Sapura Energy not likely to exit PN17 anytime soon

PETALING JAYA: It may take until the second half of 2026, at the earliest, for debt-laden Sapura Energy Bhd to qualify for the revocation of its Practice Note 17 (PN17) status.

UOB Kay Hian (UOBKH) Research also said that the six pipelay support vessels (PLSV) – operated by Sapura’s Brazilian joint venture (JV) – are more than enough to service Sapura’s yearly debt repayments of RM200mil to RM700mil for the first seven years.

This will help Sapura achieve the expected “RM4.8bil sustainable debt” as highlighted within Sapura’s latest scheme of arrangement, according to UOBKH Research.

The research house, which has a “buy” call on Sapura, noted that the Brazil PLSVs had been arguably the most resilient for the group since 2013, with a consistent quarterly JV income base.

“As we had highlighted before, the true measure of Sapura’s recovery is free cash flow generation.

“We reiterate that the PLSV will be the core boost to Sapura’s future income and reset plans.”

Sapura owns half of Seagems, a Brazilian JV operating six PLSVs.

Sapura has applied to the regulators for a further extension until May 2025 to formalise its regularisation plan in view of its PN17 status.

UOBKH Research pointed out that Sapura’s core loss of RM113.6mil in the financial year ended Jan 31, 2025 (FY25) had missed expectations.

This is because rigs were not spared from the industry’s slowdown towards the end of 2024.

This was a period of market correction for the global oil and gas industry, against the overheating rise in vessel charter rates and oil price uncertainties.

It has adversely impacted rigs Sapura T-9 and Sapura Pelaut.

Sapura T-9 has no contract, while Sapura Pelaut’s work was postponed to FY26.

“Earnings before interest, taxes, depreciation and amortisation (Ebitda) margins for rigs was one of the worst in recent history at 35%.

“Still, near-term rig utilisation remains under stress. Sapura T-17’s contract expired in December 2024, rendering it idle for a month at the very least in the fourth quarter of FY25 (4Q25), with a possibility of remaining jobless until July 2025.

“Sapura Berani, idle since February 2025, may commence works for ExxonMobil in May 25,” the research house said.

Despite the weak rig Ebitda, all other segments posted recoveries.

The 4Q25 period marked a major achievement in engineering and construction project settlement claims of RM186mil, reducing its provisions quarter-on-quarter substantially from RM787mil to RM277mil.

“We account it as a core profit, because it is a crucial target for its reset plans, and represented legacy projects like Brunei Shell and Yunlin Taiwan wind.”

Looking ahead, UOBKH Research has retained its earnings forecasts for Sapura.

“Although we acknowledge the rig division is still challenged, especially in 1Q26, we believe that other segments, especially PLSVs, will buffer against this weakness.”

UOBKH Research has a target price of seven sen for the Sapura stock, compared to March 28’s share price of 4.5 sen.

Downside risk at this price level is very limited, it added.