Sumatec to expand production despite low oil prices

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KUALA LUMPUR: Sumatec Resources Bhd has no plans to diversify its businesses. The company will continue to focus on exploration and production despite the sharp fall in crude oil prices, said chief executive officer Chris Dalton.

He said Sumatec (fundamental: 2.4; valuation: 0.9) will drill more oil wells to expand its production capacity.

Dalton was speaking to reporters after the company’s extraordinary general meeting (EGM) yesterday.

Presently, Sumatec is in a joint venture with CaspiOilGas (COG) and Markmore Energy (Labuan) for the exploration of Rakushechnoye oilfield in Kazakhstan, which has five wells. In addition, the new asset Buzachi Neft, which Sumatec is acquiring from Borneo Energy Oil Ltd, has seven oil wells in total.

Dalton said the company is planning to increase its oil wells to 26, from 12, by year-end.

To achieve its objective, Sumatec has set aside some US$20 million (about RM72.8 million) for capital expenditure (capex) this year for oilfield development.

The total capex is expected to increase from US$30 million to US$40 million in the next year.

“We are planning to increase our production capacity, especially the new asset we are acquiring,” Dalton said. This is to offset the drop in revenue from the Rakushechnoye oil and gas field, probably by 2017.

He said that according to the agreement signed in 2013, Sumatec will have to share its income generated from the oilfield with COG and Markmore should the accumulated production exceed two million barrels.

“We projected that the oil production from Rakushechnoye oilfield may touch two million barrels by 2017. Hence, we need to expand capacity to address the problem,” Dalton said.

At the EGM, Sumatec’s shareholders approved all resolutions tabled, including the acquisition of Borneo Energy Oil Ltd for US$290 million, and the proposed rights issue.

The deal is expected to be sealed by the second quarter of this year, and start contributing to the company’s earnings by next year.

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This article first appeared in The Edge Financial Daily, on April 9, 2015.