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INVESTOR RELATIONS | Corporate Information| Chairman's Message

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(*Extracted From Annual Report 2016)

"This lower investments had led to lower production volume as evidenced by the lower revenues recorded. On the other hand, this had saved the Company from further negative investment returns and helped us to conserve cash, which can be seen from our cash positive position."

Dear Fellow Shareholders,

As we have reported in the years, the investment in exploration and production, which had been the Group’s main revenue generating activity, had since declined due to low oil prices. This lower investments had led to lower production volume as evidenced by the lower revenues recorded. On the other hand, this had saved the Company from further negative investment returns and helped us to conserve cash, which can be seen from our cash positive position. We appreciated that the Company is not geared and therefore is not impacted by interest rate hikes or bank calls. However, it is still important for us to bring in new growth business in the meantime.

Below are further updates on the business of the Company.

Kampung Minyak Oil Field ("KM") Operations

Despite keen efforts to work with our team in the KM Field operations, we are unable to achieve economies of scale in our field production without substantial capex investments. Such significant investments may be risky given the volatility of oil prices and that there is no guarantee that production volumes would increase significantly. The current cost structures are not economically viable or sustainable, unless we can see a dramatic recovery in oil prices.

As a result, despite cutting costs in 2016, PKM is still running at a loss. Given the above scenario plus a US$40 per barrel in Indonesian Crude Price (ICP) that manage to touch only a high of US$48 per barrel in December 2016, the Company could not envisage a turnaround in the operations in the foreseeable future.

Due to these scenarios, the Company had found the continuous loss making situations to be unacceptable and had to make the painful decision to suspend production in the meantime, and made impairments for KM Oil Field’s fixed assets and KSO concession rights in the results report for the fourth quarter of 2016. The Company could not sustain such loss making positions without a concrete proof that the situation can turn around, after many attempts to streamline costs.

This impairment was made in consideration to the poor production performance, the sluggish economic climate within the Oil and Gas industries in Indonesia, as well as the failure of the KSO cost recovery approach to achieve profitability.

Oil Field Services and Trading

Meanwhile, the Group is still actively assessing the development of oil trading activities through Acrux Procurement (Singapore) Pte. Ltd. amidst uncertain market prices.

Cambodia Block D

As there is little positive development in reviving Block D, the management of the associate had decided not to continue with the operations at its Cambodian office (CPHLC).

Corporate Activities

The Group recorded total revenue of US$0.6 million in FY2016, compared to a total revenue of US$2.1 million in FY2015. This was due to a lower range of Indonesian Crude Price (ICP) recorded in FY2016, versus that in FY2015 that was ranging between USD34 to USD59 per barrel of oil. There was also lower oil production volume as the Company try to contain costs on the loss making production.

It is no doubt that we have to bring in new business to turn the Company around, in order to sustain its operations. This is indeed an uphill tasks considering that the Company has been put in the Singapore Exchange watch-list in December 2015, which was always part of the uncertainty in our discussions with potential merger and acquisition partners. There will be proper disclosures to all shareholders only in the event of a confirmed acquisition plan.

Status Report For The Use Of Proceeds From Placement And Convertible Loans Issue In 2013

The following table is the status report for the use of proceeds from drawdown of Loans Issue passed by resolutions on 9 October 2013. The company has raised a total of US$37.46 million from the placement and the loans issue in by the end of December 2014.

  USD' million
Net proceeds from drawdown of loans and placement 37.46
Less use of proceeds:
Repayment of senior bonds due April 2014 17.44
Investment in 10% stake in Gunung Indah Lestari Limited 3.00
Loan to associate Company Gunung Indah Lestari 0.88
Exploration, drilling and testing activities at KM Field 5.68
Working Capital 8.59
Temporary loan to CPHL Cambodia Limited 0.00
Balance from net proceeds 1.87

Acknowledgement

Last but not least, I would like to thank Mirach employees for their dedication and hard work.

William Chan
Executive Chairman and Chief Executive Officer
03 April 2017

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