How Sapura slipped on falling oil prices and Covid-19

 

Sapura Energy has become one of the world’s biggest players in the O&G sector. (OMV pic)

PETALING JAYA: Sapura Energy Bhd (SEB) is likely to remain the biggest corporate story in Malaysia for some time to come.

Tumbling oil prices and a global pandemic led to its fall, but the failure of a major stakeholder to act decisively to save the company may just bury it.

For the financial year ended Jan 31, 2022, the company reported an RM8.9 billion loss, one of the largest in Malaysian corporate history.

Along the way, allegations of vested interests and cronyism have been bandied about.

A debate on the merits of saving the company is already on the cards. Opposition Leader Anwar Ibrahim and ex-prime minister Najib Razak will cross swords over the future of the company.

The debate of the year has been scheduled for May 12.

SEB, established in May 2012 through a merger of SapuraCrest Petroleum Bhd and Kencana Petroleum Bhd, rode to success on soaring oil prices, which topped US$133 per barrel at that time.

It became the world’s only oil and gas player to offer the full spectrum of services, serving oil companies in the areas of exploration, development, production, rejuvenation and decommissioning.

SEB has a track record of working in 20 countries — from Japan in the Far East, across China, South-East Asia and India, stretching to the Middle East, several parts of West Africa and then across the Atlantic to Latin America.

Along the way, the company was developing competencies in various fields in the oil and gas (O&G) services sector.

Among the services it offers are offshore drilling, operations and maintenance, exploration and production as well as shallow, deep and ultra-deep water structural installation.

It became the only O&G player to offer the entire gamut of services needed by oil companies.

It rivalled the world’s big players in the game, such as Technip SA of France, Italy’s Saipem SpA and McDermott International, which is based out of Houston, Texas.

Then everything changed. A plunge in oil prices left it deeply in the red. Its problems were then exacerbated by the Covid-19 pandemic.

For the record, SEB’s troubles are not unique. The steep decline in oil prices effectively put all the big players in the same quandary.

Oil prices began to fall in mid-2014 and by February 2016, it was down to just over US$45 a barrel. It rose in 2018 but turned south again to settle at just under US$25 a barrel in May 2020.

Prices have recovered, even breaching the US$100 mark in March 2022, but by then the outbreak of Covid-19 had forced oil companies to stay cautious.

Like many other O&G service providers such as Saipem, McDermott and French-US outfit TechnipFMC, SEB has been incurring losses since 2016.

Many of these companies have been forced to restructure. McDermott went into Chapter 11, Saipem announced a cash call for €2 billion while Technip is demerging or spinning off some of its assets.

Trouble on another front was also adding to these companies’ problems. To hold on to what they already had during the downturn, O&G players engaged in a price war, leaving them with even thinner margins.

Covid-19 presented another problem. Vessels had to be put on standby while new crew took over from those who had to be quarantined. For SEB, the direct costs incurred through the process amounted to approximately RM570 million.

Corrective measures became inevitable, measures that, unfortunately, were not acted upon decisively. - FMT

Yeoh Guan Jin is Business Editor at FMT.