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Mirach Energy: Revving Up After A Turnaround Year?
With the Mineral, Oil and Gas (MOG) sector a hotbed for discussion in the market recently,Shares Investment delves into the sector and gets up close with William Chan Shut Li, executive chairman and chief executive officer of Mirach Energy to catch up on the global developments that could affect the industry and how Mirach has been faring in its exploration and production (E&P) activities.
The hottest topic in the market of late has got to be the MOG sector. The Singapore Exchange (SGX) has introduced new Mainboard admission rules for MOG companies as well as transitional arrangements for existing ones to comply with the new requirements to safeguard investors’ interests given the technical and specialised nature of this industry. Coupled with SGX’s recent queries into six energy-related companies and subsequently suspended three on unusual trading activities that saw their shares rise exponentially and then plummet to their lows, we can certainly understand the case for greater transparency.
After climbing steadily to a 52-week high of $0.54 on 26 August 2013, Mirach has also turned heads when its shares lost half of its former high to hover around $0.20. Quizzed on this issue, a modest Chan instead focused on Mirach’s developments and attributed the sharp rise to the refinancing of its convertible bonds due early 2014 and the positive progress in the company’s E&P activities. Notably, the recent plunge and enlarged number of shares are also likely due to the conversion of its convertible bonds.
E&P Developments
After divesting its loss-making coal mining and coal trading business in Indonesia in FY12, Mirach ventured into E&P activities, holding interests in an offshore oilfield in Cambodia and onshore oil and gas fields in Indonesia. Particularly, its Kampung Minyak Oil Field in Indonesia has been drawing interest as it discovered a new untapped oil zone at KM607, one of its oil wells. As of 14 October 2013, KM607 is producing an average of 220 barrels of oil per day (bopd), tripling its production to an average of 360 bopd, which is close to the company’s target production of 400 bopd for this year.
On Mirach’s target to drill a total of nine wells at its Kampung Minyak Oil Field this year, Chan enthused, “We have completed drilling for four oil wells and remain on track to meet our target of nine wells over the next two months.” He also noted that prospective resources at Kampung Minyak is around 40 million barrels and following the completion of the drilling and valuation of the reserves come this year end, there would likely be a greater volume of resources that could be commercialised.
Turning the spotlight onto its Cambodia offshore oil field with prospective reserves of 345 million barrels, Chan highlighted that unlike the Kampung Minyak reserves, this project is an exploratory one and it is in the midst of an Environmental Impact Assessment (EIA), which started in fourth quarter last year. He is hopeful on completing the EIA soon and to begin drilling activities by early next year. “To ensure the project would be able to commence in a timely fashion, we are also concurrently in discussions with offshore services companies for the provision of jackup rigs as well as ironing out details of our action plans,” Chan added.
Stepping Ahead
Given the importance of crude oil as an energy resource, Chan is positive on the long term outlook of the industry. Chan pointed out that Mirach is constantly on the lookout for opportunities to acquire more E&P projects and E&P rights in Southeast Asia. It is also open to setting up partnerships and joint ventures in the downstream segment such as its newly incorporated subsidiary, Acrux Procurement (Singapore), for the procurement and distribution of crude oil and other energy-related products and services.
Optimistic on its developments, Chan said, “We are in close discussions with potential business partners and are expecting these expansion plans to gain traction and roll out in the coming year.”
Nonetheless, Chan cautioned that careful assessment will be placed into deciding what kind of E&P projects the company would take up, such as ensuring the scope and size of oilfields are suitable for the company’s capacity, as well as whether Mirach can deliver the expectations of the project in terms of budget and production.
On an international level, challenges are also aplenty given the potential disruptions in oil producing countries. When asked if there are any concerns regarding the Syrian conflict, Chan remains confident, noting that the industry has weathered similar situations in the past, and Mirach’s cost recovery business model with Indonesian state oil company, PT Pertamina, would have minimal impact on its bottom line as service fees the company receives for drilling are pegged to oil prices.
Turnaround Earnings; Improved Financial Flexibility
Reporting a substantial jump in its 1H13 revenue, Mirach attributed the increase to its continuing operations in oilfield services, where revenue improved from US$0.5 million to US$3.1 million. Chan opined that this segment is likely to improve further, riding on potential partnerships and consultancy fees with oil companies from China that are expanding regionally. In tandem with the increased revenue, Mirach’s earnings returned to the black to US$0.7 million from losses of US$3 million.
“While oilfield services have shown good improvement, our main revenue driver and focus would still be on our E&P segment. We believe this segment will start contributing to our top line by next year once we hit our target production of 400 bopd and to improve steadily thereafter,” Chan highlighted.
Asked if its 62.6 percent fall in cash and cash equivalents from US$8.2 million to US$3.1 million and the negative cashflow in 1H13 are worrying, Chan explained that the company has successfully refinanced the convertible loan that is due early 2014. With no stress from financing the debt and the new convertible loan’s maturity date two years from the first drawdown of the loan, Chan views that this has greatly improved Mirach’s financial flexibility to embark on potential opportunities.
Backed by the positive developments in its Indonesian oilfield and its on-going efforts to secure more business opportunities, this turnaround year for Mirach could very well be its turning point to improving its financial performance going forward if its plans set out in motion!
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