KENCANA Petroleum Bhd (5122), an integrated service provider in the oil and gas industry, expects to seal a deal to buy three companies that will operate a tender assisted drilling rig early next month.
Group chief executive officer Datuk Mokhzani Mahathir said Kencana Petroleum wants to conclude the transaction before the completion and hand-over of Kencana Mermaid 1 (KM-1) drilling rig to its client, Petronas Carigali Sdn Bhd, by August 15.
"We hope to complete (the acquisition) in the first week of August," Mokhzani told reporters after the company's annual general meeting in Kuala Lumpur yesterday.
Kencana Petroleum announced last month that wholly-owned Kencana Petroleum Ventures Sdn Bhd was acquiring substantial equities in Mermaid Kencana Rig 1 Pte Ltd (MKR1), Kencana Mermaid Drilling Sdn Bhd (KMD) and Mermaid Kencana Rigs (Labuan) Pte Ltd (MKR Labuan) from Mermaid (Singapore) Pte Ltd for a total of US$66.6 million (RM212 million) including intercompany loans and debts.
It would pay US$43.65 million (RM139 million) for a 75 per cent stake in MKR1, 40 per cent in KMD and 45 per cent in MKR Labuan, and another US$22.95 million (RM73 million) for the loans and debts.
Mokhzani said the acquisitions would allow Kencana Petroleum to control the operating companies of KM-1 rig that is built at its fabrication yard in Lumut, Perak.
"This is part of the company's long-term strategy. Initially, we just want to acquire a 25 per cent stake each in the companies. But when we were offered to take control of them and the drilling rig, we feel that it is an opportune time and the deal comes at a good price.
"Moreover, KM-1's first contract is for the domestic operation. This would give a positive impact (to our earnings)," he said.
KMD, Kencana Petroleum's 60 per cent-owned subsidiary, received a letter of award from Petronas Carigali in October 2008 to build and operate KM-1 together with the related equipment and personnel for offshore drilling services.
The five-year contract was worth US$235 million (about RM750 million), with an option for another five years.
Mokhzani said the contract is expected to contribute to Kencana Petroleum's earnings from the year ending July 31 2011.
"For the first six months to a year, the team will be fine-tuning the operations of KM-1 to ensure that the rig would be operational without a hitch on its first job.
"That will be our biggest challenge (to make sure the rig would run smoothly on day one)," he said.
On whether he expected to secure high-margin contracts following the acquisitions, Mokhzani said he is confident that KM-1 would be taken up over the next 10 years.
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