Reach sees turnaround by year-end on better oil prices

Shahul: ‘In 2018, we expect crude oil prices to go above US50 per barrel.’

KUALA LUMPUR: Oil and gas (O&G) exploration and production company Reach Energy Bhd is expecting a turnaround by the end of this year on higher oil prices.

Chief executive officer Shahul Hamid Mohd Ismail said the company plans to increase production to between 4,000 barrels of oil per day (bopd) and 5,000 bopd by the end of the year.

Reach Energy produced an average of 3,301 bopd and 5.6 million standard cubic feet of gas per day last year.

“Our sales revenue is dependent on the crude oil price and our production cost per barrel is US$25.

“In 2018, we expect crude oil prices to go above US$50 per barrel.

“Most projections, including the World Bank’s, indicate that the oil price is on the path to recovery.

“Hence, we believe that our investment in Kazakhtan’s O&G industry will prove beneficial to our shareholders in the long run as we look at how the country’s exports will likely increase in the near future,” Shahul told reporters after its AGM.

Reach Energy sells four-fifths of the Emir-Oil field production in US dollars, with the remainder sold domestically in Kazakhstan denominated in Kazakhstani tenge.

Apart from that, Shahul said there is potential for a decrease in production cost.

He explained that the cost per barrel comprises lifting cost or operational cost, logistics cost, as well as taxes paid to the Kazakhstan government.

Reach Energy has plans to construct an oil pipeline due for completion by end-2018.

The construction cost for the pipeline amounts to an estimated US$30mil to US$35mil, and will be funded internally.

Post-completion of the pipeline, logistics costs will be reduced, as the barrels are currently transported by way of trucks and railway.

Shahul shared that the company was in talks with the Kazakhstan government to negotiate the mineral extraction tax.

If successful, Reach Energy will see a further reduction in cost per barrel.

Reach Energy has a total of 32 proven and probable reserve wells, of which 14 have started production.

Going forward, the company will gradually open up more wells.

“Our current contract expires in 2026 and there is potential to extend (the contract), as the reserves can go beyond 2026,” said Shahul.

To date, Reach Energy has reserves amounting to 95 million barrels.

As for the proposed placement exercise, Reach Energy has not arrived at a decision and is in the midst of considering all available options.

On May 23, 2016, Reach Energy proposed a placement of new ordinary shares in the company to raise up to RM180mil.

The Securities Commission has approved Reach Energy’s application for an extension of six months up to Aug 22, 2017, for the company to implement the proposed placement.

Reach Energy recorded a net loss of RM17.76mil during the first quarter of the financial year ending Dec 31, 2017.

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