Isnin, 22 Januari 2018

Sumatec gets 25-year extension on Kazakhstan oil field mining lease

Company Name: Sumatec Resources Berhad 
Date : 14 June 2017
Source : The Star

KUALA LUMPUR: Kazakhstan’s Energy Ministry has expanded the oil and gas exploration area given to CaspiOilGas LLP (COG), which Sumatec Resources Bhd is in the process of acquiring for US$205mil (RM873mil), and extended its mining lease by up to 25 years.
Sumatec, which provides management and oversight of COG’s concession area (i.e. the Rakushechnoye oil and gas field in West Kazakhstan), said that COG planned to drill up to six more new wells within the field apart from the existing drilling plan proposed by Sumatec. 

(Under the joint investment agreement signed in March 2012, Sumatec is entitled to 100% of the profit for the first two million barrels while from the third year onwards, the profit will be split 50:50 between Sumatec and COG.)
In a filing with Bursa Malaysia on Wednesday, Sumatec said COG’s general director Ruslan Keshubayev confirmed that COG had received an official letter from the Energy Ministry extending the exploration area within the Rakushechnoye lease allotment.

Drilling the additional six wells would also entitle Sumatec and COG for a further extension of up to 25 years to the mining lease, it said. COG initially had a 25-year concession expiring in August 2025.
Sumatec officially took over the Rakushechnoye field’s operations in November 2013. Based on Sumatec’s annual report issued on May 20, 2015, it had by then finished drilling eight wells, of which six could be put into production.
Sumatec had originally planned to develop up to 10 new wells last year but, due to persistently low oil prices, deferred the plan to 2017 and beyond.
The Sumatec group reported a loss after tax of RM62.02mil in the financial year ended Dec 31, 2016 (2015: profit of RM37.86mil) due to not having oil-related revenue and making provisions for the amount owed to and corporate guarantee given to its 49%- owned associate, Semua shipping group.
Sumatec’s external auditor SJ Grant Thornton expressed a qualified opinion on its 2016 financial statements.
According to SJ Grant Thornton, there are material uncertainties which, if not realised, may affect the Sumatec group or the company’s ability to continue as a going concern.
On the same day Sumatec announced the auditors’ qualification (on April 28), it also disclosed plans to ramp up oil production at the Rakushechnoye field.
For the third and fourth quarters of this year, Sumatec said it expected the daily average oil production to rise by 500-1,000 barrels per day. It estimated that for the first and second quarters of 2018, the volume increment would be at 1,000-1,300 barrels per day.

Khamis, 18 Januari 2018


This is part 2 and please read part 1 here for better understanding the whole story of my points of view on SUMATEC.

I was surprised with the news came out yesterday on SUMATEC. The company guided on its oil production growth and potential profit they can make.
With this guidance, I reaffirm the share price of SUMATEC can reach to my DCF valuation of 56sen for FY18 while for short-term is 25sen.

Like I said in previous article, my assumptions are conservative to avoid any potential upset when crude oil prices fall while I believe the management's forecast could be much higher than mine.
Yes, they are because they are the one operate the oil fields, so they know better real costs and profit.
Therefore, this give confident that my FY18 DCF value is realistic and can be met!
Below is a piece of cutting online news picked up from the star online or you can read full news here:

The difference between company's forecast and my conservative assumption
1. Oil production numbers in FY19
The company expects total oil production to increase to 7,500/b daily by end of this year. This means next year will see full year of oil production of 7,500/b daily. Annualised it, we will get 2.74 million/b for total oil production by the Company in FY19.
Meanwhile, my forecast for total oil production by the company next year is 2.66 million/b. And my oil production forecast for FY18 is marginally conservative not lower than Management.
2. Profit margin
The company expect to make net margin of 60%, which USD30/b at least from market / selling prices of USD50/b. Assuming there is other costs and some hidden costs to be deducted, they could still make at least 40-50% net margin.
Meanwhile, my forecast for net margin is only around 28-31%.

Why my valuation is based on DCF not PE ratio?
1. Its oil field/assets are concessionaire, which have expiry date. So, we want to value the whole potential profit throughout concession period. 
2. DCF take into consideration the impact in real earnings, cash flow and balance sheet (working capital). So, this removes uncertainty or risks in valuation.
For example, the plunge in the share price of Sapura Energy to low of 68sen due to the concern on its fundamental following bad recent results. So, it is important to know its whole value after financial loss, which directly impact dilution in its cash, shrank in operating cash flow, payment capability for high debt and high spending on capex.
3. DCF has WACC, which indicates it takes into account the average rate of return for the company to compensate all its different investors.

I know it's very hard to digest this penny company can make a comeback. But I believe, in this world everything starts from scratch before it grows bigger. The important thing is do not underestimate a small company and understand its operation. From there, you can decide and make a judgement.
TOP glove was on second board in the past before you see where it is at TOP right now.
So, SUMATEC is a PETRONAS in the making in Khazakhstan. We will see its results to turnaround this year and even higher given favourable oil prices. 

As they can make huge margin at oil price of USD50/b, can you imagine how big and sustainable is its profit based on oil prices at USD60/b above. 

At the time of writing, Brent is at USD69.80, nearly to touch USD70/b and WTI also make fresh high.
The company also clean, no borrowings.

It is time to reap the fruit of the past painful and restructuring. Things start to fall in place and favour SUMATEC now.

It is also a time to switch from upstream players like UMWOG or Sapura Energy, HIBISCUS, KNM, REACH to the BEST and still laggard upstream player, SUMATEC.

origional post here