PSC could turn Sumatec around

KUALA LUMPUR: Sumatec Resources Bhd has entered into a framework agreement with Markmore Energy (Labuan) Ltd (MELL) and CaspiOilGas LLP (COG) for the award of a production sharing contract (PSC) for the Shelly oil field in Kazakhstan.

COG, a wholly-owned subsidiary of MELL, is the concession holder and operator of the Shelly oil field, while Sumatec is seeking the mandate to develop and extract oil at the field.

Sumatec managing director James Chan told The Edge Financial Daily: “This is a good contract and should be able to get Sumatec out of PN17 in about a year.” Sumatec has been in the PN17 category since April.

The proposed PSC is a 50:50 profit-sharing venture between Sumatec and COG for the 354.45-sq km Shelly oil field, in which COG has the concession until Aug 25, 2025 to explore oil.

Interestingly, MELL is a wholly-owned subsidiary of Markmore Sdn Bhd, the vehicle of corporate player Tan Sri Halim Saad, who was among the most prominent figures in corporate Malaysia in the late 90s.

Halim told The Edge Financial Daily in a phone conversation: “Sumatec has the expertise … so why not,” when asked about the selection of the ailing company to partner his oil and gas outfit Markmore.

Judging by initial reports, Sumatec’s prospects seem bright.

According to SRK Consulting (Australasia) Pty Ltd’s assessment of the Shelly oil field reserves, the field contains “Proved plus Probable” (2P) hydrocarbon reserves of 122.3 million barrels of oil equivalent.

The majority of these reserves are located within a 33-sq km area in the northern part of the field which makes up 9% of the total field size.

It seems there is a huge upside potential in the largely unexplored southern area.

“It (the southern area) is close to the Shell concession and is not fully explored yet. It has the potential for more exploitable and recoverable oil,” Chan said.

The framework stipulates that for the first two years, Sumatec will enjoy 100% of the profits but will also bear all the related costs, including infrastructure expenditure such as pipes, oil and gas treatment plants, and wells. After that, the profits will be shared equally between Sumatec and COG.

According to a source who spoke on condition of anonymity, there are approximately 47 wells drilled in the Shelly oil field and out of which, 14 are operational and producing oil. The source added that production from the field is slated to reach 10,000 barrels per day by the end of the second year and it estimated very good margins for Sumatec.

Chan said if the deal goes through, Sumatec will take over the operations from the present management and build up the oil and gas infrastructure.

Oil and gas players estimate the PSC to set Sumatec back by more than US$100 million (RM318 million), a hefty sum for the PN17 company.

Sumatec’s proposed PSC is conditional to its regularisation exercise being given the green light by shareholders.

An EGM is likely to be called to get shareholders’ approval for the proposals which include a par value reduction, issuance of new shares, a rights issue and debt restructuring.

The par value reduction will see the cancellation of 17.5 sen or 50% off the par value of the 214.36 million 35 sen shares.

Other proposals include raising RM15 million via the issue of new shares to yet-to-be disclosed investors and a renounceable rights issue worth RM445 million which the new investors will be entitled to.

Sumatec also proposed the issuance of RM32.5 million worth of shares to unsecured creditors who hold approximately RM65 million in debt.

The company’s share price which has been trading below the 10 sen band since late May saw a sudden surge in volume in the beginning of this month. Sumatec’s stock rocketed 460% to close at 28 sen yesterday from a low of five sen on Aug 11.