by winston » Sun Nov 02, 2014 6:13 am
Is it opportune time for Kulim to venture into O&G? by: YVONNE TAN
EVEN before receiving the RM2.75bil windfall from the proposed sale of its equity in New Britain Palm Oil Ltd (NBPOL), Kulim (M) Bhd has announced plans on how to spend some of that money.
The group that is focused primarily on plantations at the moment, plans to move into oil and gas (O&G) exploration and this is raising some questions among industry observers.
What expertise does Kulim have to participate in the highly risky and capital-intensive activity of exploring for O&G?
Another question surrounding the deal is that is this the best time to embark on an O&G project considering the inconsistencies of the price of crude oil and Indonesia is going through a change in leadership?
When asked, Kulim declined to comment saying that its management will hold a press conference by the end of the year, seemingly to reveal more details on its planned venture.
A senior analyst who covers Kulim says it is too early to tell whether its plan to move into O&G exploration will succeed or fail.
“However, the amount that they are committed to for now is not a very huge sum.
“The heavier capex will come during field development and production where billions need to be poured in,” he says.
So far, investors appear to not have warmed up toward this plan, judging by the share price movement of Kulim.
The Kulim stock is down 2.3% this week to RM3.42 despite a stronger broader market.
“Kulim is only going to pay out about 30% of the proceeds from the sale of NBPOL as dividends so probably that is a little upsetting too,” says the analyst.
Kulim first announced last Thursday that its proposed disposal of its 48.97% stake in NBPOL to Sime Darby Bhd was expected to raise gross proceeds of £525.40mil (RM2.75bil) from which it will use to pay dividends and acquire new businesses, among others.
More specifically, apart from RM1bil earmarked for dividends which works out to 78 sen per share, Kulim has also allocated RM600mil for repayment of bank borrowings, RM850mil for investment or acquisitions of viable assets and business and RM300mil for general working capital.
Kulim is said to have gotten an extremely good deal as the NBPOL stake is being sold for £1.07bil (RM5.6bil) – a whopping 85% premium to its market price prior to the deal’s announcement.
Following the announcement on its proposed stake sale, Kulim on Monday provided elaboration on its new business plans, saying that it and its Indonesian plantation partner, PT Graha Sumber Berkah (GSB), had inked a joint operating agreement (JOA) to become co-operators of the South West Bukit Barisan (SWBB) block production sharing contract (PSC) in central Sumatra.
According to it, the agreement which involves Kulim’s wholly-owned subsidiary, Kulim Energy Nusantara Sdn Bhd (KENSB), GSB and PT Radiant Bukit Barisan E&P (RBB) as operator of the PSC, allows Kulim to “leverage on its Indonesian partner to tap fresh investment opportunities in Indonesia”.
Notably, RBB is the main operator and under the JOA, the co-operators which are the other two parties are obliged to provide support to the former in order for it to perform its obligations under the SWBB PSC.
New dimension
According to Kulim, the estimated total cost for exploration activities in the SWBB block throughout 2015-2018 is about RM175.7mil, which Kulim would initially finance with internally generated funds.
KENSB will be entitled to 60% of net profit from the project.
In its Monday announcement, Kulim said that it was “entering a new dimension with new O&G opportunities in the region up for grabs as new spaces are being created.”
“We are already involved in other O&G businesses such as transportation of clean petroleum products and fabrication of O&G pipelines,” it said, referring to its subsidiaries, E.A. Technique (M) Bhd and Danamin Sdn Bhd.
E.A. Technique, which is seeking a listing on Bursa Malaysia’s Main market has a core business of “providing oil tankers to carry clean products and dirty oil on behalf of oil majors and independent trading houses”, according to its website while Danamin is involved in non-destructive testing and inspection services for the O&G industry.
“While they do have a foothold in the O&G industry, providing tankers and services are not akin to the risky and often complicated business of oil exploration,” remarks an observer.
“It remains to be seen, whether they will succeed.”
Earlier in its statement on Monday, Kulim managing director Ahamad Mohamad (pic) said central Sumatra was considered as one of the “most prolific” oil production basins in Indonesia and that production testing was “currently progressing with very encouraging indications.”
Kulim reported a net profit of RM98.4mil for the second quarter ended June 30, up 49% from the RM66mil last year with revenue coming in at RM817.5mil, up 3% from RM792mil earlier.
After selling off the NBPOL stake, the group’s gearing will be reduced to about 0.21 times from about 0.40 times.
Recall, Kulim has also said that money gained from the stake sale will be used to grow its existing business besides venturing into new ones that are viable and show good growth prospects.
This could mean other businesses apart from O&G exploration.
Kulim has other businesses currently such as its “intrapreneur ventures” segment but its plantation sector was still the main driver in 2013, contributing 90% of the group’s revenue, according to its latest annual report.
Source: The Star
It's all about "how much you made when you were right" & "how little you lost when you were wrong"