ALMATY: Oil and gas (O&G) exploration and production company Reach Energy Bhd is seeking to diversify into downstream business and preparing to increase oil production in the Republic of Kazakhstan starting next year.
Chief executive officer Shahul Hamid Mohd Ismail said it is timely for the company to venture into the downstream business given that the activities of its only asset - Emir Oil LLP involved in the upstream segment has been nearly two years.
“The reason why I used the word diversify is because I have a vision of making the company venture into the hydrocarbon value chain,” he told NST Business in an interview here, recently.
Reach Energy is currently focusing on exploration and production of oil and gas.
Shahul said venturing into downstream activities would mean the company being involved in the refining of petroleum crude oil as well as the processing and purifying raw natural gas.
Most oil companies, he added, tend to stay in the upstream activities instead of venturing into the other side of the O&G business.
Reach Energy has full control of Emir Oil, an 850.3 sq km onshore oil and gas exploration and production field located in Mangystau region, Kazakhstan since May 2017.
The company bought 60 per cent stake of its first and only asset in Palaeontol BV, the previous owner of Emir Oil for US$175.9 million.
The remaining 40 per cent stake is currently owned by MIE Holdings, a listed company in Hong Kong.
Shahul said Reach Energy has no plans to venture into offshore activities as it presents major risk and very high cost for the company.
Instead, he said the company is gearing up to increase its oil production up to 8,000 barrels per day (bpd) by next year and up to 20,000 bpd by 2021
Currently, Emir Oil produces about 3,500 bpd.
Shahul said 30 per cent of the company’s oil production is sold to the local Kazakh market while 70 per cent is exported to Europe by international oil trader.
He also said Reach Energy is expected to be profitable in the current financial year, ending December 31, 2018 given Emir Oil’s projection of increasing oil production as well as the current Brent Crude Oil price of between US$70 and US$80 a barrel,
“Our operating cost is very low, it is all in Kazakhstani Tenge while our revenue is in U.S Dollars. So that is very good for us.
"With that and the current oil price as well as the increase in our oil production, I see positive future in the coming quarters and coming years. That is why I am a bit more confident about our future,” Shahul said, adding that the company’s cash flow is positive.
In the second quarter ended 30 June 2018, Reach Energy posted a net profit of RM11.22 million on the back of RM67.67 million revenue.
In the same period last year, the company recorded a net loss of RM14.53 million on the back of RM40.73 million revenue.
Since January until October this year, Reach Energy’s share price has been hovering between 48 sen and 40 sen.
Last Friday (November 2, 2018), its share price closed at 40 sen on the Main Market of Bursa Malaysia.
The challenge for Shahul currently is to gain shareholders’ confidence in Reach Energy.
He said many of the shareholders are not familiar with the exploration and production industry as well as the oil and gas business in Kazakhstan.
“I constantly give briefings and talk at our shareholder sessions to make them aware that we must venture out and make them realize the potential and value of the business,” Shahul said, adding that Kazakhstan has the 12th largest oil reserves in the world.