This article first appeared in The Edge Malaysia Weekly on March 18, 2024 - March 24, 2024

THE race to acquire Sapura Energy Bhd’s 50% stake in exploration and production outfit SapuraOMV Upstream Sdn Bhd has been narrowed down to two players — Abu Dhabi state fund Mubadala and French multinational energy company TotalEnergies SE, banking sources say.

While the bids are close, The Edge is given to understand that TotalEnergies’ offer may be a tad higher than Mubadala’s. However, one source was quick to point out that the offer price is just one of several considerations, and indicated that Mubadala is still very much in the running.

In an email response to The Edge on whether the 50% stake sale in SapuraOMV has become a two-horse race, Sapura Energy says, “Several parties have indeed expressed interest in our equity in SapuraOMV, and we are currently conducting the sale process. However, we are unable to comment further at this time to maintain the confidentiality and integrity of this exercise.”

TotalEnergies did not respond to a query while Mubadala could not be contacted.

The price being offered for Sapura Energy’s 50% in SapuraOMV is not known but news reports had previously put it at US$1.2 billion (RM5.65 billion).

It is worth noting that in late 2018, Austria’s OMV Aktiengesellschaft had acquired a 50% stake in SapuraOMV from Sapura Energy for an enterprise value of US$1.6 billion, comprising an equity value of up to US$1.25 billion and debt of US$350 million.

Subsequently, TotalEnergies acquired OMV’s 50% stake in SapuraOMV for US$903 million, which includes the transfer of a US$350 million loan granted by OMV to SapuraOMV. The acquisition is still ongoing and likely to be concluded in the second quarter of 2024.

Thus, the acquisition of Sapura Energy’s 50% stake in SapuraOMV would give TotalEnergies full control of the assets under SapuraOMV.

SapuraOMV operates SK310 and SK408, which are both gas fields and located off the coast of Sarawak. It has 30% equity interest in SK310 and and 40% in SK408. It also owns 40% in Block SB412 off the coast of Sabah and has a 30% stake in Block 30 off the coast of Mexico.

In addition, among others, it holds a number of offshore exploration permits in Western Australia, and the Taranaki Basin, New Zealand.

According to Sapura Energy’s FY2023 annual report, the SK310 and SK408 Malaysian assets produced 30,000 barrels of oil equivalent per day.

Despite its international footprint, Sapura Energy’s annual report for the financial year ended January 2023 shows that SapuraOMV recorded an after-tax loss of RM356 million “as a result of higher impairment, largely due to increased discount rates and unsuccessful exploration results during the year”.

A check on the Companies Commission of Malaysia (SSM) website reveals that SapuraOMV for its financial year ended December 2022 suffered an after-tax loss of RM450.85 million from RM1.4 billion in revenue. SapuraOMV as at end-2022 had total assets of RM7.76 billion and total liabilities pegged at RM4.24 billion. SapuraOMV had accumulated losses of RM1.21 billion for the period in review.

How Mubadala or TotalEnergies will change things at SapuraOMV is anyone’s guess.

Other than Mubadala and TotalEnergies, some of the other companies that are understood to have expressed interest in Sapura Energy’s 50% stake in SapuraOMV are Japanese oil and gas explorer Inpex Corp and Indonesia’s PT Medco Energi Internasional Tbk.

For Sapura Energy, the sale of the 50% stake in SapuraOMV could be a game changer. At current exchange rates, the US$1.2 billion price tag works out to RM5.65 billion and could go a long way in assisting Sapura Energy with its enormous debt woes.

To put things in perspective, Sapura Energy has been a Practice Note 17 (PN17) categorised company — a classification for cash-strapped companies — since end-May 2022. In mid-December last year, Sapura Energy obtained an approval-in-principle from its financiers, enabling it to proceed with its regularisation plan and to exit PN17.

The sale of its 50% stake in SapuraOMV is key to the restructuring.

Sapura Energy, which is 40%-controlled by state-controlled unit trust fund Permodalan Nasional Bhd, has been grappling with high debts, but this could be the proverbial light at the end of the tunnel.

Last week, Sapura Energy was granted a three-month extension, until June 10 this year (from March 10 previously), by the Corporate Debt Restructuring Committee (CDRC) to push forward the deadline of its protection from action against its multi-currency financing creditors. This is the second such extension that it has obtained from CDRC.

Earlier this month, Sapura Energy and 22 of its wholly-owned subsidiaries obtained new convening and restraining orders from the High Court to proceed with a debt restructuring exercise — which allows the company to take steps to restructure multi-currency financing of about RM10.8 billion and outstanding payments to trade creditors amounting to about RM1.5 billion — without threat of litigation.

The company has been profitable for three consecutive quarters and has an order book of RM5.4 billion.

For its nine months ended October 2023, Sapura Energy chalked up net profits of RM219.78 million on the back of RM3.2 billion in revenue. For the corresponding period a year ago, the company raked in a net profit of RM99.52 million from RM3.33 billion in revenue.

As at end-October, Sapura Energy had cash, deposits and bank balances of RM1.37 billion, while on the other side of the balance sheet, it had short-term borrowings of RM11.01 billion with no long-term debts. Its accumulated losses amounted to RM16.58 billion and it was in shareholders deficit of RM3.3 billion during the period in review.

On its prospects, Sapura Energy says, “The operating conditions for the engineering and construction segment and the operations and maintenance segment have been challenging, and are expected to remain so for the rest of the year. This is exacerbated by the lack of access to working capital and bank guarantee facilities as the group is undergoing a restructuring exercise to regularise its financial conditions.”

Last Friday, Sapura Energy ended trading at 4.5 sen, which translates into a market capitalisation of RM826.9 million. 

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