KS Energy in $4.9M rig deal as auditor casts doubt on driller’s ability to stay afloat

Singapore-listed KS Energy, which has been grilled this week by SGX on whether it can continue operating as a going concern, has secured a contract for one of its jack-up rigs for drilling offshore Indonesia.

KS Energy’s subsidiary KS Drilling has been awarded a drilling deal for the “KS Java Star” jack-up drilling rig. The work in Indonesia, with an undisclosed client, is expected to begin in June 2019, KS Energy said on Thursday.

The expected value of the contract is approximately US$4.9 million. KS Energy did not provide any other contract details such as the dayrate or the contract length.

Bassoe Offshore has estimated the contract to be 90 days long, with a dayrate of $55000. The KS Java Star jack-up is of the Friede & Goldman L-780 design. The Indonesia-flagged rig was built in 1981 and refurbished in 2012.

As mentioned earlier, Singapore Exchange sought an answer from KS Energy on Thursday on whether the company and the group can continue to operate as a going concern, that is, if it would be able to meet its obligations as and when they fall due. The SGX query followed a report by independent auditor KPMG.

$489 million for newbuild rigs

KPMG highlighted that KS Energy’s current liabilities exceeded current assets, the company’s plan that to redeem $31,000,000 of the Group’s bonds through a proposed issuance of new ordinary shares, and the auditor also pointed to the Group’s capital commitments of $489 million as at December 31, 2018, with “currently no financing arrangements put in place to meet the obligations.”

The $489 million commitment is related to two newbuild jack-up rigs under construction in Chinese shipyards Cosco and Shanghai Zhenhua Heavy Industry Co.

The drilling firm ordered the newbuild jack-up rigs from Cosco and Shanghai Zhenhua Heavy Industry in October 2011, and October 2014, respectively.

The first rig was originally to be delivered in February 2014, and the second in September 2016. According to KS, after several revisions of delivery dates, the Shanghai Zhenhua Heavy Industry-built rig was to be delivered on December 31, 2018, and the Cosco rig on December 2019.

KPMG said that while the KS Energy Group intended to continue to operate as a going concern, there was “significant doubt on the Group’s and the Company’s ability to continue as a going concern.”

Keeping fingers crossed for new contracts

Responding to SGX query, KS Energy’s Board said it believed “that the Company and the Group will both continue as going concerns.”

KS Energy said that while it expected the overall operating environment to remain challenging in the next twelve months, it anticipated generating positive cash flows from existing rig charter contracts and prospective rig charter contracts. It also confirmed the plan to redeem bonds via share issuance and said would divest any surplus assets when opportunities arise, which should  “generate at least US$1.2 million from such divestments over the course of the year.”

KS Energy also said it was confident of extending loan repayments of $5.7 million currently within current borrowings to allow the Group to meet its debt obligations as and when they fall due.

“The Group expects to secure additional work for its rigs in South East Asia over the course of the year ahead with contract values of at least US$30 million,” KS Energy said.

Not counting the Java Start contract starting June, KS Drilling has only one offshore rig currently drilling – KS Java Star 2 – in Vietnam. Bassoe Analytics shows the rig is expected to stay with Vietsovpetro until mid-June 2019. The company’s remaining rig, KS Medstar is warm stacked, and last worked in Egypt in 2018.

With regards to the newbuild jack-ups for which it has capital commitments of $258.2 million and $230.8 million for assets under construction due on 31 December 2018 (now passed) and 31 December 2019, respectively, KS Energy said it “continues to engage in discussions with the shipyards and, subject to obtaining the required financing, is expected to have sufficient resources to meet the capital commitments of the Group.”

Optimistic, but uncertainty remains

While expressing optimistic belief over its ability to service obligations, KS Energy acknowledged there was material uncertainty “which may cast significant doubt on the Group’s ability to continue as a going concern.”

Namely, KS said there remained “uncertainties over the ability of the Group to generate the necessary cash flows to meet its debt obligations,” relating to the eventual conclusion and timing of execution of several rig charter contracts currently subject to on-going negotiations with prospective customers; and the successful implementation of the financing and capital plans.

Despite the uncertainty, KS said its management “has a reasonable expectation that the Group has adequate resources to continue in operational existence for at least another twelve months….”

It also confirmed the going concern basis remains premised on the continuing availability of credit facilities to the Group for at least another twelve months from the reporting date, and the sufficiency of cash flows to be generated from the Group’s operating activities, and financing plans.

Offshore Energy Today Staff

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