The ratings of A+ID and MARC-1ID/A+ID assigned to Bayu Padu Sdn Bhd’s (wholly-owned by SapuraCrest Petroleum Berhad) Istisna’ MTNs and Murabahah CP/MTN facilities reflect SapuraCrest Petroleum Berhad’s (SapuraCrest) competitive position as one of the largest Malaysian-owned integrated services provider for the oil and gas multinationals; expected improvement to its financial profile resulting from substantial contracts-in-hand to sustain the revenue base; and manageable collection risk. Moderating the rating, however, is the higher debt leverage relative to its peers.

Demand for offshore oilfield services is expected to increase in tandem with the active offshore oil and gas exploration, development and production activities in the Malaysian waters. This augurs well for SapuraCrest’s various operating units which provide integrated services from offshore drilling, installation of pipelines and facilities, marine services to operations and maintenance. The focus on the development stage of oil and gas field projects yields more stability in revenue as compared to the exploration stage. To strengthen its competitive position, the group has plans to acquire deepwater assets and build its own construction vessel to provide greater flexibility in bidding for projects and better cost control.

SapuraCrest’s commendable operating performance and safety track record enabled the company to renew existing contracts and secure more services contracts. During the first quarter of year 2004, the group had secured approximately RM2 billion worth of contracts in total awarded by three parties, namely PETRONAS Carigali Sdn Bhd, Sarawak Shell Bhd and ExxonMobil Exploration Production Malaysia Inc to transport and install over 40 pipelines for an initial period of three years, from 2004 to 2006, with an extension option of two one-year terms.

Going forward, the existing order book of more than RM2 billion shall help to sustain its revenue stream for the next two years. The installation of pipelines and facilities (IPF) and offshore drilling divisions are expected to be the main revenue and profit drivers, contributing close to 60% of the total revenue and profitability. Historically, earnings from the IPF segment had been volatile due to the mismatch in fixed contract value against the variable leasing costs of vessels. This risk shall be reduced with SapuraCrest’s plan to construct its own heavy lift derrick pipe lay combination vessel (HLV). For FYE January 2005, SapuraCrest’s revenue surpassed the RM1 billion mark accompanied by a commendable operating margin of 8.9%. The FY2006 Q1 results posted further improvement with an operating margin of 11.4% on the back of RM364.9 million in revenue.

The debt-to-equity ratio had increased in FY2004 due to the accumulated losses and the inclusion of Sapura Energy Sdn Bhd’s RM140 million BaIDs after the rationalization exercise. Nevertheless, the rights issue exercise in February 2004 helped to contain the pro-forma debt leverage ratio to 2.42 times with the inclusion of the proposed bonds of RM600 million. Capitalization shall improve gradually, benefiting from the active IPF activities and profits from the commissioning of HLV. It is expected to improve further with the conversion of warrants, convertible bonds and Employees’ Shares Option Scheme (ESOS). The company’s financial flexibility stems from its listing status, unutilized banking facilities and a cash coffer of over RM300 million.