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KrisEnergy latest O&G firm to flag possible debt strain
UPSTREAM oil and gas firm KrisEnergy, which like failed Swiber Holdings counts DBS as its primary lender, suffered a US$25 million quarterly loss and warned of possible stress on some debt covenants amid "one of the most severe downturns" in the industry in nearly four decades.
The timing of the announcement, so close after the widely-chronicled troubles facing offshore marine firm Swiber group - where DBS has a S$700 million exposure - heightened the bearish mood in the oil and gas space, fanning concerns that the oil shock could claim more victims here.
KrisEnergy, a South-east Asian-focused firm majority owned by Keppel Corp, saw its S$130 million notes due June 2017 fall just below 80 cents on the dollar late Monday morning versus the 89.55 cents it was traded at on July 28, Bloomberg reported.
Its shares fell 0.3 Singapore cent or 2.4 per cent to finish at a low of 12.1 Singapore cents on Monday, down 65 per cent from a 52-week high of 37 Singapore cents reached ten months ago. At this level, the counter has lost 27 per cent this year.
In a note accompanying the company's latest results release, KrisEnergy interim chief executive Jeffrey MacDonald said: "A little over two years ago, oil prices began their descent into what is one of the most severe downturns I have seen in my 38 years in the exploration and production (E&P) industry.
"Market volatility and the low oil price environment, coupled with general negative sentiment towards the oil and gas sector, have put a strain on revenues and our share price, which, in turn, has greatly reduced our ability to access capital."
The firm, which has another S$200 million debt paper due in August 2018, swung into the red for the second quarter ended June 2016 from a profit of US$9.6 million a year ago. Revenue more than doubled to US$30.7 million from US$11.6 million as crude oil sales increased and despite a fall in average realised selling prices.
"No one expected oil prices to go so low. (But) we have been prudent... everything we have control over, we have managed to reduce," KrisEnergy chief financial officer Kiran Raj told The Business Times.
The firm has slashed jobs by 25 per cent.
Although it guided in February for a US$50.8 million capex this year - the lowest annual budget since its inception seven years ago - it has now raised its planned capex to US$83 million, still way lower than the US$225 million spent in 2015. The revision is mainly due to the group's working interest share in Block A Aceh gas development in Indonesia.
Pressure is mounting for the firm which only a year ago, raised US$120.1 million net from a rights issue, the bulk of which has already been spent, largely on capex, as of end 2015. As a result of the cash call, Keppel Corp, via wholly-owned Devan International, which originally owned 20 per cent of KrisEnergy and raised this to 31.4 per cent after completing a call option and cornerstone exercise pre-2013 initial public offering, emerged as majority owner with a 40.1 per cent stake.
With some of its debt covenants displaying stress, as gleaned from its quarterly tests, KrisEnergy is sussing out several options: equity or equity-linked issues, refinancing or asset divestment. The assets up for sale, said Mr Raj, could include any in its portfolio of 19 contract areas that spans five countries including Indonesia, Thailand and Cambodia.
The company's debt warning may not be a shock to bondholders. Last November, it "went to market" to seek - and it received - bondholders' nod to amend the trust deed to provide it "headroom" and "flexibility" to manage the challenging cycle.
Mr Raj said: "They (the notes) are ten months away from now. We want to address the repayment or refinancing scenario. We already took the precautionary step to meet with bondholders (last November).
"We engaged them earlier rather than later given the downward pressures. We don't see the benefit of doing that retrospectively."
Access to capital could be a dilemma as risk-averse lenders steer clear from players in the hard hit sector. KrisEnergy's own experience with its two-year US$108.3 million revolving credit facility (RCF) provided by HSBC, ANZ and the Commonwealth Bank of Australia which was extended for one more year in March this year and then few months later, transferred to DBS in end June is proof.
"It was always our intention to refinance the debt given the onerous elements," said Mr Raj.
"We could have done that before we extended the RCF but for the first time in all our careers, we saw two banks remove themselves from a binding term sheet citing material adverse change," he added, referring to a new and larger credit facility that failed to materialise.
Thanks to its affiliation with Keppel, according to Mr Raj, the firm found an opportunity with DBS, which waived the onerous elements imposed by the previous lenders and upsized the facility to US$148.3 million.
"Keppel has been supportive every step of the way. They came in as pre-IPO investors. Then (came through) at the IPO and later, for the rights issue. We sleep better at night because of them," said Mr MacDonald.