Sapura announced that it has taken Final Investment Decision together with its partners to develop the Gorek, Larak and Bakong fields as phase 1 in the SK408 Production Sharing Contract. First gas delivery is targeted for 1QCY20 and capex is about US$200m over the next 3 years. Maintain forecast as earnings contribution is expected to kick in earliest by FY21 which is beyond our forecast horizon. Based on our estimation, EBITDA contribution from this project in the first year is in the range of RM350-400m. Maintain HOLD with higher TP of RM0.64 (from RM0.48) as the finalization of gas sales agreement for phase 1 of SK408 improves the longer term earnings prospect of the company.

NEWSBREAK

Sapura announced that it has taken the Final Investment Decision (FID) together with its partners, Petronas Carigali Sdn Bhd (Carigali) and Sarawak Shell Berhad (Sarawak Shell) to develop the Gorek, Larak and Bakong fields as phase 1 in the SK408 Production Sharing Contract.

The FID follows the Field Development Plan approval from Petroliam Nasional Berhad (Petronas) and concurrently, the signing of the key terms to the gas sales agreement for phase 1 of the SK408 gas field development. The fields will be developed as three separate wellhead platforms tied back to the existing processing facility and to the MLNG complex.

Sapura is the development and production operator of the Larak and Bakong fields while Sarawak Shell is the development and production operator of the Gorek field. Sapura has 40% working interest in the field together with Carigali (30%) and Sarawak Shell (30%) holding the remaining interest.

HLIB’s VIEW

Delivery. First gas delivery for phase 1 of SK408 is targeted for 1QCY20.

Capex. We understand that total required capex for phase 1 (adjusted for Sapura’s effective interest) is about US$200m over the next 3 years.

Reserves. To recap, 6.5 trillion cubic feet of known gas reserves have been discovered for SK408 and this brings total known gas reserves for Sapura to 9 trillion cubic feet.

Forecast. Maintain forecast as earnings contribution is expected to kick in earliest by FY21 which is beyond our forecast horizon. Based on our estimation, EBITDA contribution from this project in the first year is in the range of RM350-400m. This represents potential 24-27% additional contribution on top of FY18 EBITDA level.

Maintain HOLD, TP Raised to RM0.64. Maintain HOLD with higher TP of RM0. 64 (from RM0.48) as the finalization of gas sales agreement for phase 1 of SK408 improve mid-term earnings prospect of the company. Our TP is derived from higher P/BV ratio of 0.4x (from 0.3x) to reflect the better longer term earnings prospect.

Source: Hong Leong Investment Bank Research - 12 Apr 2018