SAPURAKENCANA PETROLEUM BHD is said to be close to bagging a US$280 million (RM1 billion) contract from India’s Oil and Natural Gas Corp Ltd (ONGC) for Phase 3 of the redevelopment of the Mumbai High South oilfield, sources say.

The engineering, procurement, construction, installation and commissioning (EPCIC) contract, which entails the fabrication of three new wellhead platforms and clamp-on structures, subsea pipelines and modifications to more than 17 existing platforms, is understood to have been up for grabs in an international open tender.

“It’s more or less theirs [SapuraKencana]. If all goes well, they should officially get the job in a week or two … the two parties are said to be ironing out the minor details,” an oil and gas industry source says, which would indicate that an announcement to Bursa Malaysia is imminent.

Sources say the Mumbai High South oilfield, which is located about 160km northwest of Mumbai in the Arabian Sea, is well developed with an extensive infrastructure of wellhead platforms, process platforms and pipelines.

SapuraKencana president and CEO Tan Sri Shahril Shamsuddin could not be contacted while other officials of the oil and gas company declined to comment.

Nevertheless, news about the contract does not come as a surprise because there was talk a few months ago of some substantial jobs coming the company’s way.

Last month, SapuraKencana (fundamental: 1.3; valuation: 1.4) announced the award of six contracts for the installation of various offshore structures valued at US$269 million or RM969 million in India, Vietnam, Mexico and Indonesia. At the time, there were already rumours about the ONGC contract, which will nudge SapuraKencana’s order book up to an estimated RM27.7 billion.

According to CIMB Research, RM7.3 billion of the order book is expected to be executed in the financial year ending Jan 31, 2016 (FY2016), RM6.5 billion in FY2017 and RM12.9 billion in FY2018 and beyond. “We understand that management targets to clinch another RM1 billion worth of jobs this year to add to the RM6.5 billion revenue it has locked in for FY2017,” its analyst Norziana Mohd Inon says in a mid-May report. She has an “add” call on SapuraKencana and a target price of RM3.14 — a 19.4% premium to the stock’s closing price of RM2.63 last Friday.

“Accumulate SapuraKencana shares,” the report says. “A robust order backlog and good leverage in the international market give the company an advantage over its peers.”

However, the RM1 billion contract may not have much of an impact on SapuraKencana’s bottom line, though it would be welcome in the current tough environment for oil and gas firms.

In FY2015, SapuraKencana posted a net profit of RM1.4 billion on revenue of RM9.9 billion while earnings per share stood at 23.9 sen. In FY2014, net profit was RM1.1 billion on revenue of RM8.4 billion.

In 4QFY2015, SapuraKencana only managed a net profit of RM129.1 million on revenue of RM2.4 billion compared with RM337.2 million on RM1.9 billion in the previous corresponding period.

In the notes to its financial results, the company says, “The global oil and gas industry is experiencing difficult times. Crude oil price saw severe downward pressure in the second half of 2014 and remains volatile. The group’s continued focus on growing its order book, combined with its emphasis on operational efficiencies, will keep it resilient in the ensuing year.

“The board believes the environment for the industry remains challenging in the short to medium term and sees pressure on both revenue and margins.”

From a high of US$115.1 per barrel in mid-June last year, Brent crude had tumbled about 60% to an almost six-year low of US$46.6 in mid-January. Since then, however, it has gained 35% to more than US$60 per barrel.

Low oil prices were brought about by strong shale oil production in the US and a decision by the Organisation of Petroleum Exporting Countries late last year to maintain its production level, which worsened the glut.

In tandem with the challenging outlook, SapuraKencana hit a 2½-year low of RM2.06 last December but had regained about 30% at its close of RM2.63 last Friday. Its market capitalisation stood at RM15.64 billion.

This article first appeared in The Edge Malaysia Weekly, on June 1 - 7, 2015.

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