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Oil Assets Infusion Paves Way For Loyz Energy’s Venture Into The O&G Industry
Corporate Digest | 07 October 2011
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From transportation to power generation, fuel is a necessity. Given the appealing nature of this primary source of energy, the demand for oil, though very sensitive to the state of the global economy, is one that few others can rival.

Stepping into the shoes of the world’s top oil guzzler, the Asia-Pacific region accounted for 31.5% of world demand last year. And this figure is set to grow. Based on BP’s report ‘Energy Outlook 2030’, consumption of oil, and other liquid fuels, in the mentioned region is forecasted to increase from 2010’s 1,249.4 million tonnes oil equivalent (mtoe) to 1,780.2 mtoe by 2030.

World Commercial Energy Use
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Source: BP Report ‘Energy Outlook 2030′

Looking to get a piece of the oil pie is Loyz Energy Limited (Loyz Energy), a home-grown oil and gas exploration and production (E&P) firm. Previously known as Sim Siang Choon Limited (Sim Siang Choon), the company is beginning a new chapter in its growth phase through the establishment of its oil and gas E&P business. With support from its shareholders, Loyz Energy officially adopted its present name on 1 August 2011 to reflect its new business focus.

A Strategic Move
Foraying into the energy market was not a snap decision. Having immerse himself in the oil and gas business for close to a decade, Adrian Lee, newly-appointed Executive Director of Loyz Energy, exuded a strong sense of direction during an exclusive interview session with Shares Investment (Singapore).

“Our expertise lies in the real science of identifying a good property. Imagine having to drill a 7-inch hole in an area the size of Singapore, it is pertinent to know exactly where to drill, ” Lee said, as he mapped out the company’s path to becoming a niche player that boasts sophisticated and established technologies in the upstream E&P segment.

The transition was set in motion when an arrangement was struck with Jit Sun Investments (JSI) back in April last year. Under the deal, JSI’s wholly-owned subsidiary, Loyz Oil Pte Ltd (Loyz Oil), which owned 41.4% of Bombay-listed Interlink Petroleum Limited (IPL), was injected into then-Sim Siang Choon. The former bathroom products supplier eventually ended up with a 51.8%-stake in IPL, following an offer to acquire the remaining shares it did not already own. Lee explained that the move was a strategic one which allowed Loyz Oil to gain quick access into the capital market.

Lee also added that the decision to have its listing in Singapore was driven by the country’s well-established oil and gas services industry. The entry of Loyz Energy fits into the picture nicely as its upstream E&P business completes the oil and gas value chain here. At the same time, it offers investors a wider range, more importantly, a chance to participate in the upstream oil sector.

Where Vast Opportunities Lie
“These days, you’ll either be in India or China. The market in India presents numerous opportunities, considering the amount of unexplored territories,” Lee commented. “Furthermore, India derives a large amount of their energy requirements from foreign sources.” Bulk of Loyz Energy’s assets is situated in India.

Undoubtedly, India, being one of Asia’s rising powers, represents a huge market which Loyz Energy intends to capitalise on. Leveraging on its existing operations there, the company plans to keep IPL India-focused, which means IPL will be taking on projects and supplying the lubricant to refineries.

Progress at IPL has been positive. Armed with concessions for two onshore fields in the state Gujarat, India, IPL had declared oil discovery in the Baola Field last October. Upon the completion of the data evaluation process at Modhera field, which the company is currently occupied with, further well test will be next on Loyz Energy’s to-do-list. Results of the extended well test are expected to be out in the first half of next year.

Sharing The Risks
In an effort to bring the company closer to its vision, Loyz Energy has partnered Rex Oil & Gas Limited (Rex), which has developed and owns a set of unique proprietary technologies capable of increasing the probabilities of finding hydrocarbon reserves.

Seismic acquisition contractors in the process of gathering seismic data

“In our business, we tend to want to share resources, risks and costs. Rex comes in in two ways,” Lee remarked. Elaborating further, Lee said the collaboration with Rex will not only help fortify Loyz Energy’s ability in identifying ‘good properties’, but also contribute as an equity partner – splitting of costs. As such, the tie-up will accelerate Loyz Energy’s growth, whether in terms of potential concessions or increased production. It also signifies what Loyz Energy holds important – the quality of such concessions.

Looking mainly at the Asia-Pacific region, both firms will start by jointly exploring 35 areas, including India, Indonesia and New Zealand.

Stability-Backed Growth
On whether the recent decline in oil prices, a component which occupies notable consideration in the level of E&P activities, will affect its operation, Lee said that the company was not too fixated on that aspect. “Even if oil prices were to fall considerably, it still does not change the fact that oil is a very much needed resource by the world. Therefore, the constant growth in demand for oil acts as a natural hedge against prices,” explained Lee. “Having said that, oil price will find its equilibrium, staying at a certain price for oil companies to make profit.” Moreover, Loyz Energy’s concentration on onshore and shallow offshore oil fields puts a cap on development costs, may just act to mitigate the risk associated with the oil price volatility.

The company had released, on 29 August, its performances for the full-year ended 30 June this year. Largely drawing contributions from the retail business of bathroom, kitchen and home improvement products, the company managed to rake in $23.5 million in turnover, a 15% jump year-on-year. However, net profit tumbled 33% to $0.9 million as costs and expenses related to the acquisition of Loyz Oil weighed on results. As of now, Loyz Energy is keeping the original business intact. Meanwhile, shareholders were behind the company’s recent proposal to raise $12 million via the issuance of redeemable exchangeable preference shares.

With the backing of a stable base from the retail of home improvement products, the sturdy groundwork laid by Loyz Energy looks set to give the company a good jumpstart into the oil and gas industry.

This is a co-written article of Shares Investment, which lays out the analytical ideas and thoughts of the authors, who are well versed in investments and market concepts.

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