Cyberjaya, 22 January 2021 – Dagang NeXchange Berhad (“DNeX”) has entered into a conditional share sale and purchase agreement (“SSPA”) with the other shareholders of Ping Petroleum Limited (“Ping”) to acquire an additional 60 per cent of the issued share capital in Ping not owned by DNeX, for USD78.0 million (RM314.3 million). (Exchange rate USD1.00: RM4.03). Based on the SSPA, DNeX may nominate DNeX Energy Sdn Bhd (“DNeX Energy”), its wholly owned subsidiary, to be the transferee and registered holder of those shares.
DNeX currently owns 30 per cent in Ping through DNeX Energy. The proposed acquisition will be satisfied by a combination of USD40.95 million (RM165.0 million) in cash, and the issuance of new ordinary shares in DNeX and new redeemable preference shares in DNeX Energy, for the remaining USD37.05 million (RM149.3 million).
The acquisition is expected to be completed by the end of the second quarter of 2021 subject to all required approvals under the SSPA being obtained. Upon completion of the exercise, DNeX will own 90 per cent of Ping, and this is expected to contribute positively to DNeX’s financial performance.
“Ping has proven to be a strategic fit with DNeX’s Energy division and has contributed positively to the Group’s earnings over the past few years. Ping is a solid investment having been consistently profitable, generating positive operating cash flow, and is debt-free with a strong balance sheet. This transaction also supports DNeX’s strategy to further establish its presence in the upstream Oil and Gas (“O&G”) business, which can be progressively scaled up over time,” said Dato’ Sri Syed Zainal Abidin Syed Mohamed Tahir, Group Managing Director of DNeX.
“We are pursuing a growth trajectory that is anchored on pursuing and capturing quality assets at attractive prices during the current downturn and riding on the upturn in the coming years. We are seeing early signs of macro recovery of demand amidst supply discipline, which has resulted in rising Brent crude prices,” he said.
The O&G sector has shown improvements with the price of Brent oil currently trading at USD56 (RM226) per barrel range, the highest in ten months, and from a low of USD19 (RM77) per barrel on 21 April 2020.
The rise in oil prices have been supported by market optimism that vaccines will revive the global economy, coupled with production output cuts by OPEC+. Recently, Saudi Arabia pledged to cut oil output by one million barrels per day in February and March 2021, leading to tighter supply outlook.
“The key management team of Ping have deep O&G sector experience and will continue to remain at the helm of Ping. We are leveraging on their extensive expertise and business acumen in brownfield assets turnaround, with the objective of building an international portfolio of cash-generating assets,” said Dato’ Sri Syed Zainal Abidin Syed Mohamed Tahir.
Since DNeX acquired a 30 per cent stake in Ping in 2016 for USD10 million, Ping has built a successful track record and a balanced portfolio of O&G assets in the North Sea, United Kingdom. This includes a 50 per cent effective interest in the Anasuria Oil Cluster, comprising a cluster of assets that has mature O&G fields, which can offer further upside production and development opportunities. In addition, Ping also owns various O&G assets that are in development and exploration with one greenfield asset ready for development.
“Being a small and nimble operator, Ping has demonstrated its ability to extract greater value through a more targeted approach by focusing on increasing production uptime, enhancing production capacities and lowering operating cost. Ping has successfully kept and continues to reduce operating costs to below USD20 (RM81) per barrel to ensure the company remains profitable and generate a positive operating cashflow despite the soft and volatile market conditions,” said Dato’ Sri Syed Zainal Abidin Syed Mohamed Tahir.
“Ping’s focus in the near term will be to unlock its untapped potential and maximise economic value from its asset portfolio. There is opportunity to further improve Ping’s production output by rejuvenating existing wells to monetise economically attractive reserves in the Anasuria Cluster. It is estimated that the Anasuria cluster has proved and probable (“2P”) reserve of approximately 26.6 million barrels of oil equivalent (“MMboe”),” he said.
The independent market valuation of the entire Ping’s 2P reserve stood at USD212.7 million (RM857.2 million). DNeX’s transaction price of USD78.0 million (RM314.3 million) for a 60 percent stake represents a discount of around 40 per cent to the market valuation of Ping’s 2P reserve.
“We believe this is an attractive deal for the Group and puts us in a strategic position to benefit from the eventual upturn in global economy and energy demand. As international O&G majors are divesting their upstream assets as part of their global portfolio rebalancing, DNeX is also looking into acquiring additional late cycle producing assets in such target markets as the North Sea, Malaysia and within the region as well,” said Dato’ Sri Syed Zainal Abidin Syed Mohamed Tahir, adding that DNeX will leverage on its expertise to enhance these attractive producing brownfield assets to generate future returns to the Group.
As at Ping’s latest audited accounts for the financial year ended 30 June 2020 (“FYE2020”), Ping recorded revenue of USD47.7 million (RM204.1 million) and profit after tax of USD2.5 million (RM10.5 million). (Exchange rate USD1.00: RM4.28 based on the end date for financial year ended 30 June 2020). This was achieved on the back of average realised oil price of USD59 per barrel. Due to the oversupply condition in the crude oil market coupled with the impact of the Covid-19 pandemic, volume of oil sold in FYE2020 stood at 760,654 barrels, 44 per cent lower as compared to 1,349,169 barrels sold in the previous year. Ping’s financial strength is solid with no bank borrowings and with cash and cash equivalents amounting to USD36.1 million (RM154.6 million). Ping has also recorded a positive cash flow from its operating activities amounting to USD19.1 million (RM81.7 million) in FYE2020.