US$1.4bil job marks SapuraCrest’s entry as global player

PETALING JAYA: The US$1.4bil (RM4.4bil) five-year contract that SapuraCrest Petroleum Bhd won from Petroleo Brasileiro SA (Petrobras) signals the arrival of SapuraCrest as an international player while enabling it to bid for more contracts from Petrobras in the future.

“This is the first notable contract secured from Petrobras. It indicates SapuraCrest's ability to compete internationally and its proven track record in the pipe-laying market,” said an analyst with MIDF Research.

“We believe that SapuraCrest stands a good chance of securing more contracts from Petrobras. It will benefit from Petrobras' five-year capital expenditure plan for vast deepwater oil fields amounting to US$225bil or equivalent to an average of US$45bil per annum,” he added.

SapuraCrest's wholly-owned subsidiary, TL Offshore Sdn Bhd (TLO), secured the RM4.4bil vessel charter contract from Petrobras, an oil producer and Latin America's largest company by market capitalisation and revenue.

The contract is for the charter and operation of three units of pipe-laying support vessels (PLSV), one of which will be constructed in Brazil. The other two will be built outside Brazil.

TLO will be responsible for the project management, procedures and operations of the PLSVs for Petrobras. The PLSVs will be deployed to perform oil and gas marine construction projects in the Brazilian waters.

In addition to its existing fleet, SapuraCrest will own six pipe-laying vessels by financial year 2015. Currently, SapuraCrest jointly owns three heavy lift-cum-pipelay vessels with its international partners.

The Petrobras contract is for five years and was secured by SapuraCrest on its own after a highly competitive and technically rigorous open tender process.

With this contract, SapuraCrest's earnings visibility increases substantially up to its financial year ending Jan 31, 2019. Its current outstanding order-book will surge by more than 50% to about RM12bil (from RM7bil to RM7.5bil), which is the largest in the industry.

The contract is expected to generate revenue from the fourth quarter of 2014. Terms of the contract period and the charter rate were not disclosed.

“It is a little surprising that the company did not give any details, considering this is a very sizeable contract,” said an oil and gas analyst.

“We believe that financing is not an issue as all three vessels have secured chartering contracts. We reckon that the construction cost per vessel may be about US$200mil (RM600mil). However, no details are disclosed for this construction tender,” said the MIDF Research analyst.

Quoting industry sources, the analyst said SapuraCrest had offered more competitive charter rates for the PLSV contract of between US$265,000 and US$245,000 per day, compared with the joint venture between Technip and Odebrecht, and Subsea 7, which offered US$270,000 and US$275,000 per day respectively.

Based on estimates, assuming an average daily rate of US$265,000, the contract tenure for each vessel is about five years. Given that the earnings contribution will only be realised starting from financial year 2015, there will be no impact on financial years 2012-2014 numbers.

Assuming a net profit margin of 10%, the MIDF Research analyst projected that the three vessels would contribute collectively RM84mil per year in earnings on the back of RM840mil in revenue.