Sumatec’s partner to repay its debt after oil production hike

KUALA LUMPUR: Tan Sri Halim Saad-owned CaspiOilGas LLP (COG), the concession owner and operator of the Rakushechnoye oil and gas field in West Kazakhstan, will be able to settle its debt to Sumatec Resources Bhd following a plan to ramp up oil production.

Sumatec told Bursa Malaysia that COG had not settled oil operations service fees due to Sumatec totalling RM30.4mil up to end of last year.

Sumatec and COG are planning to ramp up oil production as the source of repayment depended on COG getting its 50% share of profits, which only begins after achieving two million barrels of oil production.

Under a joint investment agreement (JIA) signed in March 2012, Sumatec is entitled to 100% of the profit for the first two million barrels and only subsequently will the profit be shared on a 50:50 basis with COG.

“From Jan 1, 2014, up to Sept 15, 2017 (being the latest practicable date prior to this announcement), 276,948 barrels of oil have been produced under the JIA,” Sumatec noted.

“In order to alleviate the tight cash flow position, COG and Sumatec plans to boost oil production at the Rakushechnoye oil and gas field and utilise COG’s 50% share of the profits to repay the noncurrent trade receivables to Sumatec”

Sumatec said the 2.0 million production threshold could be achieved in 2018 and COG would be able to repay the trade receivables from its share of profits. 

“In view of this, Sumatec has classified the RM30.4mil trade receivables as non-current in nature,” it said.

In an announcement in May, Sumatec said for the third and fourth quarters of this year, the daily average oil production was expected to rise by 500-1,000 barrels per day while for the first and second quarters of 2018, the volume increment was estimated at 1,000-1,300 barrels per day.

It also said the forecast increment volume per day was considered to be fairly conservative. 

(COG’s 25-year oil and gas concession was awarded in August 2000 and will thus expire in August 2025.)

Sumatec, which swung into a loss attributable to shareholders of RM62.02mil for the year ended Dec 31, 2016 (FY16), also announced then that its external auditor, SJ Grant Thornton, had expressed a qualified opinion on its financial statements.

According to SJ Grant Thornton, there were material uncertainties which, if not realised, might affect the Sumatec group or the company’s ability to continue as a going concern.

It noted that the current trade receivable of the group, amounting to RM185.05mil as at Dec 31, 2016, was due from Markmore Energy (Labuan) Ltd (MELL), a company in which a controlling shareholder has control.

COG is an indirect unit of MELL, which Sumatec has previously eyed to acquire from Halim for US$205mil (RM858.5mil). A heads of agreement on the proposed acquisition was signed more than a year ago (on June 1, 2016).

However, Sumatec managing director Abu Talib Abdul Rahman, who ows one share in vendor  Markmore Sdn Bhd (the rest of the shares are held by Halim) was reported in June this year as saying that the company was likely to abort the proposed acquisition of COG.

This is as the company shifts its focus towards its gas utilisation plan, which includes the setting up of a liquefied petroleum gas (LPG) plant in Kazakhstan.