KrisEnergy Holdings Ltd’s Latest Earnings: Boosted By One-Off Gains?

KrisEnergy Holdings Ltd (SGX: SK3) announced its fiscal third-quarter results earlier today. Here’s what you need to know.

Financial and business highlights

For some context, KrisEnergy is an upstream oil and gas producer that currently has a portfolio consisting of 19 contract areas across five countries. The firm has five assets that are at or near the production phase at the moment.

In the first three-quarters of 2015, KrisEnergy’s total revenue experienced a 42% year-on-year decline to US$35.8 million. Revenue from both the sale of crude oil & liquids and sale of gas declined sharply by 48% and 29%, respectively, due to lower average selling prices.

Over the same period, KrisEnergy had produced more than 8,000 barrels of oil equivalent per day, which is higher than its average production level last year. Unfortunately, the average realized oil and liquids sales price had fallen from more than US$100 per barrel in the third-quarter of 2014 to around US$48 per barrel in the reporting quarter. This, coupled with the sharp drop over the same period in the average realized gas price from US$5.43/mcf to US$4.10/mcf,  resulted in a 42% year-on-year decline in revenue over the first nine months of 2015. .

But despite the much lower top-line, KrisEnergy had managed to earn a net income of US$65 million for the first three-quarters of 2015 as compared to the loss of US$33.8 million that was suffered a year ago. This had happened mainly due to US$107.9 million in “other income.”

According to KrisEnergy’s earnings release, part of the “other income” came from a US$26.8 million gain on transfer in its working interests in Block 105 and Tanjung Aru PSC. An additional US$45.2 million of “other income” can be traced back to a gain on assets held for sale over the last nine months. Without the two “one-off” gains, KrisEnergy would have been making a loss instead of US$65 million in profit.

The weak performance of the company – in terms of its revenue and adjusted profit – should not come as a surprise given the current low price-environment for the oil and gas sector.

KrisEnergy’s management still sees challenging times ahead “due to uncertainty over the global economic outlook and concerns over supply-demand dynamics.” But, the firm is not lowering its capital expenditures for this year.

In fact, KrisEnergy had undertaken a rights issue in August 2015 that raised net proceeds of S$164.4 million. The rights issue saw Keppel Corporation Limited (SGX: BN4), already a shareholder of KrisEnergy, increase its stake in the company from 31% to 40%. Keppel Corp is now the largest shareholder of KrisEnergy. The rights issue had helped KrisEnergy strengthen its balance sheet by reducing its net debt to equity ratio from 49% to 37%.

Foolish Summary

The bulk of KrisEnergy’s portfolio of assets are still in the appraisal and development stages. If the assets can successfully enter the production phase, investors may be able to see KrisEnergy grow its fuel production for many years to come.

Unfortunately, with the prices of oil and gas falling more than 50% and 20%, respectively, over the last 12 months, the outlook for the company has lost some lustre.

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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 Limited.