Malaysia's Reach Energy Seeks Acquisition as Oil Prices Tumbleby
Plunge in crude price made survival hard for weaker companies
Company aims to close first acquisition ahead of target
Reach Energy Bhd., backed by Norway’s sovereign wealth fund, may complete its first acquisition ahead of schedule as plunging crude prices make more assets available for sale.
The Malaysian company set up to buy oil and gas fields has narrowed in on two potential targets after having a “very busy” year evaluating more than 50 assets globally, and expects to close a deal in early 2016, Managing Director Shahul Hamid Mohd Ismail said in an interview Tuesday. It has about 750 million ringgit ($174 million) parked in a trust fund raised mainly from an initial public offering in 2014, he said.
“This is the best time to buy because oil price is depressed and there are a lot of companies, big and small, rationalizing their portfolios,” said Shahul, a former Royal Dutch Shell Plc executive who had managed exploration and production assets in Brunei and the East Malaysian states of Sabah and Sarawak. “A lot of the players may say, OK, if I divest here I can get the funds to develop this one because I need the funding, since revenue is down.”
Oil has slumped about 32 percent in New York this year and is poised for a second annual decline amid signs a global glut will be prolonged after the Organization of Petroleum Exporting Countries effectively abandoned output limits at a meeting earlier this month. The plunge is unsustainable for many producers and is providing acquisition opportunities for cash-rich companies such as Thailand’s biggest firm PTT Pcl, which said earlier this month it’s a “chance of a lifetime” to buy weaker players.
Reach Energy is a special-purpose acquisition company, or SPAC, otherwise known as a blank-check entity that sells shares to raise money for buying businesses they haven’t identified. Backed by investors including Norway’s $840 billion Norges Bank Investment Management, Reach Energy has up till August 2017 to identify a mature oil field.
While the target was to close a deal in the first two years, the company now wants to complete a transaction sooner to take advantage of the lower crude price, Shahul said. One of the two acquisition candidates is from the Asia Pacific region, he said. Reach Energy is aiming for a 15 percent internal rate of return for assets found within this region and 20 percent for purchases elsewhere, he said.
Shares of Reach Energy have climbed 5 percent this year, compared with a 6.7 percent drop in the benchmark FTSE Bursa Malaysia KLCI Index.