This article first appeared in The Edge Malaysia Weekly on October 28, 2024 - November 3, 2024

IT has been less than a month since Tarmizi Yusof Azuddin, 42, became CEO of oil and gas (O&G) producer Ping Petroleum Ltd. His mandate from controlling shareholder Dagang NeXchange Bhd (DNeX) (KL:DNEX) is a big one, that is, to float the company within three years. DNeX indirectly owns a 90% stake in Ping Petroleum, which wholly owns Ping Petroleum UK plc (Ping UK).

Tarmizi has the credentials to do so, with more than 20 years of experience in major independent and national oil companies including Murphy Sarawak/Sabah/Peninsular Malaysia Oil Co Ltd, PTTEP Sarawak Oil Ltd and ExxonMobil Exploration and Production Malaysia Inc, among others.

In an exclusive interview with The Edge, he says: “This is my 16th day as the CEO of Ping Petroleum [he assumed the role on Oct 1]. I first joined the company [in August] last year as vice-president of development. We have a good portfolio, but right now it’s about execution. I think that’s why I was brought in.

“Our focus is to build our assets over the next three years. If we can reach [production of] 10,000 barrels of oil per day in three years to four years … that would be the best time to go for an IPO (initial public offering).

“Now we are producing about 1,800 to 2,000 barrels of oil per day. Maybe we will hit about 5,000 barrels per day next year and probably go to about 10,000 in the following year.”

To achieve this, Ping Petroleum has made inroads in Malaysia, bagging four production sharing contracts (PSC) over the past couple of years from national oil company Petroliam Nasional Bhd (Petronas), which anticipates total budgeted capital expenditure (capex) of US$400 million (RM1.74 billion) for the projects over the next three to five years.

In Petronas’ Malaysian Bid Round 2022, Ping secured the Meranti, A and Abu clusters for a 10-year period. In August this year, Ping Petroleum and Duta Marine Sdn Bhd entered into a Small Field Asset Production Sharing Contract (SFA PSC) with Petronas for the development and production of three fields — namely Bubu, Bunga Tasbih and Enau, which are collectively known as the Beta Cluster — some 250km off the coast of Terengganu for 14 years. Ping Petroleum is the operator of this SFA PSC with a 90% participating interest while Duta Marine has the remaining 10%.

Interestingly, the Beta Cluster is less than 10km from Ping Petroleum’s Abu Cluster, which means there is potential for a collective area development.

The capex for the Abu Cluster is likely to be in the region of US$50 million to US$60 million for this year and 2025, while Beta and Meranti would set Ping Petroleum back by about US$80 million.

“In total, we’re talking about probably US$400 million of capex over the next five years (which is huge) and that’s why we need to do it in phases,” Tarmizi explains.

“For the Abu Cluster, we have secured or are very close to signing (an agreement) for borrowings with local banks. We have options on the table at the moment. There are parties like oil traders that want us to take up a prepayment structure — the mechanism is pre-pay the barrels first. So we start up, then we give that [oil] to the traders. We are looking at that.

“At the same time, we are exploring other funding methods. We feel if we do it in phases and we prove that we can execute one at a time and [create a] track record, I think we will also be looking at bonds or sukuk, which we can structure. We also have foreign banks that are coming to us to offer financial solutions. We can’t disclose exactly who these parties are because the discussions are still ongoing,” he says.

Ping Petroleum seems to have bucked the trend, obtaining financing for its projects with ease.

“What I can say is that we have good projects on our hands, the Abu Cluster, for example. It’s a reactivation, we know it is low risk. It was already producing before. We have confirmed a lot of things and I think having a good proposition could get people to be interested,” Tarmizi says.

On concerns about Ping Petroleum overleveraging with the more than US$400 million budgeted capex, he says: “The capex is the total for up to five years. It’s not going to be one-off.

“But that is why we have to build the production first for the Abu Cluster so that at the end of the day, we are not overleveraging on our balance sheet. That’s why the cash flow must be in to cater for what you want to take in the future.

“[We plan to] start with the Abu Cluster next year, followed by the first phase of the Meranti and Beta clusters — so another US$80 million for 2026 and then the rest. Get that production and build it in phases … also the lenders actually engage with third party specialists, look into the subsurface, the risk, our development concept … they will do their due diligence.”

Tarmizi estimates that Abu Cluster will start producing oil as early as the second half of next year, which will mark the company’s first production in Malaysia.

Ping Petroleum’s partnership with Hibiscus Petroleum Bhd (KL:HIBISCS) began in August 2015 when Shell UK, Shell EP Offshore Ventures and Esso Exploration and Production UK hived off their interest in the Anasuria Cluster for US$105million (RM398.2 million then).

Ping’s strategy thus far has been hinging its business on existing producing asset, the Anasuria Cluster, which provides the requisite cash flow for its operations. So little is known about Anasuria is perhaps because it is located in the UK Central North Sea, off the coast of Aberdeen in Scotland, and made up of the Teal, Guillemot and Cook oil fields.

In a nutshell, Ping has 50% equity interest each in the Teal and Guillemot fields, which are producing assets, and a 19.3% stake in Cook, which is still a non-producing field. Ping Petroleum wholly owns the Avalon field, an undeveloped discovery where an appraisal well was drilled, and reserves were confirmed. The operatorship of Avalon was transferred to Ping Petroleum in June 2018.

Since last year, Ping Petroleum has been aggressive, bagging production contracts both at home in Malaysia and its base in the Central North Sea.

In September last year, Ping Petroleum and Hibiscus acquired 42.5% equity interest each in Licence P2451 from Rapid Oil Production Ltd, which retained the remaining 15%. Licence P2451 involves the undeveloped Fyne Field, located in the Central North Sea, with an estimated 75 million barrels of oil equivalent (MMboe). Its first oil is expected in 2026.

In April this year, Ping UK was awarded three licences — for the Glenn and Hutton fields, as well as a pilot development under Licence 2244, after acquiring an 81.25% stake from Orcadian Energy. This new acreage brought Ping Petroleum’s portfolio at its UK Continental Shelf to more than 100 MMboe.

One strength of Ping Petroleum has been its low-cost production. At Anasuria, Ping Petroleum, which is the operator, has its production costs pegged at around US$24 per barrel, which is very low.

Tarmizi explains: “When it comes to planning, we are nimble, we undertake contracts in such a way that is actually sharing of the risk with contractors. So, when oil price comes down, some of the [production] costs [are] actually shaved off as well. [But] what we did is we managed to prolong the production.

“When you’re working on a late-life asset or mid-life asset, working in a rough business environment such as in the UK with all the regulatory and safety requirements, environmental tax, and you still manage to get US$24 per barrel. I think we can say that’s quite good,” he says.

Brent Crude is currently trading at US$74 to US$76 a barrel. This compares with the group’s operating cost of US$24 to US$25 a barrel average. 

Presently, Ping has 2P (proven and probable) oil resources of 27 MMboe. 

In Anasuria, the key asset, the FPSO Anasuria, which is equally owned by Ping and Hibiscus, is quite old at almost 30 years, but still in good condition.

Another asset, the vessel, Excalibur FPSO, which is wholly owned by Ping, could be commissioned for the Avalon field, or deployed to another field or sold.

In 2016, DNeX acquired a 30% stake in Ping Petroleum for US$10 million. In July 2019, there were murmurs that DNeX was looking to cash out of the O&G arm. In its 2019 annual report, DNeX stated that it was “looking forward to concluding the divestment of Ping Petroleum, whose value has increased over the years. Book value of the group’s investment stood at RM216 million as at Dec 31, 2019”.

However, in January 2021, DNeX made an about-turn, acquiring an additional 60% of Ping Petroleum for US$78 million as it sought to further strengthen its presence in the upstream oil and gas segment.

The founders of Ping Petroleum still retain the remaining 10% stake today.

For the first six months ended June 30, 2024 (1HFY2024), DNeX chalked up a net profit of RM19.45 million on revenue of RM607.93 million. Ping Petroleum raked in a net profit of RM40.38 million from RM197.85 million in revenue in that period.

However, DNeX’s technology arm Dagang Net Technologies Sdn Bhd suffered losses in 1HFY2024, dragging down the group’s earnings considerably, which were nevertheless bolstered by tax credits of RM15.04 million.

At end-June, DNeX had cash and equivalents of RM440.59 million, while on the other side of the balance sheet, the group had current liabilities of RM255.16 million and non-current loans and borrowings of RM10.48 million. DNeX’s finance costs for 1HFY2024 stood at RM27.25 million.

It is worth noting that DNeX had retained earnings of RM663.32 million as at end-June.

While there seems to be little synergy between Ping Petroleum and DNeX’s other businesses — which include its 60% owned wafer manufacturer SilTerra Malaysia Sdn Bhd and Dagang Net Technologies, the service provider for the National Single Window, which facilitates trade, both import and export activities — the energy division seems likely to do well in the coming years, buoyed by the company’s many aggressive steps taken lately. 

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