Kulim forays into oil and gas exploration

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PETALING JAYA (Oct 27): Kulim Energy Nusantara Sdn Bhd, a subsidiary of Kulim (M) Bhd, will foray into oil and gas exploration in Sumatera, Indonesia.

In a filing with Bursa Malaysia, Kulim announced its subsidiary had entered into a joint operating agreement last Friday (Oct 24), with two Indonesian companies, PT Graha Sumber Berkah (GSB) and PT Radiant Bukit Barisan E&P (RBB), to explore and develop and oil and gas field in South West Bukit Barisan Block, Central Sumatera in Indonesia.

The total cost for exploration activities from year 2015 to 2018 is estimated at RM175.7 million.

The filing said RBB is to act as the main operator for the project, while GSB and Kulim Energy will act as co-operators.

“The support to be provided by the co-operators includes amongst others, financial support in the form of capital or access to capital; technical support for operations; and human capital support for operations,” the announcement read.

“Under the agreement, the co-operators are obliged to provide support to the operator to perform its obligations under the South West Bukit Barisan Production Sharing Contract, which was entered into on Nov 13, 2008, between RBB, PC (SKR) International Ltd (SKR) and Satuan Kerja Khusus Pelaksana Kegiatan Usaha Hulu Minyak & Gas Bumi.”

RBB is required to undertake the on-going work program, geological and geophysical study, seismic study and exploration of existing or new wells in the area.

The announcement noted that in return for the support, Kulim Energy is entitled to 60% of the net profit gained from the project, while the remaining cache will be shared among the other parties, subject to the agreement and prevailing applicable tax.

According to the filing, the Indonesian government had awarded the contract to RBB and SKR on Nov 13, 2008, for a period of 30 years.

Under the contract, RBB and SKR have participating interests of 51% and 49% respectively.

The filing noted that the execution of the contract is consistent with Kulim’s long term business plan to diversify its business activities to other sectors, apart from oil palm plantations.

This is in order to cushion any fluctuation in earnings as a result of fluctuating palm product prices, especially with the imminent divestment of the group’s plantation business in Papua New Guinea and the Solomon Islands, via the disposal of Kulim’s entire stake in its 48.97%-subsidiary, New Britain Palm Oil Limited (NBPOL).

“Subject to the results of exploration works within the area, the execution of the agreement is expected to contribute positively to Kulim’s future earnings and enhance shareholders value in the long run,” the announcement read.

It also noted that Kulim shall initially finance its commitment under the agreement, using “internally-generated funds.”

“The group, as its recent announcement on Oct 23 on the proposed divestment of its 48.97%-subsidiary NBPOL, has earmarked RM850 million of the gross proceeds to be raised from the proposed disposal to grow and expand its existing businesses and/or inject into other viable assets or businesses that have good fundamentals and growth prospects,” the announcement read.

“The proceeds will be utilised to finance Kulim’s commitment on exploration works within the area, and other potential venture in the oil and gas sector and expansion of oil palm plantation in Indonesia.”

On Oct 9, Sime Darby announced it intends to buy all NBPOL shares, valuing the equity at RM5.62 billion.

Including the assumed debt of RM850 million, the cost of the takeover would be RM6.47 billion.

Kulim would gain RM2.75 billion for all of its 73.4 million shares in NBPOL.