Publication Source: The Star Online

Despite a view that many Malaysian oil and gas (O&G) companies are not out of the woods yet following the 2014 collapse in oil prices, investor interest in some companies remains strong.

Take the case of Sapura Energy Berhad. This week, a block of 384,969,500 shares crossed hands.

According to its filing with Bursa Malaysia on Thursday, Tan Sri Mokhzani Mahathir ceased to be a substantial shareholder after selling close to 385 million shares in the company on Nov 7.

Based on the stock’s closing price on the day, Mokhzani is expected to have gained RM578mil in proceeds from the share sale via his British Virgin Islands-registered private vehicle, Khasera Baru Ltd.

In short, they are likely to have been drawn by the perception that the ringgit now has more upside, and secondly, the rising price of crude oil.

Bankers familiar with the placement say these factors played a significant part in the sale of Mokhzani’s block of shares.

“The sale was not just about how good the company is. The investors are looking to take a bet on the ringgit, and apart from that, the oil price is on an uptrend,” the banker says.

In terms of the outlook for crude oil, some analysts have forecast that the Brent crude price will be at a conservative US$55 per barrel in 2018.

A recent report by DBS Group Research on the sector notes that Brent crude oil prices have recently breached the key psychological mark of US$60 per barrel, while the year-to-date average Brent crude oil price in 2017 is up about 18% from the 2016 average to about US$53 per barrel.

The research house says it remains optimistic on the direction of oil prices, and has raised its average Brent crude oil price forecast for 2018 by US$5 per barrel to between US$60 and US$65 per barrel.

“This is supported by the robust oil consumption demand year-to-date in 2017, which coupled with Opec’s adherence and likely extension of the production cuts, has led to steady inventory drawdowns globally,” it says.

Back to the latest deal, it is also notable that the shares were sold at a huge discount to market at RM1.42 per share.

Two-thirds of the deal were allocated to “government long-only and multi-strategy funds”, while a third of the shares went to a domestic asset manager, of which the top-five accounts were allocated around 70% of the deal.

Based on the price of RM1.42, the deal was at a discount of 12.3% to the stock’s closing price of RM1.62 on Nov 1, and worth RM865.15mil.

Prior to the latest deal, Mokhzani, whose journey with the company began way back in 2012, has steadily been reducing his stake in Sapura Energy over the years.

In 2012, Mokhzani and Tan Sri Shahril Shamsuddin, who are childhood friends, merged their businesses – Kencana Petroleum Bhd and SapuraCrest Petroleum Bhd – to form SapuraKencana Petroleum Bhd (SapKen), which is now known as Sapura Energy.

At the time, SapKen became the biggest privately owned integrated O&G company in the country.

In February 2014, just four months before the collapse of crude oil prices, Mokhzani, via Khasera Baru, sold 190.3 million shares in SapKen at RM4.30 per share, giving him proceeds of RM820mil.

Later in March 2015, Mokhzani and his business partner Datuk Yeow Kheng Chew, better known as K.C. Yeow, resigned from the board of the O&G giant, almost a year after relinquishing their executive position in the company.

Mokhzani, however, had assured shareholders at the time that he was not looking to reduce his interest in the company.

At the moment, Sapura Energy’s other individual-driven shareholder is Sapura Holdings Sdn Bhd – the vehicle of president and group CEO Shahril and his brother, Datuk Shahriman Shamsuddin - which controls about 16% of the company.

Other major shareholders are the Employees Provident Fund, as well as Permodalan Nasional Bhd and its associated funds and the Retirement Fund Inc or KWAP.

Taking a look at the company itself, Sapura Energy continues to operate in a challenging environment, despite seeing an increase in tendering and bidding activities.

Sapura Energy saw its second-quarter earnings decline by 74.2% year-on-year to RM28.9mil, although group revenue only recorded a marginal decline of 1.1% to RM1.66bil.

The bulk of the declines in revenue and earnings stemmed from the drilling and exploration and production segments.

As at July 31, 2017, the company had RM2.23bil in cash and RM1.51bil in borrowings.

In its most recent financial statement, the group says it is focused on strengthening its position in existing markets and expanding into new markets, re-basing costs and improving operational efficiency.

It, however, anticipates the challenging environment to persist.