Lecture Notes: The Rise and Fall of Sapura Energy

Introduction

• Sapura Energy: Premier Malaysian oil and gas company
• Second largest in global oil and gas services
• Owned world's largest fleet of tender rigs
• Operated in over 20 countries
• Peak workforce: Tens of thousands
• Significant government investment
• Share price: More than 90% decline
• Objective: Understand the downfall and future prospects

Foundation and Early Years

• Founded in the 70s by Abdul Qadil
• Originally a telecommunications company
• Began in a one-room office, quickly expanded
• Diversified into oil and gas in the 1980s

Key Players

• Shahriu Shahmsuddin (Shah): Key figure, founder's son
• Mokzanizani Mahathir: Co-founder of Kenchana, strategic partner

Transition to Oil and Gas

• Identified an opportunity in the oil service sector
• Transition driven by capital-intensive nature of industry
• Initially lacked large-scale competition in Malaysia
• Shah founded SapuraCrest, incorporated tech innovations
• Grew to top industry player

Merger and Expansion

• 2012 Merger: SapuraCrest with Kenchana to form SapuraKenchana
• Funded by a $5.5 billion loan
• Merger made SapuraKenchana one of the top 5 global oil and gas service companies
• Benefited from booming oil prices ($130 per barrel in 2012)
• Shah became a billionaire

Strategic Decisions

• Shah's vision: Expand as a one-stop oil and gas solution
• Acquisitions: Cereal ($3 billion), NewField ($1 billion)
• Rebranded to Sapura Energy

Downfall and Financial Instability

• Debt Problems: Massive debt from acquisitions
• Oil Price Collapse: 2014 oil price drop (from $130 to $60 per barrel)
• Management Departures: Key figures, including Mokzanizani, left the company
• Share price: Drastic drop, high-level investor concerns
• Financial Mismanagement: High executive salaries, operational inefficiencies

Key Issues

• Order book decline: From 30B to 5B RM
• Debt: Unmanageable levels
• Market Conditions: Highly cyclical nature of oil prices
• Company had to sell profitable parts to manage debt

Attempted Turnaround

• New CEO: Anwar Taib
• Operation 3R:
  • Renegotiate: Loans and financial obligations
  • Reduce: Costs through strategic cuts
  • Refocus: Optimize core competencies

Current Status

• Continued Struggles:
  • Still in debt
  • Declining share price (5 cents per share from RM5)
  • Operational and project issues
• CEO Anwar Taib remains hopeful
• Shah semi-retired, no longer among Malaysia’s wealthiest
• Mokzanizani pursued other ventures, sold shares

Conclusion

• Unpredictable future for Sapura Energy
• Reflection on business decisions and market dynamics
• Importance of learning from past mistakes for future ventures