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A Lunch With KrisEnergy Holdings Ltd’s Management

KrisEnergy Holdings Ltd (SGX: SK3) is an upstream oil and gas exploration and production (E&P) company headquartered in Singapore. Many retail investors, like myself, have turned away from investing in such companies simply because they are very difficult to comprehend if you’ve not been part of the industry itself.

But, the company does have some strong backing – Keppel Corporation Limited (SGX: BN4), one of the largest conglomerates in Singapore, is KrisEnergy’s second largest shareholder. So, this alone might prompt an investor to dig deeper.

I’m certainly not an expert in KrisEnergy, but I was fortunate to be given the chance to learn more about it yesterday in a media lunch event organised by the company. Here’s some of the information I’ve managed to piece together about KrisEnergy from my own research and from what I had gathered during the lunch.

What is Kris Energy?

The company, as mentioned earlier, is an upstream oil and gas E&P outfit headquartered in Singapore. However, its assets (the drilling contract areas) are located across 5 Asian countries from Bangladesh in the west, to Indonesia in the east.

High growth prospects

One thing I’ve learnt is that KrisEnergy has some strong growth prospects. The company’s portfolio had grown from just 2  prospective assets five years ago to 19 contract areas currently. Additionally, the company has already proven that it has been able to explore oil wells successfully; it’s producing around 8,000 barrels of oil equivalent per day at the moment.

With more wells being planned to come online in the next few years, the production number might just grow much bigger very soon.

Risks

Having growth prospects is nice, but there’s still no hiding from the fact that KrisEnergy operates in one of the most complex industries in the world. The details of the different tax structures it has with each of its contracted areas would be enough to make your head spin (at least it’s spinning for me!). The company’s Director of Business Development, Richard Lorentz, commented that the E&P industry is all about the management of risk. In fact,  the companies that are able to manage risk the best will be the ones to perform well in the future. So, management’s ability in managing risk plays a huge role in the fate of an E&P company.

Management

After interacting with KrisEnergy’s management over lunch, they gave me a sense that they are candid folks who are eager to share the story behind the company.

It’s also worth pointing out that most of KrisEnergy’s management team are actually past executives of Pearl Energy, a company which got listed in Singapore in 2005 and then subsequently got taken private barely a year later in 2006.

Pearl Energy was listed with a market capitalisation of US$240 million and was acquired in a US$500+ million transaction. In addition, according to S&P Capital IQ, Pearl Energy’s operating cash flow had managed to grow from US$13.2 million in 2003 to US$64 million in 2005. The corporate history of Pearl Energy shows that KrisEnergy’s management team has a past track record (albeit a short one) of value creation for shareholders.

Foolish Summary

One other thing to consider about KrisEnergy is its price. The company is still a loss making entity which is trading at a price to sales (PS) ratio of more than 5. The company is also currently free cash flow negative. These are not cheap valuations by any measure.

Investors should consider if the growth potential is attractive enough for the price one has to pay for KrisEnergy’s shares.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim owns Keppel Corporation.