This article first appeared in The Edge Financial Daily on April 2, 2018 - April 8, 2018

Sapura Energy Bhd
(March 30, 54.5 sen)
Maintain buy with an unchanged target price (TP) of RM1.11: Sapura Energy Bhd announced that it had successfully, together with its consortium members, won a bid for the hotly contested Block 30 in the Gulf of Mexico’s Sureste Basin. This is yet another positive development in light of recent travails which have seen its share price tumble since the beginning of the year due in part to impairment-related concerns, which had subsequently been confirmed with the recent release of its financial year 2018 (FY18) results.

While it’s still too preliminary to assess the financial impact at this juncture, this win is undoubtedly positive and solidifies the group’s longer-term prospects, particularly with crude oil prices looking likely to hold up above the US$60 (RM231.60) per barrel levels. Our “trading buy” call is retained with an unchanged TP of RM1.11.

Block 30 is located in shallow waters (about 70m) directly to the south-west of the Zama fields, and to the north of the Amoca fields. Zama is notable as it has been estimated to contain P90 (high) and P10 (best) gross reserves, ranging from 1.4 billion to two billion barrels of oil equivalent, with a possibility to extend off the block. The Sureste Basin as a whole is a proven hydrocarbon province and includes the Saline, Campeche-Sigsbee and Vilharmosa uplift basins.

Joint-venture partners for the project are DEA Deutsche Erdoel Mexico (a 40% stake) and Premier Oil plc (30%), with Sapura Energy holding the remaining 30% through wholly-owned subsidiary Sapura Exploration and Production Sdn Bhd. Immediate plans are to acquire 3D seismic readings by 2019 ahead of firming up drilling locations in 2020.

There’s a recent maiden foray into New Zealand via a series of farm-in agreements to five offshore exploration permits within the Tranaki Basin, a prolific oil and gas region. Partners for this particular project are OMW New Zealand Ltd and Mitsui E&P Australia Pty Ltd. All five offshore exploration permits are also located in shallow waters, where discovered volumes to date total more than 2.5 billion barrels of oil equivalent. The agreement provides access to a large acreage footprint of more than 8,900 sq km. It has been reported that total works secured by the group year to date are in excess of RM3 billion, one of which includes engineering, procurement, construction, installation and commissioning works for the Pegaga Development Project awarded by Mudabala Petroleum. — PublicInvest Research, March 30