Kencana Petroleum Bhd’s US$150 million (RM478.5 million) acquisition of the remaining 75% of oil rig KM1 will be completed by the first week of August and will contribute positively to the company’s bottom line immediately.
The acquisition gives Kencana full ownership of KM1 which is currently chartered on a five-year, RM827 million Petroliam Nasional Bhd (Petronas) drilling contract. This contract accounts for about a third of Kencana’s existing RM2.4 billion order book.
“The existing client has an existing three plus two option after the first five years. As far as we are concerned, this rig is going to be taken up substantially over the next 10 years. This rig has been designed for Malaysian works, so it is our hope that it will remain in Malaysia longer than the initial five years,” Kencana CEO Datuk Mokhzani Mahathir said after the company’s EGM yesterday.
For its nine months ended April, Kencana posted a net profit of RM94.3 million on the back of RM811.51 million in revenue. For the corresponding period a year ago, Kencana raked in some RM87.95 million in net profit from RM882.75 million in sales.
CIMB Research in a report released earlier this month had an outperform call on Kencana with a target price of RM2.15.
“New contracts (Malaysia, India and Australia) and new ventures (offshore support and drilling) fuel our optimism on Kencana.
“We continue to like the company for its favourable earnings prospects and its strategy of moving up the value chain with the new ventures,” CIMB Research said.
The KM1 rig, in which Kencana had a 25% stake previously, is slated to be launched on Aug 9, and has a lifespan of 40 years.
“This is one of Kencana’s long-term plans. Initially we had only planned to acquire 25% but the timing and pricing were right. And since KM1’s first contract is in Malaysia, we grabbed the opportunity,” said Mokhzani.
Kencana’s EGM yesterday passed the resolution for its wholly owned subsidiary Kencana Petroleum Ventures Sdn Bhd to acquire all equity interest in Mermaid Kencana Rig 1 Pte Ltd, Kencana Mermaid Drilling Sdn Bhd and Mermaid Kencana Rigs (Labuan) Pte Ltd from Mermaid Drilling Pte Ltd, (thus giving it full control of KM1) for US$66 million.
He said the company was mulling expanding its fleet of off-shore vessels, and possibly more rigs, but such a decision would be based on market conditions. Another option, Mokhzani added would be to partner companies that owned rigs and secure jobs.
He was also upbeat on the company’s outlook. “The first half of 2010 has been quite challenging but we have been able to maintain a steady rate of growth. We have taken this big step to acquire KM1 100% and the companies that operate it.
“It is a big step for us. It will make us more of an integrated oil and gas (O&G) services provider in Malaysia and overseas,” he said, adding that the company is preparing for more works after the announcement by Petronas CEO and president Datuk Shamsul Azhar that Petronas would be focusing more on O&G exploration in Malaysian waters.
For FY10, CIMB expected Kencana to post net profits of RM131.8 million from RM1.6 billion in revenue. For FY11, the research outfit sees Kencana’s net profits surging to RM213.2 million while revenue jumps to RM3.12 billion.
Kencana ended trading unchanged yesterday at RM1.54.
This article appeared in The Edge Financial Daily, July 27, 2010.
No comments:
Post a Comment