CLIQ Energy is acquiring oil producing assets in Kazakhstan.
This is despite having to spend more for the purchase.
The US$117.3 million acquisition sum for a 51% stake in two oilfield blocks in Kazakhstan was only equivalent to RM433.4 million when it was first announced in March this year.
However, with a weaker ringgit, the price tag has ballooned by RM58.79 million or 13% to RM493.83 million based on RM4.213 per dollar as at 5pm yesterday.
On this, CLIQ Energy managing director and CEO Ahmad Ziyad Elias said the acquisition is still economically viable and “within the valuation” based on its sensitivity analysis.
“We’re still upbeat about this project and it has met all the investment criteria set in our prospectus,” he told a press conference after the company’s AGM yesterday.
Ahmad Ziyad added that the company has “no time” left to look for alternative assets within a short period of time considering that it only has until April 9, 2016.
“We’ve spent a lot of time, effort and due diligence getting this and this is the right asset,” he noted.
CLIQ Energy is currently awaiting approval from the Securities Commission (SC) after submitting its proposal early this month. It hopes to conclude the deal early next year.
Meanwhile, executive director and CFO Kamarul Baharin Albakri said the company is in active discussions with the SC to address the shortfall in cash payment for the acquisition.
To recap, CLIQ Energy is required to make a cash payment of US$90 million to the vendor upon completion of the sale and purchase agreement. The remaining US$27.3 million is due at the end of the third year of the acquisition.
Due to the weakening ringgit, the RM345.78 million in the trust account as at March 31 will no longer be able to meet the initial cash payment if ringgit weakness persists.
“We’re looking into potential mechanics within the guidelines itself, in consultation with the SC, to address the potential gap. That’s on-going and the board is aware of this issue.
“From the shareholders’ perspective, the concern they have now is the depreciation of the ringgit against the acquisition cost, if they were to approve it, and whether the company has sufficient cash or not,” Kamarul Baharin noted.
When asked of the consequences of a persistent fall in oil price, Ahmad Ziyad said that the oil price is close to its bottom and the acquisition should bring about a positive impact moving forward.
“We’ve tested the sensitivity up to US$40 a barrel, that’s all I can say, the project is still viable and has value,” he reiterated. The acquisition is based on oil price of US$50 a barrel.
The oilfield assets are able to increase the production capacity from 1,400 barrels per day to 7,500 barrels per day within four years, with an expectation to break even in three years.