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KUALA LUMPUR: CIMB Equities Research estimates the contract which Mubadala Development Co. awarded to Sapura Energy
could be US$500mil (RM2bil), which is most significant fabrication job in some time.
The contract involves the engineering, procurement, construction, installation and commissioning (EPCIC) of an offshore integrated central gas processing platform facility for the Pegaga gas field.
The field is in the Central Luconia province, offshore Sarawak, at about 108m water depth.
“We estimate the total contract value to be US$1.2bil, with execution over three-and-a-half years to 3QCY21. This is Sapura Energy’s most significant fabrication job in some time.
“After hitting a recent low of 40 sen, Sapura Energy’s stock is oversold as additional contract wins, the development of SK408, and the listing of its E&P arm could rerate the stock,” said the research house.
CIMB Research maintains Add but lowers its sum-of-parts based target price to 80 sen from RM1.42 as it raises its discount on goodwill in light of the weak drilling charter rates.
To recap, Block SK320 is located 218km off the coast of Sarawak, and is operated by Mubadala Development Co., which owns a 55% stake in the block.
Other shareholders include Petronas Carigali (25%) and Sarawak Shell (20%). SK320 is an important development as it will supply sweet gas with low CO2 and H2S impurities to the Bintulu LNG liquefaction plant. It is also located in shallow waters of only 108m depth.
“As such, SK320, together with Sapura Energy’s SK310 B15 and SK408, which also share the same sweet properties, are relatively cost-effective to extract, and have been prioritised by Petronas for development compared to other fields with high CO2 and H2S impurities like the Kasawari field (SK316) and Sapura Energy’s B14 field (SK310).
“With the continuing decline in production from mature Satu, Dua and Tiga gas fields offshore Sarawak, Petronas will need more gas to sustain its LNG output and exports,” said the research house.
CIMB Research expects Sapura Energy to proceed with the procurement works for the Pegaga CPP soon, with fabrication work to be completed sometime in CY21.
The structure is expected to be sailed to location, installed and commissioned by 3QCY21. Assuming RM0.5bil of the contract value is recognised in FY19F, Sapura Energy’s E&C revenue recognition in FY19F will be lifted to c.RM2.4bil, in CIMB Research’s estimate, moving closer to its full-year assumption of RM4bil.
Sapura Energy may announce the signing of the Gas Sale Agreement (GSA) for the Gorek, Larak and Bakong fields of SK408 sometime this year, as production is expected to begin from 4QCY19 or 1QCY20.
“We expect the terms of the GSA to be roughly the same as that for the currently-producing B15 field.
“Following this, the SK408 PSC contractors will open tender for the three wellhead platforms required on Gorek, Larak and Bakong, as well as the offshore pipeline laying; we expect Sapura Energy to stand a good chance of winning.
“Planned listing of energy arm could pare down debt SAPE is working towards the listing of its energy arm,” it said.
CIMB Research said the media reported that Sapura Energy is looking at a valuation of RM7bil, versus it internal valuation of RM5.5bil.
“Assuming that the valuation lands at RM6bil and Sapura Energy sells a 30% stake, proceeds of RM1.8bil can be used to prepay group debt and ensure that Sapura Energy will have minimal debt repayments until FY23. This should ease the concerns of many investors we have spoken to,” said the research house.
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