This week we have run a trio of columns based on the British nursery rhyme Three Blind Mice:
“Three blind mice, three blind mice
See how they run, see how they run
They all ran after the farmer's wife
Who cut off their tails with a carving knife
Did you ever see such a thing in your life
As three blind mice?”
Our first two blind mice were troubled offshore support vessel operator Bourbon and rundown British cable lay company the Global Marine Group.
Our third and final blind mouse to close the trifecta is Malaysian driller and offshore construction player Sapura Energy.
Like Bourbon and Global Marine, Sapura has endured a wretched decade of pain. We have covered the company’s travails extensively (often with musical analogies) since its Malaysian lenders attempted their first bail-out of the heavily indebted company in 2019.
Sapura was pumped up in the boom years of the early 2010s by its fast-living and egotistical former CEO Tan Sri Shahril Shamsuddin and his brother Datuk Shahriman Shamsuddin, who together owned around 13 per cent of the company via their private vehicle Brothers Capital.
We noted that for many observers, seeing Shamsuddin humbled might be the only saving grace of Sapura's misfortunes. In 2013, Sapura (then known as SapuraKencana) acquired the tender drilling fleet of Seadrill in a US$2.9 billion dollar deal. In 2014, Seadrill promptly dumped US$300 million of the shares in Sapura that had been obtained as part of the tender rig sale, just before the market crashed.
Sapura’s problem was that it was loaded up with simply too much debt and held too many contracts where it made no money. Three years ago, we warned that the company faced what we described as a “Natalie Imbruglia Moment” as nothing was right and Sapura was torn, incurring losses of over US$500 million in 2021, and facing an expensive offshore wind project failure in Taiwan.
In March 2021, Datuk Mohd Anuar Taib was appointed as CEO of the company, finally replacing Shamsuddin who was given the boot retired after leading the group for more than 25 years.
Taib was a former vice president at state oil company Petronas and had headed Shell in Malaysia. He inherited a company in a dire state.
Sapura was labouring under the burden of US$2 billion of net debt and was placed under a court programme in Malaysia to protect it from its creditors. This gave it breathing space to try to reach a deal with creditors and sort out its balance sheet.
Under Taib, Sapura embarked on scrapping three of its surplus and laid-up tender assist drilling rigs for US$8.2 million and selling some of its construction assets, including the jewel in the crown, its 2008-built pipe-laying and crane vessel Sapura 3000, which was sold for US$71.5 million to the AD Ports Group later in 2022.
In April 2024 it announced the sale of its Malaysian offshore gas fields to TotalEnergies, providing it with a financial lifeline of US$530 million in cash plus the transfer to TotalEnergies of a US$175 million debt.
Since then, the company has ridden the upcycle in offshore drilling, where it continues to own and operate a fleet of five semi-tender rigs and six tender barge rigs, the largest rig fleet in South East Asia.
As we reported, Sapura Drilling announced it had won US$720 million in new rig charters, including two contracts from Thai state energy company PTTEP for contracts for the tender assist drilling rigs, Sapura T-17 and Sapura T-18 for five years firm and an optional extension of three years. PTTEP is Sapura’s largest customer with five rigs on hire.
In Angola, Sapura also secured a contract extension from Chevron, for the tender assist drilling rig Sapura Jaya, which will run to November 2025, along with two domestic new contracts in Malaysia, one for the rig Sapura Berani with ExxonMobil for development drilling for thirty months, and a second four-well contract with EnQuest for Sapura Esperanza commencing in the next three months.
Despite these promising future contracts, the company has struggled, and it reported a negative cash flow for the last quarter, and another loss. In November, the CEO was changed again, with SapuraOMV Upstream CEO Muhammad Zamri Jusoh being nominated to replace Taib. Taib stepped down in January, after SapuraOMW was sold to TotalEnergies, and Zamri took over.
Then, last week, came the breakthrough at last. Sapura would be rescued, and its long-suffering Malaysian creditors would be made whole. Who was the white knight?
Malaysia Development Holding, a state investment fund, announced that it would be “lending” Sapura MYR1.1 billion (US$247 million) in the form of “redeemable convertible loan stocks in the company” so that Sapura could pay its debts to its local vendors.
Close watchers of Malaysian Airlines and its regular bail-outs will know how this works.
Malaysian prime minister Datuk Seri Anwar Ibrahim has been at pains to stress that the aim of this new state funding is simply to pay the thousands of Malaysian vendors who depend on Sapura for their livelihoods. He said that 80 per cent of them were small- or medium-sized enterprises owned by ethnic Malays (known as bumiputera), who enjoy special privileges in the oil sector.
Mr Anwar assured the taxpayers of Malaysia that this US$247 million wasn’t a grant, but rather “an investment to support the strategic oil and gas ecosystem.” He stressed it would not benefit the former management or shareholders (a pointed dig at Shahril Shamsuddin).
The official Malaysian government news service Bernama was quick to highlight that “rigorous financial scrutiny, including audits and due diligence, would be done before finalising the restructuring plan and capital injection.”
Mr Anwar stressed that findings from these assessments will be shared with enforcement agencies, including the Securities Commission, to determine whether any legal action is warranted. The Prime Minister emphasised that Ernst and Young had carried out a forensic audit into the company, and additional due diligence will follow.
Mr Anwar concluded with a rhetorical question:
“If we allow Sapura Energy to go bankrupt, what will happen? It is the only Malaysian company capable of operating at this level. If it shuts down, all downstream activities and lower-tier operations will be taken over by foreign companies.”
The Prime Minister clearly intends to cut off the tails of the shareholders in the company, but Sapura is now deemed officially too big and important to fail. Let’s hope CEO Zamri can avoid the mistakes of his predecessors.
The track record of national champions in Malaysia able to access state funds is “patchy.” The engineering, procurement and construction (EPC) industry is littered with businesses like Petrofac, the Wood Group and McDermott, which have gone bust through poor project management and excessive risk-taking. The drilling sector is equally cyclical.
I hope Sapura can be restructured on a commercial basis and that it does not become a Malaysian offshore version of Italian airline Alitalia – forever needing assistance, emergency loans, and bail-outs in the national interest.
Unfortunately, when the cat of market discipline is away, the mice (blind or otherwise) start to play.
Background reading
Sapura Energy’s most recent results presentation from December 2024 is here.