Uncertainty' - SKPetro

Its financial year ending Jan 2016 and FY2047 earnings are lowered by 6% to 7% as its upstream is valued at an 8% discount to the oil price assumption (pending the gas sales agreement GSA)).

This is on top of SKPetro’s risks of more than one time high net gearing.

In the environment now (March 2015), observers fear for its long term pipelay contracts stability as Petroleo Brasileiro SA has cancelled/negotiated various service contracts (Brazil: 47% of order book). It is unsure how protected the service contractors are from termination clauses.

Also 40% of its 17 operational rigs are also up for renewal (Three by FY2016m three to four by Fy2017). Weaker E&P earnings and asset impairment possibilities could arise in the earning quarters.

The latest foreign shareholding fell to 20% (From 23%, ex-Seadrill Ltd) and Tan Sri Mokhzani.

Datuk Mokhzani Mahathir’s resignation from the board could provide uncertainty on Kencana Capital’s holdings (over 10%).

It is facing substantial risks on LNG. The over three trillion cu ft gas reserves for SK408 and SK310 are sizeable in total oil and gas future production profile estimates.

Industry observers cannot predict exactly when it will sign a GSA with Petronas. Expectations for Asia demand for LNG are now (March 2015) bearish.

LNG producers are facing difficulty in locking in long term GSAs with Asian buyers.

Industry experts think LNG, which tracks oil price on a half year lagged basis, will fall by another 30% in 2015.

Note that SKPetro paid rm2.9 billion for Newfield Intl Holdings Inc’s assets. While it is believed that the GSA (to be signed per well) will likely be long term tenures, another uncertainty is the offtake level negotiated between the signing parties.