KUALA LUMPUR: Sapura Energy Bhd is upbeat about returning to the black in the financial year ending January 31, 2020 fuelled by increasing orderbook, reduction in annual interest debt and higher oil and gas (O&G) production.
Its president and group chief executive officer Tan Sri Shahril Shamsuddin said the company could secure more contracts in the Middle East, India, South and Central America as well as Africa in the next few weeks.
Sapura Energy's orderbook currently stands at RM16 billion that will give earnings visibility for the next three years.
"We are in a period of growth with right strategies to build our orderbook. We also need working capital to execute huge orderbook," Shahril told reporters after the signing ceremony between Sapura Energy and OMV Aktiengesellschaft (OMV AG) here today.
Shahril said it was vital for an O&G company to have a proven track record (experience and expertise), while generating earnings and enhancing its capability to mitigate risk that is prevalent in the industry.
Sapura Energy is expected to close a joint-venture (JV) deal with the Austrian integrated O&G company OMV AG by January 31 next year. The latter is buying a 50 per cent stake in Sapura Energy's subsidiary, Sapura Upstream Sdn Bhd for US$975 million.
The initial proceeds include US$540 million for 50 per cent shares subscription in Sapura Upstream from OMV AG and US$350 million for the inter-company debt repayment.
These are immediate proceeds, expected to be raised when the deal is close on January 31 next year.
Additionally, the parties agreed to receive up to US$85 million based on occurrences mainly linked to the resource volume in Block 30 (exploration asset) in Mexico.
Of the total proceeds, Shahril said RM720 million will be used for Sapura Energy's debt repayment and RM160 million for its future working capital.
He said the JV would also partially contribute to the company's profitability.
Once the deal is completed, Sapura OMV Upstream will be established as the JV company that will be held 50:50 between Sapura Energy and OMV AG.
"We believe this partnership will create sustainable growth for the business, realising synergy from both sides to achieve our vision of creating the largest regional independent O&G company," he said.
With this JV, Shahril said Sapura Energy was expected to substantially reduce its debt to around 0.6 times from the current 1.6 times from RM17 billion to RM10 billion, after including proceeds of the RM4 billion rights issue and US$720 million.
"We can have a cost-saving of over RM300 million in interest debt annually," he said.
OMV board member upstream and deputy chairman Johann Pleininger said the acquisition would add attractive reserve volumes to the company's portfolio and significant near-term increase in production.
"Asia Pacific is an attractive growing market. Malaysia will represent OMV's platform for further regional growth," he added.
Pleininger said OMV AG would capitalise on the growing market in the region, citing that O&G demand was expected to increase by 20 per cent until 2030 in Malaysia.
"Sapura Energy is our partner of choice, compared to other independent O&G companies in the region.
"We found that Sapura Energy has the best visibility of cash flow and quality of asset," he said.
The partnership would also allow OMV AG to support its upstream strategy towards establishing Australiasia as a new core region.
The JV managerial control will be given to Sapura Energy for the chairman and chief executive officer positions, while chief financial officer will be under OMV.
Shahril said Sapura Energy's O&G production is likely to be tripled (30,000 per barrel) in the next three years from the current of 10,000 barrel of oil equivalent.
The JV also allows Sapura Energy to develop its human capital and technological capability in O&G sector.