Petroliam Nasional Bhd (Petronas) has awarded the Balai Cluster marginal oil field offshore Sarawak to a joint venture between Dialog Group, Australia's ROC Oil and Petronas Carigali Sdn Bhd.
Dialog said this in a statement to Bursa Malaysia yesterday. Earlier, trading in Dialog shares was suspended pending the announcement.
According to Dialog, the total cost of the pre-development phase is estimated to be between US$200 million and US$250 million (RM594 million and RM743 million), while for the development phase, it is estimated between US$650 million and US$700 million (RM1.9 billion and RM2 billion).
Dialog has a 32 per cent stake in the venture, while ROC Oil has a 48 per cent stake. Petronas exploration arm, Petronas Carigali, owns the balance 20 per cent shareholding.
This is the second marginal field awarded by Petronas this year.
In January, Petronas awarded the Berantai marginal field to a joint venture of Kencana, SapuraCrest and Petrofac.
Dialog said the companies signed a 15-year Small Field Risk Service Contract with Petronas, which will be developed over two phases.
Under the Balai Cluster risk service contract, the contractors will install new facilities and take advantage of the existing infrastructure to achieve cost optimisation and operational synergies in the development of the fields.
First production of oil from the Balai Cluster fields is expected by the second half of 2013, while that of gas is due by the second half of 2014.
Upfront capital investment will be contributed by the contractors who will receive compensation from commencement of first production, based on oil and gas production as well as their ability to meet pre-agreed targets, Petronas said in a separate statement.
The PTC’s racing activities will continue to take place on a newly repaired and rejuvenated main racing track.
Maybank Investment Bank (Maybank IB) said by realigning capacity to match market demand, both airlines can save as much as RM300 million to RM400 million.
It estimated that roughly 70% of the combined capacity of MAS and AirAsia is deployed on overlapping routes, which undermines yields, load factor and ultimately profitability.
“Unfortunately, these irrational practices are a permanent feature due to both airlines’ adamant quest for domination,” Maybank IB said, adding that there is surplus capacity on certain routes.
Maybank IB estimates the largest portion, about 40% of the synergy gains, will come from higher yields through fare alignment and inventory allocation.
“There will be no more predatory pricing (with fare alignment),” said the research house.
The other areas that can deliver profit synergies include pool ordering of planes, amalgamation of cargo operations and sharing of maintenance, repair and overhaul (MRO) services.
Maybank IB cited the strategic tie-up between Air France and Holland’s KLM, which saved both airlines as much as €610 million (RM2.6 billion) in 2009 as an e“The [KLM-France] group has become stronger, more efficient and significantly more profitable. More impressively, both airlines retain their identity and key staff members,” said the bank-backed research house.
Many see the MAS-AirAsia partnership as a way to help stop MAS from plunging further into the red. Many are also of the view that AirAsia benefits as much as the national carrier from such an alliance.
However, Maybank IB, for one, said the question of “who gets more and who gets less” is irrelevant because this partnership is “an all-or-nothing affair”.
The research house said the odds are in favour of MAS in this alliance because, for one, the counter is expected to rise significantly more, due to scarcity value compared with AirAsia.
It also expects MAS to be profitable in 2HFY11 and subsequently produce net profit of RM1 billion in FY12, which excludes the synergy gains.
However, Maybank IB warns of an initial backlash from MAS’ unions, senior executives and some resistance from AirAsia staff to the strategic tie-up given the different business cultures.
“AirAsia’s payroll is productivity linked whereas MAS is less inclined to that methodology. Furthermore, MAS places high emphasis on staff seniority whereas that is not the case at AirAsia,” it noted.
MIDF Research said there will be less restriction for AirAsia in terms of application for new routes as the government will hold a significant stake in the budget carrier following the partnership.
The research firm also noted that the tie-up will boost the domestic aviation sector, which is in tandem with falling crude oil prices.
However, MIDF warned of a conflict of interest as both are in the budget sub-sector. MAS has a foot in the low-cost sector via its subsidiary Firefly.
UOB Kay Hian believes that a merger with MAS will not benefit AirAsia’s shareholders.
Tune Air Sdn Bhd is the single largest shareholder of AirAsia with 23% equity interest and is controlled by AirAsia group CEO Tan Sri Tony Fernandes and deputy Datuk Kamaruddin Meranun. MAS is 69% owned by Khazanah Nasional Bhd.
UOB said the biggest losers if the partnership succeeds will be Australia’s Qantas, MAS and long-haul unit AirAsia X.
“Malaysia’s status as a hub to a lesser extent could also be impacted. Under such a circumstance, Khazanah appears to have spearheaded a move to remove competition between its two carriers and to compete with Singapore Airlines, possibly by aligning with Qantas,” it added.
Maybank IB said the MAS-AirAsia tie-up is beneficial to both companies as it promotes significant synergies, reduces irrational competition and reduces business risk.
“Therefore, we believe it will enhance the fair value immensely and it deserves a higher earnings multiple,” it said.
Maybank IB has a “hold” call for both airlines, and its target price for MAS is RM1.65 and AirAsia RM3.36 per share. With the tie-up, the house’s target price for MAS is higher at RM2.70 and RM4.10 for AirAsia. This translates into nine times FY12 price-earnings ratio for MAS and about 11 times FY12 PER for AirAsia.
This compares to MAS’ book value of RM1.05 per share and AirAsia’s RM1.31 per share, based on their FY10 ended December numbers.
In their latest quarter ended March 31, 2011, MAS posted an operating loss of RM267.4 million on the back of RM3.14 billion revenue. AirAsia recorded an operating profit of RM241.72 million, on the back of RM1.05 billion revenue.
During the quarter when jet fuel was up by over 40%, AirAsia saw a 6% increase in cost per available seat kilometre (CASK) at 12.65 sen.
MAS did not publish its CASK, but said its fuel costs were up by 32% from the previous corresponding quarter. Both airlines, however, decreased their non-fuel CASK in the quarter under review.
MAS revenue per ASK, a measure of revenue per passenger, was mostly flat at 17.3 sen while AirAsia’s increased by 12% to 16.44 sen.