PETALING JAYA: Uzma Bhd’s joint venture (JV) to undertake works for the onshore Block SK433 field in Sarawak is deemed positive to the former despite the challenges, say analysts.
This is because Uzma can deploy its upstream technical expertise and experience while expanding its earnings base in the upstream oil and gas (O&G) segment.
Although the details of the contract at this juncture is still sketchy, analysts said the Uzma’s proven in-house technologies would put the O&G service provider in good stead for cost optimisation.
Uzma recently announced that the group, together with its JV partner Petra Energy, has received a letter of conditional award from Petroleum Sarawak for works relating to exploration, development and production of petroleum in Block SK433.
PublicInvest Research said: “With expectation that the oil field would carry a lower operating cost, given its onshore location, drilling operations are, however, more challenging for the deeper reservoirs while rigs with higher specifications would be required to test such intervals for more upside potential for hydrocarbon accumulation.
“Nevertheless, Uzma’s expertise and experience covering sub-surface know-how, well services capabilities and production optimisation bodes well for cost optimisation via its proven in-house technologies.”
The research house said the capital expenditure (capex) required for the field development could be a challenge, given Uzma’s tight balance sheet.
As of the third quarter of financial year 2021 (FY21), its net gearing stood at close to 0.88 times with cash of around RM123.6mil.
Furthermore, the group would need to fund capex for its 50 MW large-scale solar phase 4 (LSS4), which could be around RM150mil to RM175mil, assuming the development cost of around RM3mil to RM3.5mil per MW.
PublicInvest, which is affirming its “outperform” call on the stock, is maintaining its target price at RM0.95.
Meanwhile, UOB Kay Hian Research said although no further details (like oil reserves) were revealed, it assumes that the onshore blocks are much smaller than an offshore equivalent, but the operational risks are also lesser.
Although Petra is taking the lead, the research house said both Petra and Uzma have had the expertise of managing O&G fields via risk service contracts (RSC) in the past.
“For the onshore blocks, we do not assume meaningful earnings contribution within our forecast years, given that its early stage of development is unlikely to churn out production volumes so soon.
“There is potential downside risk to our current forecasts, given the impact of the lockdown in delaying O&G activities.
“Nevertheless, Uzma’s non-O&G diversification is starting to bear fruits, potentially offsetting the volatilities of the O&G business, and we included this revenue in our forecasts from FY22 onwards,” it said.