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The making of Sapura Kencana PetroleumBy TEE LIN [email protected]
The creation of an oil and gas giant hasbegun. SapuraCrest Petroleum Bhd and Kencana
Petroleum Bhd will be going through an RM11.85bil merger exercise to create the largest oil
service provider by assets in the country - soon to be known as Sapura Kencana Petroleum Bhd.
For now, under a cash and share swap deal, a special purpose vehicle called Integral Key Sdn
Bhd would be buying all the assets and liabilities of SapuraCrest for RM5.87bil and Kencana for
RM5.98bil.
This shall be satisfied by some five billion Integral Key shares priced at RM2, and RM1.84bil in
cash.
Integral Key has offered to acquire the SapuraCrest business for RM5.87bil equivalent to
RM4.60 per share. It will acquire Kencana's business for RM5.98bil equivalent to RM3 per share.
At RM2, Integral Key's implied price earnings (PE) is approximately 20 times. The historical PE
multiple of Kencana and SapuraCrest are 28.04 times and 25.41 times respectively.
Working together: Shahril (left) will have an indirect stake of 19.2% in Integral Key while Mokhzani will indirectly hold 16%.
Upon the merger, SapuraCrest's shareholders would collectively hold approximately 49.94%
while Kencana shareholders will own 50.06% in Integral Key.
The head honchos of the newly formed entity are heavyweight personalitiesKencana Group CEO
Datuk Mokhzani Mahathir, who is ranked 15th on Forbes Malaysia's richest man as of 2011 with
a net wealth of US$560mil (RM1.68bil).
Meanwhile SapuraCrest executive vice chairman Datuk Seri Shahril Shamsuddin is Forbes
Malaysia's 17th richest man with a net wealth of US500mil (RM1.5bil).
As of Nov 14, Mokhzani has an indirect 31.7% stake in Kencana via Khasera Baru while Shahril
has a 40.06% stake in SapuraCrest.
Upon the listing, Mokhzani will have an indirect stake of 15.93% in Integral Key while Shahril will
have an indirect stake of 19.2%.
Seadrill Ltd, which is presently a 9.42% shareholder in SapuraCrest will have a direct 11.78%
stake while the Employees Provident Fund will own a 9.2% direct stake in Integral Key.
The next hurdle would be for both companies to secure 75% of shareholders' approval before the
deal could go through.
Shareholders of SapuraCrest will vote on the merger at a meeting next Wednesday while
Kencana shareholders will do the same the next day.
The merged group would have a gross and net gearing ratio of 0.86 times and 0.47 times with
the total borrowings of approximately RM4.44bil.
Prospects ahead
Petroliam Nasional Bhd (Petronas) is moving towards the award of full service contracts instead
of multiple packages domestically. This is in line with the practice in other regional markets
where international contracts are generally put out to tender as one single contract as opposed
to a multi-contract basis.
Petronas spending programme of RM300bil over the next five years includes enhanced oil
recovery and marginal field jobs.
In the small and marginal fields development, there are 106 shallow fields with an estimated 580
million barrels in brown fields. Petronas is keen to develop 25% or 27 of the total marginal oil
fields to replenish its oil reserves and generate new revenue stream.
Petronas has awarded its first Risk Service Contract for the development and production of
petroleum resources from the Berantai marginal oil field to SapuraCrest, Kencana and Petrofac
on Jan 31, 2011.
The partners expect to invest around RM2.56bil in the development and are expected to produce
the first gas by Dec 2011.
“The oil and gas industry offers high growth prospects. The merged entity provides a better
chance of winning larger contracts,” said Jason Yap, an oil and gas analyst with OSK Research.
He views the merger positively, as it makes the combined company larger, and is in line with
Petronas' direction of awarding one huge contract to one company in the future.
“Petronas also wants to build up local companies to become giants. To be able to bid for bigger
contracts, these companies must be of a certain size and have certain assets,”
He says that the focus of Integral Key would likely be towards marginal oil fields in 2012 and
further upsteam in 2013.
He sees 2012 as a marginal oilfield play, while 2013 will see the commencement of deepwater
oilfields such as Gumust-Kakap and Malikai.
Another analyst from a local research also viewed the deal positively, saying that apart from
some overlapping in the drilling segment, both companies did different things and would
specialise in their respective segments.
Size matters
“Size does matter in this game. The merged group will be the biggest service provider in
Malaysia. All oil and gas companies need some form of gearing to grow. In fact, their gearing
level is considered very low when compared with the industry,” said the analyst.
An MIDF analyst believes the companies might continue to focus on the area where their
strength is before the merger.
“They will be able to secure contracts in bigger values rather than be a sub-contractor for a
particular project. There is no need to outsource the fabrication works of a drilling rig to third
parties.”
Kencana's Lumut Fabrication Yard and Labuan Shipyard would reduce the uncertainty of relying
on third-party contractors for fabrication-related activitiesand give Integral Key group the capacity
and flexibility to better serve its customers.
“There is also better cost control, and this reduces the possibility of a delay as Integral Key would
be in charge of the whole project. In addition, they can raise cash through corporate exercises,”
said the MIDF analyst.
Currently, the SapuraCrest group is involved in installation of pipelines and facilities (IPF),
offshore O&G drilling, fabrication, hook up and commissioning (HUC) services, marine services,
operations, maintenance and development; as well as production of petroleum resources.
Huge capacity
The Kencana group's principal business activities include EPCIC services for onshore and
offshore production facilities, modules and process skid systems, marine engineering, HUC
services, provision of drilling and offshore support vessels services, development and production
of petroleum resources and provision of subsea engineering services.
The Kencana group is among the top fabricators of major offshore structures in Malaysia. Its
fabrication yard in Lumut has an annual capacity of 60,000 tonnes with a total yard space of
192.30 acres (including rented yard space of 37.48 acres).
Kencana is one of two licensed fabricators in Malaysia with the capacity to undertake fabrication
contracts for deepwater projects.
The merged group would have a combined annual fabrication capacity of 96,000 tonnes, making
one of the largest fabrication capacity among the domestic licensed fabricators.
For the third quarter to Oct 31, Sapura Crest's net profit was up 51.6% to RM83.14mil on the
back of a 26.54% decrease in revenue to RM745.76mil. On a nine-month basis, net profit was up
47.2% to RM233.71mil on the back of a 22.75% decrease in revenue to RM2bil.
SapuraCrest's earnings were lifted by the expansion of the IPF division's margin.
SapuraCrest recently secured a notable RM4.2bil contract from Petrobas to construct, charter
and operate three units of Pipe Laying Support Vessels (PLSV).
For FY11 ended July, Kencana saw its net profit rise 71% to RM223.1mil from RM136.1mil the
year before, while revenue rose 43.2% to RM1.56bil from RM1.09bil.
On Thursday, Kencana announced that its subsidiary, Kencana HL Sdn Bhd has signed an
agreement with Bechtel International Inc for the fabrication and assembly of structures and
components for a liquefied natural gas processing facility in Australia.
The contract is worth about RM1.07bil and would bring the total outstanding order book to more
than RM3.5bil.
SapuraKencana-Petronas ties unlikely threatened by politics
STORY BY
LAWRENCE [email protected]
SapuraKencana Petroleum’s
(SAKP) ambitions to transform into the world’s 5th biggest oil and gas
service provider would not likely be derailed by politics although a
sizeable portion of its business may be tied to Malaysia’s state oil
company Petroliam Nasional Bhd or Petronas, industry sources said.
SAKP, which is in the process of privately placing out 587 million new
shares at RM2.80 to raise RM1.6 billion to finance a merger with
Norway’s Seadrill, has come under political fire as the 13th general
election heats up. Brokers and analysts said that they expected a lot of
demand for SAKP shares at this discounted price.
“Let the market decide,” one source close to SAKP, who declined to
identified said. “The share price would show it if there is a perceived
problem.”
In a political rally in Perak, opposition leader and ex-deputy prime
minister Anwar Ibrahim threatened to retract oil contracts awarded by
Petronas to SAKP if he gains power in the 13th general elections.
This was seen as a retaliation against Anwar’s rival, former prime
minister Mahathir Mohamad. Mahathir’s son Mokhzani is the executive
director and vice chairman of SAKP. Shahril Shamsuddin is the
company’s president and CEO and often seen as its key driver.
A Hong Leong Investment Bank (HLIB) analyst noted that political risk
has long been factored in.
“Perceived political connection is holding back price… with any election
period, perceived political risk on SapuraKencana may result in share
price weakness,” Samsukri Glanville Mohammad noted, in his report
titled “Selling holes is a great business.”
HLIB recommended a BUY on the share with a 12-month target price of
RM3.94.
“Dips and emotional selling are a chance to accumulate and build a
sizeable position further in a company with excellent track record on
execution and ability to secure contracts,” Samsukri noted.
Analysts said that SAPK’s business in Malaysia now makes up as much as
38 percent of its orderbook and was shrinking as it aggressively heads
overseas. The company was recently tipped to win a new RM7 billion
contract from Brazil’s Petrobras to provide offshore service vessels.
Anwar Ibrahim
Anwar did not specify what SAPK contracts were under fire but news
reports said he could be referring to a RM800 million (RM2.5 billion)
Risk Service Contract awarded in 2011 to service the Berantai gas field,
offshore Terengganu. The terms and conditions of the RSC have not been
fully spelt out since.
“Yes, not a lot of terms about the RSC contracts are known… the level of
disclosure is not very high,” one analyst with a local investment bank,
who declined to be identified said.
“But you cannot say that SAKP has no merit. It has been working with
foreign partner Petrofac even before getting the RSC award.”
According to reports, the Berantai RSC was awarded to UK’s Petrofac via
open tender, which subsequently roped in a pre-merger SapuraCrest
Petroleum and Kencana Petroleum to hold a 50 percent stake.
Under the RSC aimed at recovering hydrocarbons from marginal fields,
Petronas would take on all oil price risk and bear the full cost of
development and production. The initiative was also backed by tax cuts.
The Berantai development was expected to last 8 years.The contract
holders however have to meet certain key performance indicces before
getting a fixed share of the profits and all investment cost back from the
recovered oil and gas.
Petronas has
explained that this was done to attract developers as marginal oilfields
are only profitable if the oil price stays at US$50-60 a barrel and above
and if oil can be extracted within two years, faster than deepwater
exploration also now being carried out by the oil majors.
The Berantai oilfield started producing gas in October last year. For the
FY14, SAKP was expected to record RM40 million in profit from the
contract and RM75 million in FY15, analysts said. This is about 4 percent
contribution, if based on the company’s pre-tax profit of RM829 million
last year. SAKP’s profits is expected to rise to RM1-1.3 billion over next
two years.
With the Seadrill deal on track for completion by end April, FY14 is going
to see a boost of 84 percent to earnings per share (EPS) even after
accounting for the higher share base, Alliance Research said. Alliance
said it expects SAKP to post a 4-year EPS compounded annual growth
rate (CAGR) of 43 percent underpinned by new overseas business.
Analysts said besides the RSC, Petronas also contracts SAKP’s offshore
vessels and support services as it was an established player in Malaysia’s
upstream sector. The company has a market cap of close to RM15 billion
and is due to be included in the FBM KLCI index of Malaysia’s top 30
companies.
Analysts also questioned how
a contract, which was already a work in progress, could be reversed.
“The fields are already producing” one analyst, who declined to be
identified, said. “They cannot just go on a witchhunt. What about the
other contractors?”
Besides SAKP, Petronas has also awarded RSCs to foreign-local
consortiums consisting of Dialog Group and Petra Energy. Both RSCs are
in pre-development stage and contracts are also worth up to RM2 billion
each.
Although it is huge business for most of Malaysia’s burgeoning oil and
gas service companies, the RSC plays represent a small part of Petronas’
announced capex of RM300 billion from 2011-2015, most of it to boost
upstream oil exploration and production.
SAPK share price traded 3 sen higher at RM3.10 on Friday midday
despite news that its shares would be diluted by the new placement at
RM2.80. The company was executing a plan to buy Seadrill’s rig tender
business for US$2.9 billion (RM8.9 billion) to be partly backed by new
share issues and also new debt.
“We also understand appetite for the placement was strong despite the
looming election and placement was made to value investors,” HLIB’s
Samsukri said.
At least 10 analysts from local brokerages and investment research
houses have recently issued a BUY call on SAKP shares with price targets
ranging from RM3.70 to RM4.20. SAKP’s share price has risen by about
50 percent in the last one year.
(The Edge) - Sapura Group president and chief executive officer Datuk Seri Shahril Shamsuddin will be the
president and group chief executive officer of the merged SAPURACREST PETROLEUM BHD and KENCANA
PETROLEUM BHD.
According to documents sighted by The Edge FinancialDaily, Sapura group chairman Datuk Hamzah Bakar will
be the chairman of the new board while Kenaca’s executive chairman Datuk Mokhzani Mahathir will be
appointed the executive vice chairman.
Both the president & group CEO and executive vice chairman will report directly to the board.
Currently, the integration committee for the merger exercise is jointly chaired by Shahril and Mokhzani.
Both companies will be seeking shareholders’ approval at an EGM on Dec 14 for the proposed merger. The
Securities Commission has already given its go-ahead for the merger.
In July, the petroleum-related companies announced the merger which would be undertaken by Integral Key Sdn
Bhd (IKSB), a special purpose vehicle. IKSB had then made a RM11.85-billion offer to acquire all their assets
and liabilities in a share swap. The merger of equals will have a combined market capitalisation in excess of
RM10 billion.
According to the documents, Shahril said the integration committee was set up to achieve a successful merger
and to formulate the strategic direction of the new merged entity moving forward.
He had also said that it is “critical that we put in place a strong and dynamic organisational structure that would
ensure business continuity and realisation of the synergies we hope to derive as a merged entity. I would like to
assure each and everyone of you that you will continue to be an important part of the new organisation moving
forward”.
Xxxxxx
2 Malaysian oil & gas firms in RM12b merger12 July 11 The Business Times by Pauline Ng in Kuala Lumpur
SAPURACREST Petroleum and Kencana Petroleum have proposed a RM12 billion (S$4.9 billion) merger to form a full-fledged integrated oil and gas company capable of undertaking more complex projects with a view to capturing a larger slice of Malaysia's booming oil and gas work.
The assets and liabilities of both companies are to be acquired by special purpose vehicle Integral Key Sdn Bhd (IKSB) which will be listed following the completion of the deal, according to a filing to the exchange yesterday by Sapura and Kencana.
Analysts have described the deal as 'definitely a win-win' since the larger integrated entity will be able to provide a wider range of services. 'The deal is good because it will be bigger and there will be no duplication of operations since both do not share the same business,' an analyst said. Kencana is mainly involved in fabrication while Sapura does off-shore work including rigs and pipe-laying.
The merger will result in the country's biggest oil and gas player - bar national oil company Petronas - and see the teaming up of two of Malaysia's richest bumiputra families.
Kencana is headed by Mokhzani Mahathir, son of former prime minister Mahathir Mohamad while Sapura, formed by Shamsuddin Abdul Kadir, is currently helmed by his son Shahril. Mr Mokhzani and Mr Shahril rank in Malaysia's top 20 richest.
Analysts estimate the Shamsuddin family will own slightly over a fifth of IKSB, and Mr Mokhzani about 16 per cent. Norwegian rig contractor Seadrill will also end up a substantial shareholder given its current 23.6 per cent stake in Sapura. An integration committee will be established and will comprise representatives of IKSB, Kencana and Sapura.
Under IKSB's cash and share swap offer, the SPV is offering RM5.87 billion or RM4.60 per share for Sapura to be satisfied by the issuance of 2.498 billion new IKSB shares at an issue price of RM2 apiece and a cash payment of some RM875 million. It translates to 68.5 sen cash and RM3.915 of IKSB shares per Sapura share.
Kencana shareholders were offered RM5.98 billion or RM3 per share. In return they will be issued 2.505 billion new IKSB shares at an issue price of RM2 apiece and RM968.7 million in cash, or 48.6 sen cash and RM2.514 of IKSB shares per Kencana share. Both companies will be delisted after the new shares and cash are distributed. The offer is open for acceptance until 15 Aug.
The oil and gas sector has been the biggest beneficiary of Malaysia's economic transformation programme, with major projects planned as part of the government's efforts to transform into a high income economy by 2020.
Among projects underway are one by Petronas to develop a refinery and petrochemical integrated development in southern Johor at a cost of US$20 billion, the complex is expected to be completed by 2016. Also in Johor, Dialog and its partner Vopak are building an independent deepwater petroleum terminal with the first phase having an initial storage capacity of 1.3 million cubic metres and expandable by an additional one million cbm. It is expected to be commissioned in 2014.
Cccccc’
Proposal to merge SapuraCrest, Kencana | 0 comments ]
The merged SapuraCrest-Kencana entity is expected to have a market capitalisation of RM10 billion as
well as some RM6 billion worth of assets.
Maybank Investment Bank Bhd (Maybank IB) and CIMB Investment Bank Bhd have joined forces to entice
SapuraCrest Petroleum Bhd and Kencana Petroleum Bhd to merge and create the largest local oil and gas
service provider by assets.
The merged entity is expected to have a market capitalisation of RM10 billion as well as some RM6 billion worth
of assets.
A special purpose vehicle, Integral Key Sdn Bhd (IKSB), yesterday offered to acquire the assets and liabilities of
SapuraCrest and Kencana Petroleum in exchange for cash and IKSB shares .
The cash portion for SapuraCrest is RM875 million or about 14.9 per cent of the deal, while for Kencana the cash
portion is RM969 million or 16.2 per cent of the deal.
Under the proposed deal, Sapura-Crest and Kencana Petroleum will have equal share in IKSB, while IKSB will
maintain the listing status of only one of the two companies.
The other will be delisted from the stock exchange.
The deal values SapuraCrest at RM5.87 billion, or RM4.60 a share, and Kencana Petroleum at RM5.98 billion, or
RM3 a share.
SapuraCrest and Kencana's last traded prices prior to their suspension yesterday were RM4.49 and RM2.80
respectively.
"We believe the proposed merger is timely, in light of the investment cycle in the oil and gas sector, especially in
exploration and production activities (upstream). Both SapuraCrest and Kencana Petroleum have commendable
individual capabilities and competencies which are complementary across the value chain," Maybank IB's chief
executive officer Tengku Datuk Zafrul Tengku Abdul Aziz said.
CIMB Investment executive director Datuk Charon Mokhzani and legal adviser Kadir Andri & Partners partner E.
Sreesanthan were also present at the press conference.
For the deal to go through, 75 per cent of the shareholders of the two companies, respectively, must approve the
offer.
SapuraCrest's major shareholder chief executive officer Datuk Shahril Shamsuddin and Kencana Petroleum's
chief executive officer Datuk Mokhzani Mahathir have thus far expressed interest in the deal.
Shahril owns a direct and indirect stake of 40.1 per cent in SapuraCrest through Sapura Holdings Sdn Bhd, while
Mokhzani holds a 32.4 per cent stake in Kencana through his interest in Khasera Baru Sdn Bhd.
Kencana, on its part, has appointed AmInvestment Bank Bhd as its adviser and Credit Suisse as its financial
adviser. SapuraCrest, however, has yet to appoint an adviser.
Both parties were approached last Thursday with the proposal.
The board of SapuraCrest and Kencana Petroleum have 32 days to accept the offer before it lapses.
Should the offer obtain both boards' approval, the proposal by Maybank IB and CIMB Investment suggests the
establishment of a merger integration committee to be co-chaired by principal shareholders, Shahril and
Mokhzani.
The committee will work to iron out details of the merger before it is presented to shareholders for approval.
(Business Times)
Xxxxxx
Sapura Kencana Petroleum explores more international markets
AS one of the top five oil and gas service support players in the world,Sapura Kencana
Petroleum Bhd the merged entity between SapuraCrest Petroleum Bhd and Kencana Petroleum
Bhd is geared up to expand its market share internationally.
Below are excerpts of an interview given by the SapuraCrest executive vice-chairman
and president Datuk Seri Shahril Shamsuddin andKencana group CEO Datuk Mokhzani
Mahathir to StarBizWeek's B.K. SIDHU and TEE LIN SAY:
STARBIZWEEK: How did the idea of this merger come about?
Mokhzani: It was the Berantai project that brought us together. In the past, we did our own
things, and tried not to encroach into each other. Then he started encroaching on me. (Laughs)
We were never arch rivals. We had chatted about this possible merger over the last two years.
We felt that the opportunity was now. Shahril:The emotional part of it was like this. One day we
sat down and said: Hey I am 50 and you are 50, and so far we have built something of significant
competence that has an opportunity to grow. Why don't we build entities that transcends who we
are. We are still energetic, so we can still go out there to win jobs, mentor our people and grow
the company.
How long have you known each other?
Shahril: Too long! (Laughs). Actually, I first knew his brother. I used to look for his brother when I
was 13 years old.
The shared responsibilities between the two of you. How does that work?
Mokhzani: You're quite right that to try and manage the company with two heads is difficult. We
have split the responsibilities of the company. And I think both of the management and staff are
used to certain ways that each CEO has been running the companies. They need to be familiar
with how things would be after the merger.
So both of us have taken on different roles. I am taking up the role of executive vice-chairman
and Shahril will be group CEO and president. We have shared responsibilities. But I will take on
treasury, corporate finance and a lot of the internal audit, corporate communications and a few
other things. And he will handle the corporations of the subsidiaries and the joint-venture
companies.
What is the percentage of overlap in terms of your businesses?
Shahril: There are overlaps. But the overlaps are minor. When they are, they actually reinforce
one another. Kencana has drilling, we have drilling. The drilling companies would be managed
separately. They are at different stages of developments. It gives us leverage over management.
We need critical mass in order to manage these assets.
So there are overlaps where one is stronger than the other. In those cases, we just have to
decide which is the better one. Together we will say, if one is stronger, we let the stronger one
lead.
We have one side of the spectrum where we totally have no overlap, Kencana is strong in
fabrication, SapuraCrest is strong in installation and design. One has design for engineering
installation, the other has design for fabrication.
If you have a list of top strength, this merger gives you strength in which top four or five
divisions?
Mokhzani: Fabrication, transport and installation, hook up and commissioning, diving and drilling
When you rank yourself internationally, where are you?
Shahril: No.4 or No.5 globally.
Mokhzani: No companies in the world provide end-to-end solutions. Which is why we are
unique.
Who are the top four and five players?
Shahril: Technip, Subsea, McDermott and Saipem.
Do you provide the whole gamut of offerings now?
Mokhzani: On the upstream, yes.
Shahril: We do not have exploration, this is something that we are consciously not going into
right now. We have now invested in development and production with the Berantai field. This will
also be a core going forward.
Mokhzani: If you look at the core business, Kencana's is in fabrication while SapuraCrest is in
transport and installation. That makes about 50% of its total revenue. In ours fabrication is about
70%. So, this is the strength of the company. In that sense, there is no major overlap. In the
other complementary businesses, some have overlap. But for the time being, they will stand
alone and operate as they are. We will look at how we can rationalise the procurement, the
tenders, and how we can squeeze more efficiency out of these.
With the merger, do you foresee yourself getting contracts much larger than Petrobras?
What are you aiming for after this?
Shahril: We have to be clear in our mind that it is not just about the size of the contract. It's
about profitability and risks. Both companies have sustained itself for more than a decade. One
of the inherent thing about our companies is the way we manage risks. Being a contracting
company, its all about managing risks. We have learnt to do that in the context of international
standards already. Because even today, our clients are international Shell, Exxon, Petronas.
Chevron.
But you are targeting a contract, that is why you did this merger, because you know the
contracts will be much larger?
Shahril: Yes, contracts will continue to move towards EPCIC (Engineering, procurement,
construction, installation and commissioning) and the management of these contracts are costly.
Out of your four to five things that you are very strong in, is there one weak link, but you
must go there?
Shahril: Mindset. Lets be very open here. Mindset of clients. Even more, our own mindset.
You doubt your own capability?
Shahril: No. It is just that we have not realised that we are already global. Independently, we are
already global. Kencana has businesses in five to six countries. One day we woke up and said,
hang on, we are already global. We just did not realise how good we are. Clients give us
businesses because we are good, we deliver our businesses and we are efficient. We had this
mindset because we never looked at ourselves. It was an evolution.
Mokhzani: It takes a lot of time. When we get contracts from Petronas, we are in fact getting
contracts from international players like Shell and Exxon. Our clientele is international. The
standards here are international. In fact, the margins there are better. We are Malaysian
companies that are competent and benchmarked on global standards.
Are you bidding anything internationally now?
Shahril: I just came back from Brazil. Do you know that the budget for oil and gas there is three
times bigger than ours?
Now that you are bigger, will the smaller players suffer, as they do not have the
economies-of-scale to offer lower cost?
Shahril: That's not true. The condition before and after the merger does not change. This is
because we hardly have any overlap. Take fabrication for example. What has changed before
and after the merger? It was the biggest fabrication yard before, and now its still the biggest
fabrication yard, except that now it is also an EPCIC contractor.
When there is more efficiency, isn't that a good thing? Efficiency means lower cost for the
Government. When it benefits the Government, it benefits people like you and me.
Mokhzani: For instance, our fabrication yards are rated and audited. A fabrication yard which is
too small for instance, will not be able to bid for say, a RM1bil job. For us, we do not go down
and bid for the smaller jobs. Big operators won't do that, it simply will not be efficient.
Shahril: What we're trying to say is that with this merger, there is not going to be the crowding
out' effect.
That is not the intention of this merger. We want to squeeze out efficiency, and gain market
share outside of Malaysia. We are only 10 years old. We are the little adolescent going out into
the adult world.
Datuk Shahril, what did your father (Tan Sri Shamsuddin Kadir, the founder of the Sapura
group) say, when you told him about this merger?
Shahril: He was very supportive. Like always, at the end of the day, he leaves the decision to us.
Actually, he said that if I did business with a friend, we could end up quarreling!
Mokhzani: My father (Tun Dr Mahathir Mohamad) said the same thing. (Laughs)
After the merger, what are the projects that you will be looking at?
Shahril: Brazil, Australia and Africa. And in three years, probably the Gulf of Mexico.
What is the priority after this merger?
Mokhzani: It is to bid for more jobs.
Shahril: And to align our people. The next big job is similar to what we are doing now. We need
more of them. Those are the sizes that are coming up. All of these production sharing
contractors, they know, if they put out a contract for say US$3bil to US$4bil, who would be able
to do it? So they put it out in smaller chunks. But even in smaller chunks, it is still a lot bigger
than years ago.
What is very important for Integral Key to achieve and why?
Shahril: Efficiency, competence and branding. It's a Malaysian flagbearer. And it's probably the
first oil and gas company coming not just from Malaysia, but the southern hemisphere.
Sustainability is a challenge.
We need to be sure that the US$1bil over assets that we are building is going to be built to the
right quality and on time. And this is where having Kencana's competency in manufacturing and
welding will help us.
Will there be any layoffs at all, perhaps in drilling?
Shahril: No. We are expanding into these markets the United States, Brazil, the United
Kingdom, the Middle East, Australia. There are not enough people actually. For us, we need
more people, not less. More engineers, more accountants, more risk managers. A lay-off is a
natural feeling when there is a merger. In the western context, merger means cost reduction. But
we are having a merger to grow the topline. We are quite different. Which means we need more
people, not less people. We are not merging to cut cost. We are merging to expand our market.
Are you planning to buy any asset soon?
Shahril: People. Assets, I think we're good for another two to three years.
What do you think your partner's strength is?
Shahril: He has more hair! But I am slightly taller than him. (Laughs.) We listen to each other's
problems. And yes, Jani (Mokhzani) will remind me of the risk. That's one thing that we see. He
will say: Eh, you want to do this, can pay back or not?' Questions like this gets you thinking.
That's why going forward, this level of different roles that we play and the checks and balances,
and we are not shy to say it.
Mokhzani: I think Shahril is more of a go-getter, not to say that I am not, but in terms of
mannerism and character, he gives a boost to everybody that he works with. We don't want to
come across as being cold-hearted businessmen who are always driving for the bottomline. You
need to balance that with the human elements. A lot of people don't know that.
Shahril: We work with our people. We sit with them.
What do hope to achieve for Sapura Kencana Petroleum in five years? What is the image
you see?
Shahril: We want out employees to be ambassadors of the company. Where people would
welcome them as the trusted and chosen contractors
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The making of Sapura Kencana PetroleumBy TEE LIN [email protected]
The creation of an oil and gas giant hasbegun. SapuraCrest Petroleum Bhd and Kencana
Petroleum Bhd will be going through an RM11.85bil merger exercise to create the largest oil
service provider by assets in the country - soon to be known as Sapura Kencana Petroleum Bhd.
For now, under a cash and share swap deal, a special purpose vehicle called Integral Key Sdn
Bhd would be buying all the assets and liabilities of SapuraCrest for RM5.87bil and Kencana for
RM5.98bil.
This shall be satisfied by some five billion Integral Key shares priced at RM2, and RM1.84bil in
cash.
Integral Key has offered to acquire the SapuraCrest business for RM5.87bil equivalent to
RM4.60 per share. It will acquire Kencana's business for RM5.98bil equivalent to RM3 per share.
At RM2, Integral Key's implied price earnings (PE) is approximately 20 times. The historical PE
multiple of Kencana and SapuraCrest are 28.04 times and 25.41 times respectively.
Working together: Shahril (left) will have an indirect stake of 19.2% in Integral Key while Mokhzani will indirectly hold 16%.
Upon the merger, SapuraCrest's shareholders would collectively hold approximately 49.94%
while Kencana shareholders will own 50.06% in Integral Key.
The head honchos of the newly formed entity are heavyweight personalitiesKencana Group CEO
Datuk Mokhzani Mahathir, who is ranked 15th on Forbes Malaysia's richest man as of 2011 with
a net wealth of US$560mil (RM1.68bil).
Meanwhile SapuraCrest executive vice chairman Datuk Seri Shahril Shamsuddin is Forbes
Malaysia's 17th richest man with a net wealth of US500mil (RM1.5bil).
As of Nov 14, Mokhzani has an indirect 31.7% stake in Kencana via Khasera Baru while Shahril
has a 40.06% stake in SapuraCrest.
Upon the listing, Mokhzani will have an indirect stake of 15.93% in Integral Key while Shahril will
have an indirect stake of 19.2%.
Seadrill Ltd, which is presently a 9.42% shareholder in SapuraCrest will have a direct 11.78%
stake while the Employees Provident Fund will own a 9.2% direct stake in Integral Key.
The next hurdle would be for both companies to secure 75% of shareholders' approval before the
deal could go through.
Shareholders of SapuraCrest will vote on the merger at a meeting next Wednesday while
Kencana shareholders will do the same the next day.
The merged group would have a gross and net gearing ratio of 0.86 times and 0.47 times with
the total borrowings of approximately RM4.44bil.
Prospects ahead
Petroliam Nasional Bhd (Petronas) is moving towards the award of full service contracts instead
of multiple packages domestically. This is in line with the practice in other regional markets
where international contracts are generally put out to tender as one single contract as opposed
to a multi-contract basis.
Petronas spending programme of RM300bil over the next five years includes enhanced oil
recovery and marginal field jobs.
In the small and marginal fields development, there are 106 shallow fields with an estimated 580
million barrels in brown fields. Petronas is keen to develop 25% or 27 of the total marginal oil
fields to replenish its oil reserves and generate new revenue stream.
Petronas has awarded its first Risk Service Contract for the development and production of
petroleum resources from the Berantai marginal oil field to SapuraCrest, Kencana and Petrofac
on Jan 31, 2011.
The partners expect to invest around RM2.56bil in the development and are expected to produce
the first gas by Dec 2011.
“The oil and gas industry offers high growth prospects. The merged entity provides a better
chance of winning larger contracts,” said Jason Yap, an oil and gas analyst with OSK Research.
He views the merger positively, as it makes the combined company larger, and is in line with
Petronas' direction of awarding one huge contract to one company in the future.
“Petronas also wants to build up local companies to become giants. To be able to bid for bigger
contracts, these companies must be of a certain size and have certain assets,”
He says that the focus of Integral Key would likely be towards marginal oil fields in 2012 and
further upsteam in 2013.
He sees 2012 as a marginal oilfield play, while 2013 will see the commencement of deepwater
oilfields such as Gumust-Kakap and Malikai.
Another analyst from a local research also viewed the deal positively, saying that apart from
some overlapping in the drilling segment, both companies did different things and would
specialise in their respective segments.
Size matters
“Size does matter in this game. The merged group will be the biggest service provider in
Malaysia. All oil and gas companies need some form of gearing to grow. In fact, their gearing
level is considered very low when compared with the industry,” said the analyst.
An MIDF analyst believes the companies might continue to focus on the area where their
strength is before the merger.
“They will be able to secure contracts in bigger values rather than be a sub-contractor for a
particular project. There is no need to outsource the fabrication works of a drilling rig to third
parties.”
Kencana's Lumut Fabrication Yard and Labuan Shipyard would reduce the uncertainty of relying
on third-party contractors for fabrication-related activitiesand give Integral Key group the capacity
and flexibility to better serve its customers.
“There is also better cost control, and this reduces the possibility of a delay as Integral Key would
be in charge of the whole project. In addition, they can raise cash through corporate exercises,”
said the MIDF analyst.
Currently, the SapuraCrest group is involved in installation of pipelines and facilities (IPF),
offshore O&G drilling, fabrication, hook up and commissioning (HUC) services, marine services,
operations, maintenance and development; as well as production of petroleum resources.
Huge capacity
The Kencana group's principal business activities include EPCIC services for onshore and
offshore production facilities, modules and process skid systems, marine engineering, HUC
services, provision of drilling and offshore support vessels services, development and production
of petroleum resources and provision of subsea engineering services.
The Kencana group is among the top fabricators of major offshore structures in Malaysia. Its
fabrication yard in Lumut has an annual capacity of 60,000 tonnes with a total yard space of
192.30 acres (including rented yard space of 37.48 acres).
Kencana is one of two licensed fabricators in Malaysia with the capacity to undertake fabrication
contracts for deepwater projects.
The merged group would have a combined annual fabrication capacity of 96,000 tonnes, making
one of the largest fabrication capacity among the domestic licensed fabricators.
For the third quarter to Oct 31, Sapura Crest's net profit was up 51.6% to RM83.14mil on the
back of a 26.54% decrease in revenue to RM745.76mil. On a nine-month basis, net profit was up
47.2% to RM233.71mil on the back of a 22.75% decrease in revenue to RM2bil.
SapuraCrest's earnings were lifted by the expansion of the IPF division's margin.
SapuraCrest recently secured a notable RM4.2bil contract from Petrobas to construct, charter
and operate three units of Pipe Laying Support Vessels (PLSV).
For FY11 ended July, Kencana saw its net profit rise 71% to RM223.1mil from RM136.1mil the
year before, while revenue rose 43.2% to RM1.56bil from RM1.09bil.
On Thursday, Kencana announced that its subsidiary, Kencana HL Sdn Bhd has signed an
agreement with Bechtel International Inc for the fabrication and assembly of structures and
components for a liquefied natural gas processing facility in Australia.
The contract is worth about RM1.07bil and would bring the total outstanding order book to more
than RM3.5bil.
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SapuraKencana Petroleum Berhad (SapuraKencana) is one of the world's largest integrated oil and gas services and solutions provider. The Group's principal business include providing end-to-end solutions and services to the upstream petroleum industry, and covers activities such as installation of offshore pipelines and structures, fabrication of offshore structures, accommodation and support vessels, drilling vessels, hook-up and commissioning, topside maintenance services, underwater services, offshore geotechnical and geophysical services, project management, diving services, offshore support services, infrastructure and specialised steel fabrication works.
With a workforce of over 9,000 people, the Group's global presence can be seen in over 20 countries ranging from Malaysia and China to Australia, Middle East, America, Brazil and beyond.