Sapura Energy recovers on better upstream prospects

The stock is consistently 1 of the most actively traded counters on the exchange daily


Sapura Energy Bhd’s share price is moving closer to its fair value as investors reassess the oil and gas (O&G) company’s fundamentals.

The largest listed O&G services provider in Malaysia closed last week at 75.5 sen — almost double its historic low of 39.5 sen on March 15 this year, despite posting a net loss of RM2.5 billion for the financial year ended Jan 31, 2018 — as the company continued to struggle with low pricing power and utilisation rates in the industry.

Since undertaking a kitchensinking exercise which saw it recognising RM2.1 billion in impairments for the last quarter, Sapura Energy has rallied to a high of 80 sen last week — gaining 100% in just over a month.

The stock is consistently one of the most actively traded counters on the exchange daily, which enables its major institutional shareholder, the Employees Provident Fund (EPF), to continue selling down its stake at improved share prices.

The retirement fund seems yet to be convinced of a turnaround in Sapura Energy’s fortunes.

It sold 7.3 million Sapura Energy shares between April 11 and 12 this year, according to exchange filings, but still remains a substantial shareholder in the company with a 6.1% stake alongside Retirement Fund Inc, which holds a 6.3% interest.

MIDF Amanah Investment Bank Bhd equities research analyst Aaron Tan said the recent announcement on new work contracts has helped boost its share price slightly, after a bad spell of pricenegative newsflow.

“The company is sitting on a reasonable orderbook and the utilisation rates for its drilling rigs was within market expectations,” Tan told The Malaysian Reserve (TMR).

“There is also clarity on its exploration and production (E&P) segment in terms of its expected capacity and output.”

He said the recent share price rally also partly reflects the higher crude oil price environment.

Most research houses have initiated a ‘Buy’ call for the stock, with MIDF setting a RM1.01 target price — representing a 33% premium to its last closing price of 75.5 sen.

Sapura Energy now has a RM16.6 billion orderbook and US$9.5 billion (RM36.95 billion) tenderbook, with the aim of entering new markets in the Middle East and Africa.

For the E&P segment, the company has secured a final investment decision for its second major upstream gas development in East Malaysia, namely the SK408 gas fields in Sarawak.

This follows the completion of its SK310 B15 development, alongside recent awards to explore E&P opportunities in New Zealand and Mexico.

Gas from the SK408 production sharing contract is due to come onstream in late-2019 and stands to triple production volume from four million to 12 million barrels of oil equivalent.

Tan said the move by the EPF to trim its interest in the company is not necessarily a bad signal to investors as it could be acting on its own mandate and portfolio requirements.

Speaking on its near-term prospects, JF Apex Securities Bhd senior analyst Lee Cherng Wee said Sapura Energy is unlikely to recognise any immediate gains as low capital spending continues to persist in the market.

“There remains a scarcity of jobs in the services side of the market, while the company’s drilling utilisation rates are still low.

“Both the company’s E&C (engineering and construction) and drilling divisions recognised impairments and will no longer be loss-making, but they will not be as profitable as before,” he told TMR.

He added that the company’s E&P business improved, in line with the recovery in crude oil prices, and noted that the bulk of gains will be recognised over the long term as its SK408 contract will only begin contributing late in 2019.

Sapura Energy also announced in January it is looking at the prospective listing of its E&P unit as a separate entity.

Tan said this plan will be a double-edged sword as it allows the company to monetise its assets, but at the possible expense of its remaining business units — namely the E&C and drilling divisions.