Mokhzani steps further back from SapKen

by **Cals** Sun 08 Mar 2015, 22:06

Mokhzani steps further back from SapKen

Saturday, 7 March 2015
BY: YVONNE TAN

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Shahril (left) and Mokhzani in happier times.
Although he has dismissed talk of selling his stake, the market remains uncertain
‘I WILL continue to protect my interest in SapuraKencana Petroleum Bhd (SapKen) and serve the company as a board member.”
This was what Tan Sri Mokhzani Mahathir said last February, after his unit Khasera Baru Sdn Bhd sold off a block of 190.3 million shares in the integrated oil and gas (O&G) services and solutions provider for close to RM820mil in total.
A year later, Mokhzani, together with close associate Yeow Kheng Chew, better known as KC in industry circles, have stepped down from the board of SapKen.
Mokhzani was the vice-chairman of SapKen, while Yeow was a non-executive director.
The duo, who announced their resignations on Wednesday, however, are still holding on to their 9.12% stake in SapKen which they have via Khasera Baru and have said that they will not sell it.
Whatever the reason for their resignations, what’s left of Malaysia’s largest O&G merger is a company that has now only one person in the driver’s seat - president and group chief executive officer Tan Sri Shahril Shamsuddin, whose stake stands at 16.71%.

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In 2012, when the merger was being pieced together, the industry dubbed the exercise as a “merger of equals”.
Already corporate heavyweights in their own right, Mokhzani and Shahril joined forces to create the biggest privately owned integrated O&G company in the country - SapKen - a product born out of their own companies, Shahril’s SapuraCrest Petroleum Bhd and Mokhzani’s Kencana Petroleum Bhd.
Although from the very beginning, it was largely a foregone conclusion that Shahril would be in charge of SapKen’s operations while Mohkzani would be more focused on the risk-management aspects of the group, this has not stopped observers from questioning whether Mokhzani’s exit from the board had anything to do with disagreements between the two childhood friends taking a turn for the worse.
The animosity between Shahril and Mokhzani has been the talk of the O&G industry for some time now.
The reasons for them not seeing eye to eye are not known, but it is believed that both had differing opinions on the expansion plans of the group.
“During company functions, the not-so-warm relations between the two is quite evident,” says an industry observer.
However, Mokhzani in reply to a question on why he had resigned told StarBiz on Thursday that there have been no disagreements.
An investment banker opines that the resignations could be due to a possible corporate exercise that Khasera Baru was undertaking.
“Perhaps, the next deal Mokhzani and Yeow are looking at may put them in a position of conflict should they remain on the board of SapKen ... so they resigned,” says the banker.
Apart from SapKen, both Mokhzani and Yeow have a major investment in the form of O&G service provider Yinson Holdings Bhd.
They hold an 18.55% stake in Yinson via Kencana Capital Sdn Bhd, which is the second-largest shareholder after the company’s chairman Lim Han Weng, who has 22%.
Kencana’s selling point
When the merger was first floated, an industry player says both went into the exercise with clear and conscious minds.
“When the merger was about to be completed, a key person who was running Kencana’s fabrication yard - Chong Hin Loon - was found to be terminally ill.
“After the merger, the yard was not fully utilised because it lacked leadership. Shahril’s team cleared that up. Now, there is no space in the yard,” he says.
The yard was Kencana’s selling point for the merger proposition, according to him.
Apart from the yard, Kencana at that time was also going into the rig business.
Recall, Kencana around that time had just acquired all the equity interest in Mermaid Kencana Rig 1 Pte Ltd (MKR1), Kencana Mermaid Drilling Sdn Bhd (KMD) and Mermaid Kencana Rigs (Labuan) Pte Ltd (MKR Labuan) held by Mermaid Drilling (Singapore) Pte Ltd for over US$66mil, paving its way into the drilling business.
Sapura saw a threat coming its way in the form of Kencana. So, the best way for it was to merge.
“That’s how Sapura saw it fit to merge with Kencana back then,” the industry player says.
Impairment issues
Much in the economic environment has changed since the merger was first completed in early-2012.
Oil prices, for one, have declined so much and are down about 40% since then, making it less attractive for high-cost O&G activities to take place.
Stoking concerns that SapKen has to make provisions in its books is the ongoing state-owned Brazilian Petrobras’ corruption scandal.
SapKen drives a significant amount of its orderbook from jobs in Brazil, where it is providing pipe-laying support vessels in order for pipe installation to be carried out for the production of oil wells.
Notably, one of SapKen’s major shareholders, Bermuda-incorporated offshore drilling company Seadrill Ltd, has already carved out its Brazil jobs from its accounting books, suggesting the severity of the impact of the scandal.
However, an official close to SapKen explains that Seadrill is involved in the exploration aspect of the business that is no longer viable, with the falling oil prices.
“Seadrill is involved in the exploration of the deepwater segment of the business. The drop in oil prices means a freeze in exploration jobs, especially deepwater. Therefore, they have to make impairments,” he explains.
He points out that SapKen is providing vessels for oil fields that are already starting to produce oil.
“It is not involved in exploration works.
“Its vessels are for production works and contracts have increased for this,” he says, adding that the group is poised to get additional contracts, which should be announced together with its upcoming quarterly financial results.
As for its Newfields assets in Malaysia, which are basically stakes in several producing O&G fields in Malaysia, the industry player says whatever impairment from the producing oil fields should be mitigated by Newfields’ large gas discovery.
Recall in 2013, SapKen paid some RM2.85bil for the Malaysian O&G fields that Newfields had put up for sale via a bidding process.
The first production of gas from the assets it had acquired from Newfields Malaysia is expected in the first quarter of 2017.
“So, the bottom line is, the concerns of SapKen having to make impairments may be overdone. Nevertheless, its next results should reveal the true picture.”
Whatever the reason for Mokhzani and KC’s exit from the board, it remains to be seen.
Mokhzani, however, is non-committal for now, saying they “don’t know just yet” what the next step is.
Meanwhile, SapKen shares are on a downtrend and extended Thursday’s losses following the resignations, ending yesterday four sen lower to RM2.41.
The stock has fallen to as low as RM2.08 in the current weak crude oil environment, a far cry from its all-time high of RM4.95 in December 2013.