.