Sapura Energy expects improved operating environment

KUALA LUMPUR: Sapura Energy Bhd expects an improved operating environment in the year ahead amid continued global economic recovery and high crude oil prices due to geopolitical tensions in Eastern Europe that are driving energy importing countries to look for new sources of supply.

The oil and gas outfit said these factors and the sharply higher oil prices, which have so far besieged the financial year ending Jan 31, 2023 (FY2023), would underpin renewed investment in the oil and gas sector, driving demand for its services.

Capitalising on these opportunities will require Sapura Energy to retain laser focus on the effective financial and operational restructuring of the company, it said in its annual report 2022

"As a key part of our restructuring, Sapura Energy is actively working to secure new funding sources to ensure that we have the necessary capital to execute our turnaround plan, including through divesting non-core assets.

"Alongside this, we will continue to engage with our lenders on the best way forward to address our debt burden," chairman Datuk Mohammad Azlan Abdullah and group chief executive officer Datuk Mohd Anuar Taib said in a joint review statement of the annual report.

Sapura Energy is optimistic about the prospects of reaching an agreement that recognised the claims of its lenders while ensuring the continued financial viability of the company and it would also continue to negotiate with its trade creditors under the framework of scheme of arrangement (SOA) to reach a mutually acceptable agreement on outstanding payments.

PN17 Status

On Tuesday, Sapura Energy announced that it has triggered the prescribed criteria pursuant to the Listing Requirements under Practice Note 17 (PN17), taking steps to regularise its business through a Reset Plan, launched in the financial year ended Jan 31, 2022 (FY2022).

Sapura Energy's board of directors has created a Board Restructuring Task Force in December 2021 to strengthen its management and governance functions and took a major step towards restructuring its debts in a fair and orderly manner through negotiations with its creditors after obtaining court orders to begin the SOA process in March 2022.

"It is important to stress that despite the current financial difficulties, Sapura Energy maintained competitiveness in the global energy services market; and continued to win contracts in Malaysia and internationally," said Mohammad Azlan and Mohd Anuar.

Building on this capability, Sapura Energy is confident its Reset Plan is on track to deliver improved results in FY2023, placing the group on the right path towards financial and operational stability.

Impact of COVID-19

Sapura Energy said the pandemic continued to have a major impact on its financial performance in FY2022.

It added that almost all of the RM2.2 billion operating losses resulted from legacy contracts that the group signed before the previous financial year (FY2021), which did not include COVID-19 provisions.

The group had incurred about RM570 million in direct costs from COVID-19 since the start of the pandemic and these direct costs include vessel standby expenses, as well as testing and quarantine costs for crew and employees, and the cost of deploying its own vaccination programme.

Apart from the direct costs incurred, the pandemic also resulted in additional expenses due to procurement delays and changes to project schedules and these consequential costs, which could be much higher than direct costs, severely eroded the profitability of certain projects.

"As yet, Sapura Energy has recovered only a small portion of these additional costs and is in the process of negotiating with clients to reimburse these costs," said Mohammad Azlan and Mohd Anuar.

The group noted that Sapura Energy's exposure to pre-pandemic contracts is expected to be reduced in FY2023 and such legacy contracts account for about half of its revenue composition in the first quarter of FY2023.

"We expect to reduce this portion to about 27 per cent by end-FY2023," said Mohammad Azlan and Mohd Anuar, adding that the group's discipline in project implementation and execution would ensure that the contracts it undertook were executed safely and efficiently.

The group's Enterprise Risk Management Framework, with appropriate risk appetites across its value chain, will be a key enabler to sustained performance.

"Sapura Energy will also be divesting assets that are not core to our business plan to sharpen our operational focus and free up capital. The group is also seeking sources of new funds to finance its business plan as it restructures its business and streamlines its operations," said Mohammad Azlan and Mohd Anuar.

-- BERNAMA