- Stake sale to boost synergies in upstream segment
KUALA LUMPUR: Sapura Energy Bhd’s decision to divest a 50 per cent stake of its subsidiary to Austria’s OMV AG has been widely seen by analysts as a good move that can provide a much needed boost for the company.
According to a recent report by JF Apex Securities, the deal was positive because it unlocks value of Sapura Upstream, lifts Sapura Energy’s debt burden and creates synergy and development activities.
This is because OMV has upstream assets worldwide with proven reserves of 11.5 billions of barrels of oil equivalent (bboe) and daily production of 348,000 barrels per day.
Sapura Energy recently announced that it was selling a 50 per cent stake in its wholly-owned exploration and production (E&P) subsidiary, Sapura Upstream, to OMV AG for US$890 million (RM3.7 billion) cash.
US$720 million (RM3 billion) will be utilised to repay the company’s debts and US$160 million (RM667 million) will be allocated for working capital. The deal is expected to be completed in the first quarter of 2019.
AllianceDBS was similarly bullish when the deal was first announced in September.
“Sapura Energy has been exploring various avenues to monetise its upstream business, including a separate listing, in order to pare down its borrowings.”
“We view this proposed partnership positively on Sapura Energy as it provides certainty in timing and valuation in its monetisation effort,” said AllianceDBS.
The firm added that combining with the proceeds from the rights issue with the stake sale to OMV, the Sapura Energy management aimed to reduce debt significantly from RM16.4 billion currently to RM9.8 billion and lower its gearing level to 0.62 time from 1.74x currently.
“Management expects this to translate into lower interest cost by RM320 million,” it said.
OMV also agreed for an additional consideration worth US$55 million plus up to another US$30 million in contingency funds mainly linked to the resource volume in Block 30, Mexico.
Sapura Energy will receive minimum cash proceeds of between US$920 million and US$975 million.
The company’s original cost of investment in the assets was US$896 million (RM3 billion), translating to a disposal gain of RM2.5 billion (net of RM39 million proposed transaction expenses). This will be reduced by RM113 million accelerated amortisation of transaction cost arising from the repayment of borrowings.
OMV is one of Austria’s largest public listed industrial companies with sales of 20 billion euros and more than 20,000 employees.
It has a strong presence in Romania and Austria and a balanced international portfolio including the North Sea, Middle East, Africa and Russia as core regions.
Its partnership with Sapura Energy will further boost its portfolio in the Asia Pacific region.
The company’s daily production in 2017 was 348,000 barrels of oil equivalent (boe).
Sapura Energy’s upstream segment has total net reserves and resources of about 253 million barrels (mmbbls) of oil equivalent.
It is targeting to produce gross volume of between 800 and 900mmscfd by 2022.
Other than Malaysian production operations, the company also has exploration in Mexico, Australia and New Zealand.