Sumatec confident of meeting profit target

KUALA LUMPUR: Sumatec Resources Bhd, in which Tan Sri Halim Saad controls some 25%, is confident of meeting its RM69 million net profit target this year. Production from 11 workover wells at its Rakushechnoye oil and gas (O&G) field in Kazakhstan is expected to improve from the third quarter of this year, as well as contribution from its gas development fee.

The workover wells will use artificial lift technology to improve oil production, which in turn will help the O&G group achieve its target of 2,000 barrels per day (bpd) in 2014.

The Practice Note 17 (PN17) group posted a net profit of RM4.47 million for its first quarter ended March 31(1QFY14). For the full FY13, net profit was RM73.59 million.

Sumatec chief executive officer Chris Dalton said the drivers of its profitability in FY14 will be its two revenue streams — oil production and the gas development agreement it signed with Markmore Energy (Labuan) Ltd last year.

“For each of our 11 workover wells, we are going to put artificial lift systems in, and we expect production to triple from that, enabling us to hit 2,000 barrels per day (by the end of this year),” Dalton told reporters after the company’s annual general meeting yesterday.

The group currently produces 150 bpd from its two wells which run on natural flow.

Last year, Sumatec signed a gas development agreement with Markmore for the development of gas resources at the Rakushechnoye oilfield in Mangystau.

“Markmore is building a methanol and liquid petroleum gas [LPG] plant, and they are going to offtake the gas for the two plants, so they are going to start taking the supply of gas (from Sumatec) by 2017.

Dalton: The drivers of its profitability in FY14 will be oil production and the gas development agreement it signed with Markmore last year.
Dalton: The drivers of its profitability in FY14 will be oil production and the gas development agreement it signed with Markmore last year.

“We have 578 billion cu ft of gas and to get that out of the ground we are going to have to plan for that and draw wells, and next year start to drill these wells and test these wells for gas,” said Dalton.

Sumatec currently manages the Rakushechnoye oilfield, after reaching an agreement with Markmore and CaspiOilGas LLP for the commercial development and production of the field. Markmore and CaspiOilGas hold the concession for the field until 2025. Both companies are controlled by Halim.

As part of the deal, Markmore will pay Sumatec US$15 million (RM48.3 million) per year to execute the design of the wells, starting from January this year till 2016.

The group has apportioned its revenue from Markmore at US$3.75 million per quarter, which was booked for 1QFY14. This works in favour of Sumatec, which needs two quarters of profit in its financial year to uplift itself from its PN17 status, which refers to companies in financial distress.

“We will submit our application to uplift our PN17 status in August,” said Dalton.

The group recently captured investor interest when it announced a 30% increase in its O&G reserves in its Rakushechnoye field.

“An additional 10 million barrels of oil is now available under 2P reserves to Sumatec [worth an estimated US$175 million in net profit from oil sale] without having to pay more than the initial US$95 million investment,” said Dalton.

The group hopes to realise the additional reserves over the 10-year period of the concession.

This article first appeared in The Edge Financial Daily, on June 27, 2014.


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