Kencana expanding Lumut yard

KUALA LUMPUR: Kencana Petroleum Bhd is in talks to acquire more than 130 acres beside its fabrication yard in Lumut, Perak, sources said.

It is understood that Kencana is close to sealing the deal, which could see the company substantially increase its yard space to enable it to take on larger jobs.

It is still not clear which parties Kencana is in negotiations with, but among its neighbours is Lumut Maritime Terminal Sdn Bhd (LMT), which is 50% plus one share controlled by the Perak government.

Rumours of Kencana looking at increasing its current yard space from 172 acres to 300 acres has been rife for sometime now. Kencana has acquired land from LMT in the past to increase its yard space. The company has been on an expansion spree for some years now, and last spent RM34 million in 2010 to increase its yard size to 172 acres from 123.7 acres.

Players in the oil and gas industry need to continuously strengthen their capabilities and expand their capacity in order to remain a viable candidate for prospective jobs. A larger yard would allow Kencana to take on larger jobs and enable the company to rake in more in earnings.

Kencana’s move to expand its yard is likely caused by competition in increasing yard space in the industry. Earlier this year, Malaysia Marine and Heavy Engineering Holdings Bhd (MHB) entered into a memorandum of understanding with Sime Darby Engineering Sdn Bhd to acquire the latter’s yard in Pasir Gudang for a cash payout of RM399 million. Along with the yard in Teluk

Ramunia which was acquired by its parent Petroliam Nasional Bhd (Petronas), MHB increased its fabrication yard size to 672 acres.
Funding for such an acquisition should not pose a problem for Kencana. As at July 31 this year, it had RM827.8 million in cash, including a remaining RM288.4 million from a private placement carried out last year.

Kencana’s fabrication yard in Lumut, first established in 2000, was 11 acres and with an annual load-out jetty capacity of 5,000 tonnes. The load-out jetty capacity was increased to 30,000 tonnes last year.

For FY11 ended July, Kencana saw its net profit rise 71% to RM223.1 million from RM136.1 million the year before, while revenue rose 43.2% to RM1.56 billion from RM1.09 billion.

“This is mainly due to higher progress achieved for contracts in hand on the back of a bigger order book and better management of relevant costs, contributions from drilling services as well as the maiden contribution from offshore diving support services,” the company said in its last quarterly report.

Kencana shares closed at RM2.51 as it gained nine sen yesterday. Year-to-date Kencana’s stock has gained 4.51%.

Kencana is also undergoing a corporate exercise where the company is being merged with oil and gas stalwarts SapuraCrest Petroleum Bhd. The merged entity, with its size, will be better able to compete in the global market.