Sapura Energy sells 50% stake in Sapura Upstream for RM4b

A JV company, SEB Upstream, is expected to be formed between Sapura Energy and OMV by 1Q19


Sapura Energy Bhd (SEB) has agreed to sell 50% of its wholly owned exploration and production unit, Sapura Upstream Sdn Bhd, to Austrian energy group OMV Aktiengesellschaft AG for RM4.06 billion and use the money to repay debts.

A joint-venture (JV) company, SEB Upstream Sdn Bhd, is expected to be formed between SEB and OMV by the first quarter of 2019 (1Q19).

Sapura Upstream’s enterprise value of up to US$1.6 billion (RM6.72 billion) comprising an equity value of up to US$1.25 billion and debt of US$350 million owed to SEB.

The initial proceeds include US$540 million for 50% shares subscription in Sapura Upstream from OMV and US$350 million for the intercompany debt repayment.

These are immediate proceeds, expected to be raised when the deal is close at the end of first month of 2019.

The parties have agreed to receive up to US$85 million based on occurrences mainly linked to the resource volume in Block 30 (exploration asset) in Mexico, but no time frame for the payment was stated.

SEB president and group CEO Tan Sri Shahril Shamsuddin said the total cash consideration of RM720 million will be used for the company’s debt repayment and RM160 million for working capital.

The JV would partially contribute to the company’s profitability after recording losses for the last three years.

“We are upbeat about returning to the black in the financial year ending Jan 31, 2020 (FY20), fuelled by an increasing orderbook, reduction in annual interest debt and higher oil and gas (O&G) production.

“Along with this JV, we foresee being able to secure more contracts in the Middle East, India, South and Central America, as well as Africa in the next few weeks,” he told reporters at the press conference last Friday after inking a JV agreement with OMV.

According to Shahril, SEB’s orderbook currently stands at RM16 billion that gives the company earnings visibility for the next three years.

“It is currently our period of growth for the right strategies to build our orderbook in the meantime, needing a bigger working capital to execute the huge orderbook,” he added.

SEB has long- and short-term borrowings of RM11.12 billion and RM5.76 billion respectively, as at end-July 2018.

With the company’s recent RM4 billion rights issue, SEB will be able to pare about RM7 billion of its debt.

OMV also agreed for an additional consideration worth US$55 million, plus up to another US$30 million in contingency funds mainly linked to the resource volume in Block 30, Mexico, at the time of taking the final investment decision.

Sapura Upstream has an expected life of field production of 260 million barrels of oil equivalent (boe) and its production and development assets are located in shallow waters off Malaysia.

Its production entitlement in 2017 was 4.1 million boe per annum, from fields in Peninsular Malaysia.

In addition to its O&G assets in Malaysia, Sapura Upstream has access to exploration blocks in New Zealand, Australia and Mexico.

Shahril also said SEB’s production is likely to triple (30,000 per barrel a day) in the next three years from the current 10,000 boe.

“Then, we want to double to up to 70,000 boe per day in just entitlement production by 2023.

“OMV is cash rich, it is a cash machine, so we hope to turn the SEB Upstream JV into a cash machine in the upcoming years,” he added.

OMV CEO and chairman Rainer Seele said energy demand is expected to increase by 20% until 2030 in Malaysia and OMV is taking the opportunity to capitalise on this growing market.

“The cooperation will allow OMV to enter into a partnership with a highly esteemed regional independent company and will support our upstream strategy towards establishing Australasia as a new core region,” he said.

Seele said the acquisition will add attractive reserve volumes to OMV’s portfolio and significant near-term increase in production.

“As Asia Pacific is an attractive growing market, Malaysia will represent OMV’s platform for further regional growth,” he added.

The management of the partnership will be based in Malaysia and there will be equal representation from both sides for the board of directors.

According to the agreement, OMV will fully consolidate Sapura Upstream in its financial statements.

In explaining the management structure of the newlyformed JV, Shahril said he will be there as the chairman.

The CEO will come from SEB, the COO will be jointly appointed by SEB and OMV, while OMV will be appointing its CFO.