Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on December 27, 2021 - January 2, 2022

IN 2018, when Sapura Energy Bhd announced a cash call of RM4 billion — RM3 billion from a five-for-three renounceable rights issue at 30 sen apiece, and RM1 billion from a two-for-five renounceable rights issue of new Islamic redeemable convertible preference shares (RCPS-i) at 41 sen each — the general consensus was that things would get better at the diversified oil and gas company once the funds filtered in.

Sapura Energy was, after all, a company with a market capitalisation of RM28.5 billion at one time — a true giant behind only Italian oilfield services company Saipem SpA in terms of market value.

Sapura Energy boasted a global reach and assets to boot, having acquired Seadrill Ltd’s fleet of tender rigs for US$2.9 billion and offshore production assets of Newfield Exploration Co for US$898 million. Both these huge acquisitions were undertaken in 2014.

Adding credence to the cash call back then was Permodalan Nasional Bhd’s (PNB) commitment to take up the unsubscribed rights shares. This resulted in the state-controlled unit trust outfit’s stake ballooning to 40% from 12.6%, making it the largest shareholder.

PNB sunk some RM2.68 billion into the company, which although merely a fraction of its assets under management of RM338 billion, is still a sizeable sum.

Three years down the road, and things have yet to pick up at Sapura Energy. Its share price of 41 sen when the cash call was made is now only about a tenth, or a record low of 4.5 sen, which translates into a paltry market cap of RM719.06 million. Its net asset per share at the time of the cash call was RM1.60 but has tumbled to 43 sen.

Consequently, Sapura Energy is trading at about a tenth of its net asset per share.

Owing to its intractable issues and incessant bleeding, Sapura Energy is a notable mention for this year’s turkey of the year award. Even so, it does not bag the top turkey award — that distinction goes to Serba Dinamik Holdings Bhd, owing to its disputed accounting issues and long-drawn tussle with the regulators.

Unfortunately for Sapura Energy and its shareholders, its performance continues to be dismal. The company suffered losses in the last four consecutive quarters and, for its nine months ended October, bled a whopping RM2.28 billion from RM3.67 billion in revenue, despite significantly higher oil prices of close to US$75 per barrel (from US$85 in mid-October).

According to Statista — a German company specialising in market and consumer data — Brent Crude’s October 2021 price was the highest monthly average since 2014.

While many other oil and gas companies have clawed their way back to profitability, Sapura Energy remains in the doldrums, its cash as at end-October amounting to RM589.63 million, while short-term debt commitments stood at RM10.73 billion.

In March, it restructured RM10.3 billion worth of debt, extending the loan period by seven years and making its debt servicing more manageable.

Even so, its finance costs for the nine months ended October was a staggering RM398.84 million. Annualised, the company’s finance costs amounted to RM531.79 million. Accumulated losses have also swelled to some RM6.91 billion.

Commenting on its prospects, Sapura Energy says, “Despite the strengthening of oil price, the recovery for the oil and gas services and equipment sector is still muted. This is due to the ‘lagging effect’ between the increase in oil price and project sanctions by oil and gas companies. This lagging effect is also impacted by the significant redirection of capital expenditure by major oil and gas players to renewables. In addition, the Covid-19 pandemic continues to negatively impact project execution and financial performance. Sapura Energy expects these conditions to remain for the rest of the financial year.”

A market scuttlebutt has indicated that there is likely to be another impairment for FY2022 ending January, and that shareholders should brace for another round of capital injection or, rather, yet another cash call. But this remains conjecture at press time.

Sapura Energy’s operating expenses for the nine months ended October was RM4.93 billion, up almost 50% y-o-y from RM3.3 billion.

Sapura Energy CEO and executive director Datuk Anuar Taib is a respected oil and gas veteran, having been the No 2 in national oil company Petroliam Nasional Bhd and, before that, the chairman of Shell’s companies in Malaysia in 2010. Sapura Energy’s board has been revamped and consists of big names in the industry.

Many say the issues at Sapura Energy stem from previous president and managing director Tan Sri Shahril Shamsudin, who retired in March 2021 after leading Sapura Energy and its predecessor SapuraCrest Petroleum Bhd since July 2003, or for 18 years.

There are questions aplenty as well as criticism of Shahril’s aggressive management style. He also comes in for a lot of flak for his high remuneration package — RM71.92 million in FY2018 and RM84.24 million in FY2017 — reasonable perhaps by global standards but excessive from a Malaysian perspective, particularly in a low oil price environment and if the company’s performance is dismal.

Adding to that are the murmurs of issues surrounding royalty payments to Shahril of RM10 million a year for the use of the name “Sapura”.

But can Shahril be blamed for the issues at Sapura Energy, as it has been about nine months since he left the company? Put another way, nine out of the 11 directors have been with Sapura Energy for more than a year now, so there has to be some accountability by the current board if the bleeding persists.

While some remain hopeful that its star-studded board and management will finally get a grip on things and turn the company’s fortunes around, many in the industry are less confident of a turnaround, as they contend that Sapura Energy is past the point of no return and headed down a slippery slope.

 

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