KUALA LUMPUR (April 8): Sumatec Resources Bhd has no plan to diversify its businesses as the company would continue to focus on exploration and production despite the sharp fall on crude oil prices, said its chief executive officer Chris Dalton.
He said Sumatec (fundamental: 2.4; valuation: 0.9) would drill more oil wells to expand its production capacity.
Dalton was speaking to the media, after the company's extraordinary general meeting (EGM) today.
Presently, Sumatec is in the joint venture with CaspiOilGas (COG), and Markmore Energy (Labuan) (MELL) for the exploration of Rakushechnoye oil field in Kazakhstan, which has five wells.
Besides, the new asset Buzachi Neft which Sumatec is acquiring from Borneo Energy Oil Ltd, has seven oil wells in total.
According to him, the company is planning to increase its oil well to 26, from 12, by year end.
To achieve its objective, Sumatec has set aside some US$20 million (approximately RM74 million) for capital expenditure (capex) this year for oil field development.
The total capex is expected to increase from US$30 million to US$40 million (approximately RM111 million to RM148 million) in the next year.
"We are planning to increase our production capacity, especially the new asset we are acquiring," Dalton said. This is to offset the drop in revenue from the Rakushechnoye oil and gas field, probably by 2017.
He explained according to the agreement signed in 2013, Sumatec will have to share its income generated from the oil field with COG and MELL, should the accumulated production exceed two million barrels.
"We projected that the oil production from Rakushechnoye oil field may touch two million barrel[s] by 2017. Hence, we need to expand capacity to address the problem," he added.
At the EGM, Sumatec’s shareholders have approved all resolutions tabled, including the acquisition of Borneo Energy Oil Ltd and the proposed rights issue.
The purchase price of Borneo Energy Oil Ltd amounting to US$290 million, will be satisfied through cash payment at US$210 million, while US$80 million is to be settled via the issuance of 1.22 billion new shares in Sumatec at an issue price of 23 sen per share.
The deal is expected to seal by second quarter of this year, and start contributing to the company's earnings by next year.
On the profit fetched from a barrel of oil produced, Dalton said the company could earn a gross profit of US$10 to US$15 per barrel, adding Sumatec would still make “some profit”, even if oil prices fell below US$40 per barrel.
However, he did not disclose how much the company would earn should crude oil prices dip below US$40.
(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)