Sapura Energy - Sapura T-17
PETALING JAYA: Sapura Energy Bhd
needs to sustain high earnings levels while pursuing its “reset plans” to address its unsustainable debt and outstanding obligations to trade creditors, says a research outfit.
UOB Kay Hian (UOBKH) Research noted the primary sentiment influencing Sapura Energy’s share price should not be solely attributed to the sentiment around high oil prices and the increasing global oil and gas asset values or charter rig rates for the fourth quarter of 2023 (4Q23).
“Rather, it is more crucial for Sapura Energy to generate high earnings before interest, tax, depreciation and amortisation (ebitda) levels for its reset plans, complete the SapuraOMV Upstream Sdn Bhd divestment and have a white knight’s entry, which may be challenging in today’s fragile global economy,” the research firm noted in a report on the cash-strapped PN17 company.
The research firm pointed out that Sapura Energy’s ebitda must remain steady to generate RM4.75bil to pay off debt.
“This plan is from a combination of a RM1.8bil injection from a white knight (but the identity and the outcome are still unknown), an indicative RM2.3bil sale of the upstream associate unit SapuraOMV, and continuous ebitda of RM250mil a year,” it wrote.
According to UOBKH Research, Sapura Energy benefited from a RM208mil repayment of shareholder advances, likely for a Brazilian joint-venture (JV) project, and this may be one-off relief against poor ebitda for 2Q24 (ended July 31).
Sapura Energy nevertheless announced it has secured a US$300mil (RM1.4bil) contract from Azule Energy Angola BV for a gas complex in Angola, Africa – the Angola Northern Gas Complex (NGC) project.
The research house added that the engineering and construction activities associated with this project are anticipated to extend until the conclusion of the financial year ending Jan 31, 2026.
Regarding Sapura Energy’s existing order book, the research firm said about RM4.1bil was attributable to JV projects, and over 60% of the portfolio represents overseas ventures.
Additionally, tender rig rates are catching up after a prolonged lag behind jackup rigs and drillships.
Despite a year-long industry tightness, tender rig rates, for which Sapura Energy holds over 50% global market share, only surged recently.
“A very recent tender rig contract awarded was for E-Drill’s tender rig T-15 for PTTEP Thailand.
“At its contract value of US$120mil, this indicated a high dayrate of US$110,000, even far exceeding Velesto Energy’s average rig rates of US$94,000 in 2Q23, and this gives hope for negotiations of future tender rig rates,” the research house noted.
However, it highlighted that while Sapura Energy has successfully divested one rig, likely T-19, and currently operates a 10-rig fleet, the utilisation rate isn’t yet at 100%.
“Reliable channel checks confirmed that tender-assist rig T-9 had been demobilised in August and in mid-September the rig had reached the Dermaga Barat West Wharf in the Kemamam Supply Base,” it added.
T-9 is expected to be unavailable for a few months due to rig stacking and maintenance, resulting in the utilisation of only nine of the company’s 10 rigs in 3Q24.
UOBKH Research has retained a “hold” call on the stock with a diluted target price of four sen a share.
“Even though the 2023 equity deteriorated substantially to a loss of 16 sen per share, our valuation already assumes a successful scenario of the white knight’s entry and SapuraOMV sale, to raise proceeds of RM4bil, of which an assumed RM2.3bil is the minimum price for the SapuraOMV valuation,” it said.
