DNEX (4456) DAGANG NEXCHANGE BHD to acquire additional 60% in Ping Petroleum for US$78m
KUALA LUMPUR (Jan 22): Dagang NeXchange Bhd (DNeX) is acquiring an additional 60% of the issued share capital in Ping Petroleum Ltd for US$78 million (RM314.3 million), as the group looks to further strengthen its presence in the upstream oil and gas (O&G) segment.
In a statement, DNeX said it entered into a conditional share sale and purchase agreement with the other shareholders of Ping to acquire the stake, which upon completion will increase its holdings in the latter to 90%.
It said the transaction price for the 60% stake represents a discount of around 40% of the market valuation of Ping’s proved and probable (2P) reserve. The purchase will be satisfied by a combination of US$40.95 million (RM165.0 million) in cash, and the issuance of new ordinary shares in DNeX and new redeemable preference shares in its wholly owned unit DNeX Energy Sdn Bhd, for the remaining US$37.05 million (RM149.3 million).
The group is expecting to complete the acquisition by the end of the second quarter this year, subject to all required approvals being obtained.
“Ping has proven to be a strategic fit with DNeX’s energy division and has contributed positively to the group’s earnings over the past few years. Ping is a solid investment, having been consistently profitable, generating positive operating cash flow, and is debt-free with a strong balance sheet.
“This transaction also supports DNeX’s strategy to further establish its presence in the upstream O&G business, which can be progressively scaled up over time,” said DNeX group managing director Datuk Seri Syed Zainal Abidin Syed Mohamed Tahir.
He added that DNeX is pursuing a growth trajectory anchored on pursuing and capturing quality assets at attractive prices during the current downturn and riding the upturn in the coming years. The group also noted that there have been early signs of demand recovery, which have resulted in rising Brent crude oil prices.
Brent oil is currently trading around the US$56 per barrel range, its highest in 10 months, versus a low of US$19 per barrel on April 21, 2020.
DNeX said the rise in oil prices was supported by market optimism around a vaccination-driven economic recovery, coupled with output cuts by OPEC+, with Saudi Arabia pledging to cut oil output by one million barrels per day in February and March this year, leading to a tighter supply outlook.
“The key management team of Ping have deep O&G sector experience and will continue to remain at the helm of Ping. We are leveraging their extensive expertise and business acumen in brownfield assets turnaround, with the objective of building an international portfolio of cash-generating assets,” said Syed Zainal.
DNeX acquired a 30% stake in Ping back in 2016 for US$10 million. The latter, said DNeX, has been building a successful track record since, with a balanced portfolio of assets in the North Sea, UK.
This includes a 50% stake in the Anasuria Oil Cluster, as well as various other O&G assets that are in development and exploration with one greenfield asset ready for development.
Syed Zainal said Ping has demonstrated its ability to extract greater value and has successfully kept operating costs below US$20 per barrel to ensure the company remains profitable with a positive operating cash flow despite the soft and volatile market conditions.
“Ping’s focus in the near term will be to unlock its untapped potential and maximise economic value from its asset portfolio. There is an opportunity to further improve Ping’s production output by rejuvenating existing wells to monetise economically attractive reserves in the Anasuria Cluster. It is estimated that the Anasuria cluster has proved and probable (2P) reserve of approximately 26.6 million barrels of oil equivalent,” he added.
For the financial year ended June 30, 2020 (FY20), Ping posted a net profit of US$2.5 million and a revenue of US$47.7 million, on the back of an average realised oil price of US$59 per barrel.
DNeX shares rose 0.5 sen or 2% to settle at 26 sen today, giving it a market capitalisation of RM496.1 million.