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Moraven: A budding local energy player

Thursday, September 20, 2012

As the lone listed energy company, Moraven Holdings Ltd (MVHL) was started in 1994 as Mora Oil Ventures Ltd (MOVL). After MVHL was incorporated as a holding company to hold 90 per cent of the shares of MOVL, it replaced MOVL as the listed company on the second tier of the T&T Stock Exchange. With 8,255,000 shares outstanding, the largest shareholder is George Nicholas 111, who holds 3,296,134 shares or 40 per cent. Other major shareholders are Krishna Persad and Associates Ltd with 1,470,000 shares, Krishna Persad, in his own name, with 718,213 shares and Allied Hotel Ltd with 914,693 shares. Collectively, these four individuals and entities own 6,389,040 shares or 77.4 per cent of the company. The company’s main business is extracting and selling crude oil and natural gas from the Mora field under contract to its sole customer British Petroleum T&T (bpTT). In 2011, this field produced 78,000 barrels of oil, bringing its accumulated production up to 2,481.2 barrels of oil. In recent years, the company has expanded into the area of solar energy.


This was first done by acquiring the Barbados-based Solaris Energy Company. On April 30, 2011, Solaris bought 90 per cent of Aqua Sol Components Ltd, which was renamed Solaris Global Energy Ltd. MVHL had total assets of $241.5 million as at December 2011. Its net assets were $197.2 million and its debt to equity ratio was 56:44. The company produced revenue in 2011 of $58.6 million and recorded an after-tax loss of $120.7k. This represented a loss per share of 1.46 cents. During 2011, the company paid a dividend of ten cents per share amounting to $825.5k. This payment coupled with a pre-acquisition loss of $3.4 million depleted the company’s retained earnings balance. The company’s major long-term asset is its property, plant and equipment totalling $174.5 million. Its next significant asset comprises investments of $18.4 million. The largest investment item is an escrow fund of $10.3 million, which is a contingency fund that could be used to pay for pollution and abandonment of the well. Following an agreement with the relevant ministry, this item is only funded with a deposit of US$1 million.


Then, there is $5.4 million in Dennot Holdings Ltd; this is a joint venture relationship formed to acquire an exploration and production licence from Petrotrin. Also included under investment is $1.84 million recoverable from its dormant investment in Akwasol Nigeria Ltd. Another significant asset is goodwill of $3.1 million; this arose upon the acquisition of Solaris Global Energy Ltd (formerly, Aqua Sol). Its major current assets are its receivables and prepayments totalling $15.6 million; the largest figure is prepaid expenses of $12.7 million. Also of some weight is $2.5 million in recoverable taxes or levies. The next major line item is the amounts due from related parties, which amounted to $11.4 million; here, the largest item of $10.45 million is due from KPA Services Ltd. The amount is unchanged from the previous year and the matter is expected to be resolved in the High Court. The company’s total equity stood at $86.5 million. This comprises stated capital of $8.25 million, a revaluation surplus of $78.5 million; these figures were reduced by a small accumulated deficit of $216k. The revaluation surplus comprises a 1997 surplus on the revaluation of tangible assets together with an investment held for resale.



The bulk of the other liabilities are represented by elements of taxation. First, there is deferred taxation of $26.8 million. Also, there is a provision for taxation of $70.8 million; this comprises two major parts. One is the supplemental petroleum tax of $58.2 million and the other is the petroleum profit tax of $11.9 million. During 2011, Moraven generated crude oil sales of $52.7 million, which segment produced a profit before minority interest of almost $6 million. The renewable energy segment had product sales of $5.9 million and incurred a loss of $1.8 million. After allowing for holding company losses of $0.7 million, the group produced $3.47 million in profit before minority interests. These minority interests accounted for $1.3 million in profit leaving the group with pretax profit of $2.16 million. However, corporation taxes consumed $2.28 million, leaving the company with a small loss of $120.7k. In its half-year report to June 2012, Moraven reported operating revenue of $29.5 million, up by 12.3 per cent from last year’s $26.3 million. The chairman suggested that this figure could have been much better if world oil prices had not declined by as much as 20 per cent from last year. Operating expenses for the period rose by a factor of nearly 19 per cent to almost $27 million. A major contributor to this disproportionate rise was the 200 per cent increase in the price of natural gas from the National Gas Company, coupled with a 400 per cent expansion in the cost of diesel fuel. The combination of these factors compressed its operating profit to $1.67 million, down by a massive 40 per cent from last period’s $2.77 million. The profit after minority interests and before taxes came in at $1.35 million. After allowing for taxes of $1.58 million, the net result was a loss of $234k, translating into a loss per share of 2.84 cents. For the first six months of the year, assets rose by more than $12 million to $252.6 million. Meanwhile, cash on hand also showed a healthy increase, improving from just under $7 million as at the end of December 2011 to $7.9 million as at the end of June 2012. The company continues to evaluate opportunities to expand its exploration efforts at sites where the potential gains comfortably exceed the inherent risks.


Renewable energy products

Meanwhile, in the Barbados budget for 2012, significant tax incentives have been offered to users to encourage them to invest in renewable energy products. This development augurs well for the company’s alternative energy businesses. These products include solar water heaters, photovoltaic and wind generating installations. The company’s Solaris subsidiary has recently moved to larger facilities that would better support its high growth mode. With total equity of $86.3 million, each of the company’s 8,255,000 shares has a book value of $10.45. Unfortunately, the company’s shares do not regularly trade. In fact, the last trade took place on December 9, 2011 at $15.65. Currently, there are 1,988 shares on offer at $14.99. Possibly one of the factors that limit interest in this share is the huge amount of outstanding litigation that exists from various sources: a disputed loan due to Halliburton Trinidad Ltd and receivables from Nigeria, which have to pass through diplomatic channels. The company also quantified contingent liabilities of $6.5 million relating to outstanding High Court matters. For a relatively small company, these variables place a huge question mark over the company’s finances and consume a disproportionate amount of management’s time. Aside from these reservations, the company does have many positives going for it. The alternative energy investment has huge potential, despite operating in a very competitive field. The recently announced tax incentives for these products could help boost sales enormously. Its traditional oil operations have much potential and require careful evaluation and consistent investment. The Mora proven and producing reserves show a value of 1,041.6 barrels of oil. Following on the success of a neighbour, who is adjacent to the north border of the Mora block, the company proposes to drill an exploratory well in 2012. In the longer term, there is also huge potential in the undeveloped reserves of 12,704 barrels of oil, which are not currently reachable from its Platform A.





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