Reach Energy secures shareholders' nod for qualifying acquisition

KUALA LUMPUR: Reach Energy Bhd received approval from its shareholders for its qualifying acquisition (QA) at its EGM yesterday, becoming the second special purpose acquisition company (SPAC) in the industry, after Hibiscus Petroleum Bhd, to cross the crucial hurdle and graduate into a full-fledged oil and gas firm.
“Our confidence is in the assets that we have, so I think this turned the tide for us, even investors who are new to the industry saw its value,” Reach Energy managing director/CEO Shahul Hamid Mohd Ismail told a press conference after its EGM, which was deferred earlier this month to yesterday.
About 81.07% of its shareholders, representing 790.95 million shares, voted for the acquisition of a 60% stake in Palaeontol BV, which is the owner of the onshore oil and gas field called Emir-Oil LLP in Kazakhstan, for US$154.89 million (RM640.54 million).
“It has been a long journey for us, particularly myself for the last four years. There are a lot of people that I need to thank for making it a success,” Shahul said.
The success of Reach Energy has raised hopes for the SPAC industry in Malaysia following the failure of its peers Sona Petroleum Bhd and CLIQ Energy Bhd to convince their shareholders on the merits of their proposed QAs.
Another SPAC, Red Sena Bhd, is involved in the food and beverage industry and is in the midst of looking for a QA.
Reach Energy’s QA is slated for completion by the end of this month, but the contribution from the oil field is to be booked into its accounts from the agreement date of Oct 1, 2015. For the first six months of 2016, the oil field’s revenue stood at RMB659.42 million (RM417.7 million), 11.4% higher than RMB592.18 million in the same period last year.
Shahul said the oil market has shown positive signs and demand is on the rise despite short-term uncertainties caused by events like the US presidential election.
“I think it will be just temporary, the oil price is showing signs of recovery. The Opec countries are determined to bring it under better control and the demand is rising,” he noted.
As Reach Energy’s revenue is derived in US dollars, Shahul said, the strengthening of the greenback bodes well for the company. “So, I see positive times ahead for the company.”
At the current Brent price of around US$45, he said, it is still comfortable for Reach Energy. “We could go to US$30 per barrel kind of price because this is an onshore operation, it is well established and the cost has been contained and continues to be optimised.”
At yesterday’s EGM, Reach Energy also received the green light for a private placement exercise, which is expected to raise up to RM180 million to address the potential cash shortfall to purchase shares from dissenting shareholders in relation to its QA.
Shahul said it is not the company’s intention to dilute shareholders’ value, but the private placement will act as a contingency plan for funding, as it is difficult for it to go for bank borrowings as a SPAC.
Reach Energy shares fell 4.5 sen or 6.3% to 66.5 sen yesterday. However, its warrants soared 1.5 sen or 23.1% to 8 sen on 354.04 million units traded, and was the most active stock of the day.