This article first appeared in The Edge Malaysia Weekly on May 3, 2021 - May 9, 2021

INDUSTRIAL service and oil and gas (O&G) group Wah Seong Corp Bhd is looking to sell its entire 26.97% equity interest in Petra Energy Bhd, an integrated brown field services provider for the upstream O&G industry, people familiar with the matter tell The Edge.

It is understood that several parties have been approached to buy the block, but details are scarce at press time. Wah Seong did not reply to queries sent by The Edge.

How much Wah Seong is asking for the stake is uncertain.

Wah Seong had acquired the stake from Perdana Petroleum Bhd in July 2012, paying close to RM97 million or RM1.68 per Petra share.

Petra shares ended trading last Friday at 94.5 sen apiece, valuing Wah Seong’s block of 26.97% at RM81.79 million, or close to a 16% discount on what it paid nine years ago. Petra’s market capitalisation stood at RM303.29 million.

A back of the envelope calculation shows that Petra had paid out a total of 29 sen per share in dividends since Wah Seong acquired the stake in 2012, which sees Wah Seong receiving RM25.1 million for its 86.55 million shares over the past nine years.

It will also be interesting to see how much Wah Seong can muster for its stake considering the 26.97% block does not give it control of Petra, and thus may not command a premium to the market price.

Sarawakian businessman Tan Sri Bustari Yusuf, via his private investment vehicle Shorefield Resources Sdn Bhd, owns 29.04% of Petra shares. Other than Bustari and Wah Seong, other notable Petra shareholders include the Ministry of Finance’s Urusharta Jamaah Sdn Bhd with 9.88% and Datuk Mohamed Nizam Abdul Razak, brother of former prime minister Datuk Seri Najib Razak, with 9.11% equity interest.

Back in 2012, when Perdana was looking to sell its stake in Petra, there were more than 46 interested parties eyeing the block of shares. To put things in perspective, Brent Crude at the time had come off its high of US$150 per barrel in 2008, and between January 2011 and June 2014, it averaged US$110 per barrel, but started tapering off to hit a low of US$29 per barrel in January 2016. It averaged US$44 per barrel for the year.

At the time of writing, Brent Crude was testing the US$68 per barrel mark, up strongly from just above US$25 per barrel a year ago. In a recent report released last month, Goldman Sachs had Brent Crude at US$75 by the third quarter of the year.

Speculation is rife that the Sarawak government may be interested to buy Wah Seong’s block in Petra, but it is not clear how the ties between the state administration and Bustari are. It is worth noting that Bustari’s younger brother, Datuk Seri Fadillah Yusof, is the Senior Minister of Works.

Petra has its appeal, notably a good balance sheet and a niche expertise in the O&G business. For the financial year ended Dec 31, 2020 (FY2020), the company raked in RM15.18 million in net profit from RM426.96 million in revenue. In FY2019, Petra chalked up net profit of RM61.92 million from RM575.1 million in sales.

As at end-December last year, Petra had cash and bank balances of RM171.57 million, while on the other side of the balance sheet the company had short-term borrowings of RM27.17 million and no long-term debt commitments. The company’s finance costs were a mere RM3.41 million for FY2020. It had retained earnings of RM105.16 million.

On its weaker FY2020 financial performance, Petra says the Covid-19 pandemic and decline in global oil price had led to a deferment of projects and delays in vessel mobilisation, which affected the group’s revenue. The overall results were also affected by lower contribution from the development and production, and services segments.

Profits, meanwhile, were impacted by impairments on trade and other receivables and impairment losses on property, plant and equipment.

Petra’s operations for the Kapal Banang Meranti Small Field Risk Service Contract, which was awarded last year, were adversely impacted by the pandemic. This segment recorded lower profit before tax of RM5.9 million in FY2020 from RM32.2 million in FY2019.

Last year, Petra announced a US$40 million (about RM170 million then) contract from Petroliam Nasional Bhd for a technical service agreement for a two-year duration. The contract entailed “the continuation of Banang field production”, and thrust Petra among a handful of companies with the expertise to operate oil fields.

In mid-2012, Petra and Coastal Energy Co, via a 30:70 joint-venture company called Coastal Energy KBM Sdn Bhd, bagged a small field risk service contract for the development and production of petroleum from the Kapal, Banang and Meranti cluster of small oil fields in Block PM 316 off the coast of Terengganu, for an eight-year duration commencing from June 2012.

Only a handful of risk service contracts were awarded about 10 years ago when Petra secured the job. Other than Petronas’ Vestigo Petroleum Sdn Bhd operating in Tembikai-Chenang, the only other operator was Petra, which speaks volumes about the company’s ability.

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