High financial risk factors caused SMJ Energy to refrain from Mutiara Cluster bid
KOTA KINABALU: State-owned SMJ Energy has admitted that it didn't go into the bidding for high-investment oil and gas blocks due to the high financial risk factors.
The company stated that in cases of exploration prospects, SMJ Energy mitigates significant exploration investment risks by securing free carry or back-in rights.
Back-in right means that SMJ Energy would only consider participation after exploration success. This approach allows it to avoid committing to major exploration expenses upfront and take no risks in the event of expensive exploration failures, it said.
The company's statement on Wednesday (July 9) comes following state Finance Minister Datuk Masidi Manjun's statement at the state assembly on Tuesday (July 8) that Sabah International Petroleum (SIP) and SMJ Energy were not bidding for oil and gas blocks due to a lack of technical expertise and capital.
Masidi was referring to the Mutiara Cluster project off the coast of Sandakan, which was recently awarded to Dialog Resources Sdn Bhd, a wholly owned subsidiary of Dialog Group Berhad — a company based in Peninsular Malaysia.
SMJ Energy said that the Mutiara Cluster were a Discovered Resource Opportunities (DROs) requiring extensive exploration and development appraisals with major investments, and success was not guaranteed.
"These prospects are therefore not a priority for SMJ Energy at present," the company said.
According to the company, its key priority for the Sabah government was to secure greater revenue sharing and greater say and participation in oil and gas developments in Sabah through the Commercial Collaboration Agreement (CCA) signed with PETRONAS.
Under the CCA, SMJ Energy has the right to acquire DRO assets from PETRONAS when such prospects have been successfully developed.
The overall approach explains that SMJ Energy's strategic risk management is responsible for growing a profitable and balanced oil and gas portfolio in upstream oil and gas, LNG and Petchem, taking into account Sabah state's broader financial priorities.
SMJ Energy expects to announce more strategic developments and acquisitions in due course in line with the above strategy.
Since its establishment, SMJ Energy has grown into a company valued at RM5bil with significant stakes in key assets.
It holds 50% equity in Samarang Production Sharing Contract (PSC), 10% in LNG9 and 25% in SAMUR Petrochemical Plant, the company said, adding that there were profitable assets that generated strong cash flows.
"As a young startup, SMJ Energy has declared RM160mil in dividends within less than three years.
"Oil and gas is a high-investment, high-risk business. Exploration failures can lead to losses amounting to hundreds of millions or even billions," the company said.
SMJ Energy practised prudent financial investment, focusing on the acquisition of profitable producing assets generating strong cash flow and operated by reputable operators with proven Environmental, Social & Governance (ESG) track records, the statement said.
Earlier Wednesday (July 10), opposition Parti Warisan's information chief criticised the state government for its continued reliance on sub-contracting and concession distribution of its oil and gas instead of taking a more direct role in bidding for oil block exploration.
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