KUALA LUMPUR: Dialog Group Bhd has obtained shareholders’ approval to proceed with its plan to invest in two new oil and gas projects in Pengerang, Johor, which are expected to provide long-term recurring income once operational.
The new investment is expected to cost RM2.65bil, to be raised via a combination of internal funds, bank borrowings and conversion of existing warrants.
Dialog executive chairman Tan Sri Dr Ngau Boon Keat said that the strategy to diversify into upstream, midstream and downstream O&G activities has allowed the company to cope with the volatility in oil prices.
He said the investments would be for Pengerang Terminals (Two) Sdn Bhd (SPV 2) and Pengerang LNG (Two) Sdn Bhd (SPV 3) in Johor. Dialog would own a 25% stake in each SPV.
Noting that SPV 2 and SPV 3 were part of its midstream business, he said the drop in oil prices had a positive impact on the midstream and downstream sectors as it lowered the overall costs of processing, manufacturing and producing petroleum and petrochemical products.
However, he stressed that Dialog would continue to maintain one-third contribution from all three of its business sectors going forward in order to adjust to any volatilities in the oil and gas (O&G) market.
“Upstream prices won’t be low forever. In the meantime, our overall business must be positive. We will continue to invest for the long term,” he told reporters after Dialog’s EGM yesterday.
In view of the drop in oil prices since last year, Ngau said that the company’s 2015 revenue forecast indicated that its upstream sector would contribute around 20% while the midstream and downstream sectors would each contribute 40%.
He said Dialog would be raising funds for SPV 2 and SPV 3 through a mixture of internally generated funds, equity conversion from its warrants and bank borrowings, adding that its net gearing currently stood at around 0.2 times.
“It is expected to increase to up to 0.6 times over the next four years. This gearing ratio is something we are comfortable with because we know they are long-term recurring income projects,” he said.
Group chief financial officer Zainab Mohd Salleh said that assuming a 70:30 debt to equity ratio, Dialog would be required to raise approximately RM800mil.
Dialog owns 46% of the Phase 1 project, Pengerang Independent Terminal, which is one of the main catalysts in the development of the country’s largest petrochemical complex, Pengerang Integrated Petroleum Complex (PIPC).
Besides Pengerang, it also has petroleum and petrochemical storage terminals in Kertih and Tanjung Langsat, which Ngau said currently enjoyed a combined high utilisation rate of over 90% with a total storage capacity of 2.3 million cu m.
SPV 2’s construction and development of the RM6.3bil Pengerang Terminal Phase 2 Project is expected to be undertaken over three years and commissioned in line with the refinery complex by 2019.
SPV 3’s construction and development of the RM2.7bil Pengerang LNG Project is expected to be undertaken over four years, with the regasification terminal expected to achieve commercial operations by the fourth quarter of 2017.
As for future projects at Pengerang, Ngau said Dialog was still studying the possibilities and hoped to build more terminals as the market grew in future.