Sumatec likely to drop plan to buy CaspiOilGas LLP

SHAH ALAM: Sumatec Resources Bhd is likely to abort the proposed acquisition of CaspiOilGas LLP (COG) as the company shifts its focus towards its gas utilisation plan, which includes the establishment of a liquefied petroleum gas (LPG) plant in Kazakhstan.
Managing director Abu Talib Abdul Rahman said the proposed acquisition is likely to be terminated as it involves the same assets as in the framework agreement announced earlier in February.
“This (gas utilisation plan) will take place because at the moment, Sumatec does not have assets. Initially when we wanted to acquire COG, the purpose was for Sumatec to have an asset base. What we have is a contractual base because we have an investment agreement with COG where we have the right together to work out the field, share the profit, put our money in and do it together. But, in the books, it is basically a concession right, like a highway concession.
“But now with the new exercise, Sumatec will have assets in the form of a multi-facet LPG plant which we hope that at full production would be able to process about 100 million cubic feet of gas, to turn into LPG, which will belong to Sumatec. It is a good investment and is part of the corporate exercise that we announced in February,” he told reporters after its AGM on Thursday.
Sumatec had earlier planned to acquire COG from Tan Sri Halim Saad via his 99.9%-owned Markmore Sdn Bhd for US$205 million (RM872.7 million). A heads of agreement on the proposed acquisition was signed in mid-2016.
COG is a unit of Markmore Energy (Labuan) Ltd (MELL) and is the concession owner of the Rakushechnoye oil and gas field in West Kazakhstan. Under a joint investment agreement signed in March 2012, Sumatec is entitled to 100% of the profit for the first two million barrels and, subsequently, profit is shared on a 50:50 basis between Sumatec and COG.
On Wednesday, the Kazakhstan Energy Ministry expanded the oil and gas exploration area given to COG and extended its mining lease by up to 25 years. COG’s initial 25-year concession expires in August 2025. The joint investment agreement between COG and Sumatec remains.
Abu Talib said its plans involve two phases. Phase 1 entails a private placement, issuance of shares and rights issue with warrants while Phase 2 is the proposed LPG production. The LPG plant will cost about US$95 million (RM403 million).
“Phase 1 is already being done by our financial advisers to raise funds for the operation and to take care of some small debt. Phase 2 is where we will do the LPG plant. As far as our schedule is concerned, we hope to embark some time in September and will start operations within two years,” he said.
Commenting on the outlook for the year, he said the company is positive and will be profitable this year, in terms of operations.
“With the price of oil now about US$47 per barrel we are going to make money because our operation cost is much lower, under US$20, as we are onshore. That will give us a float of about US$20-30. The higher the price goes up, the better our profit.
“All we have to do is the number game, we have to increase our production. The first phase of production, by December this year, we should be able to produce about 1,000 barrels of oil. But once we pass 1,000 barrels, the gas will come into issue. That’s why we need the LPG plant,” he added.
For the financial year ended Dec 31, 2016, Sumatec recorded a net loss of RM62.02 million compared with a net profit of RM37.86 million a year ago while revenue fell 25.85% to RM46.41 million from RM62.58 million a year ago.