No issue with funding for Kazakhstan oil fields

An aerial view of Phystech

CLIQ says it will come up with the money to develop them

Industry observers have been raising questions on how CLIQ Energy Bhd will fund its proposed development plan for the two Kazakhstan oil fields it intends to buy as its qualifying acquisition (QA).

However, the special purpose acquisition company (SPAC) says funding will unlikely be an issue, as the oil fields will soon be able to fund the capital expenditure (capex) requirements.

On Wednesday, CLIQ entered into a conditional sales and purchase agreement (SPA) to acquire a 51% stake in a special purpose vehicle (SPV), which will comprise the two oil producing field assets in Kazakhstan from Phystech Firm LLP for US$117.3mil (RM433.5mil).

Under the agreement, the two assets will be transferred to the SPV, following which, the SPV will seek to list on the Kazakhstan Stock Exchange.

As part of the agreement, Phystech will inject US$30mil into the SPV to be utilised as working capital financing. Moving beyond that, another US$236mil will be spent on capex to improve the facilities and production of the oil fields.

Phystech wholly-owns and operates the two oil fields (Karazhanbas Northern Field), and hence if approved, the acquisition will see CLIQ having full operatorship of the assets.

Ziyad: ‘Our first year shortfall in capex is only US$30mil. After the first year we will have enough production and cashflow to internally fund future development.’

 

Managing director and chief executive officer Ziyad Elias says the additional capex will be funded internally.

“As you know our first year shortfall in capex is only US$30mil. After the first year we will have enough production and cashflow to internally fund future development,” he tells StarBizWeek.

Part of the deal involves CLIQ paying US$90mil upfront, while the remainder US$27.3mil is deferred to three years after the SPA is completed. Also, its portion of the US$30mil capex shortfall comes up to US$15.3mil, which will mean its total debt will stand at US$42.3mil.

Ziyad says CLIQ has about US$100mil in its trust account, of which US$90mil will be used for the upfront payment for the acquisition. He adds that the balance will be used as working capital at the company’s holding level.

However, the company still has 630.9 million convertible warrants units, which will expire come April 9, 2016. If all warrants are converted come expiry, CLIQ will have a gain of RM315.5mil.

“We are hoping for the warrant conversion of around US$80mil,” he says.

With that, CLIQ would be able to pay off its debts and still have almost US$40mil in cash to spare.

“Even after paying off our debts, we won’t be strapped for cash. We are buying an asset with no liability with minimum debt that won’t constrain our cashflow and our balance sheet,” says Ziyad.

He adds that CLIQ’s investment has an internal rate of return that is well above the stipulated 15% discounted cashflow hurdle rate.

Currently the earnings before interest, tax, depreciation and amortisation (EBITDA) of Phystech are positive, although they have been on a downtrend since 2011.

In the financial year ended Dec 31, 2011, Phystech posted RM39.48mil in EBITDA, while in 2012 it was higher at RM52.9mil. However, in 2013 the company, whose general director is Daribekov Adil Maratovich, saw EBITDA levels fall to RM22.62mil.

EBITDA margins fell from 38.3% in 2011 to 36.11% in 2012 to 17.57% in 2013, as a result of “production inefficiencies”, CLIQ said in its filing with Bursa Malaysia on Wednesday.

It is understood that Phystech’s unaudited third-quarter results stand at RM29.8mil, a sign that things could be turning around for the owner of the 78.8 sq km Karazhanbas Northern Field.

Phystech are CLIQ’s long-term partners, Ziyad adds. “They are not like other vendors that sell their asset, get the money and then run away. They are still shareholders in the SPV, so they will derive the value of the asset together with us. It is what we call a win-win situation,” he says.

If the acquisition is approved by the Securities Commission (SC) and CLIQ’s shareholders, it would see the company graduating from a SPAC to a junior independent exploration and production (E&P) company.

CLIQ will make its submission to SC within two month’s time, and hopes to receive an approval in principle from the regulatory board by the end of September. It will then hold its extraordinary general meeting by the end of October, and are hopeful of completing the acquisition by December.

Ziyad anticipates to be cashflow positive by the end of the third year, and to breakeven by the end of the fourth year. By that time, CLIQ will look at the possibility of paying out dividends, or further develop its business.

“Perhaps we can buy another asset …,” he teases.

Ziyad continues, saying the life of an E&P company is to develop oil fields and then “replenish”. “But our main focus at this time is to deliver this QA,” he adds.

Under the development plan, CLIQ intends to add more oil gathering stations, build oil processing units (OPU), and install the pipeline to connect the OPU to the Kaztransoil pipeline, among others.

Although the fields, which have reserves of 39.5 million barrels, came onstream in 2008, only about 2 million barrels of oil have been produced.

“We consider it as early stage greenfield. We will bring in the capability and experience to improve the facilities and to drill in more wells, improve production and also improve the central processing unit to be able to produce export grade oil,” says Ziyad.

Through the development plan, Ziyad says CLIQ aims to bring down the costs by about US$7 per barrel from around US$12 to US$15 per barrel currently.

There are currently 130 drilled wells at the Karazhanbas Northern Field concession area, but only 90 wells are producing.

Ziyad says CLIQ will reassess the 40 wells that are not producing.

CLIQ intends to increase production from 1,400 barrels per day to 7,500 barrels per day in five year’s time.

The company also plans to add 400 new wells at the onshore shallow reservoir, from 90 wells currently. The Karazhanbas Northern Field covers 78.8 sq km with a drill depth of less than 1,000 m.

CLIQ started assessing the assets in early December 2014 and completed an in-house analysis as well as visited the physical location to “get a feel” of the assets.

“The other aspect is that the fields’ location is not in a very difficult terrain. It would have been different if it was in swampy or mountainous area. It is on relatively flat and firm ground so it is easy to build facilities,” he says.