Tan Sri Sharil Shamsuddin of Sapura Energy announced retirement
September 29, 2020
On 21 September 2020, the board of Sapura Energy Berhad announced to Bursa Malaysia that Tan Sri Dato’ Seri Shahril Shamsuddin would be stepping down as President and Group Chief Executive Officer of the company when he turns 60 on 22 March 2021. As part of a smooth 6-month transition, Sapura Energy said that Datuk Mohd Anuar Taib will be Chief Operating Officer and CEO designate with effect from 1 October 2020. Datuk Anuar, 52, an O&G man since 1990, was formerly the Chairman of Shell Companies in Malaysia (2010) before joining Petronas where he was CEO of PETRONAS Carigali Sdn Bhd.
Tan Sri Shahril’s retirement surprised many people. He is only 59 and these are turbulent times and seemed inopportune to announce changes at the helm. He has been managing SapuraCrest Petroleum from the beginning and then Sapura Energy which is the post-merger entity with Kencana Petroleum Berhad (2012). A massive rights issue that raised RM4 billion in 2019 to bring down borrowings had been implemented. In December 2020 loans of RM10 billion fall due with 14 creditor banks according to Maybank IB (The Edge Markets) which would require extensive negotiations to restructure the debts so that the company can tide over the pandemic and uncertainty in the O&G industry until things improve. Over the last 5 years the O&G industry has experienced compounded disruption but the challenges in 2020 are unprecedented according to the World Economic Forum in its discussion on “Reinventing the Oil and Gas Industry.” This is not really the time for the key person running Sapura Energy to announce retirement. Sapura Energy’s last 5 years financial performance has been on a yoyo. In 2016 it reported a loss after tax of RM791 million. Then in 2017 it swung back to profit after tax of RM206 million only to take a steep fall in 2018 to report an after tax loss of RM2.5 billion before returning to profit after tax of RM203 million in 2019. Then in 2020 it reported its worst loss after tax of RM4.56 billion.
Sapura Energy has ceased to be a family controlled company. According to the Analysis of Shareholdings as at 29 May 2020 in Sapura Energy’s latest annual report 2020, the largest shareholder on record is AmanahRaya Trustees Berhad holding for Amanah Saham Bumiputera with a stake of 26.99%. The second largest shareholder is Sapura Holdings Sdn Bhd with a stake of 12.82% in which Tan Sri Shahril and his brother, Dato’ Shahriman Shamsuddin are deemed interested. As at 28 September 2020, Sapura Energy’s share price is 11 sen.
On 24 September 2020, 3 days after the announcement of Tan Sri Shahril’s retirement as President and Group CEO, Reuters news reported that the Brazilian Police are investigating Sapura Energy and its partner Seadrill Limited as part of Operation Car Wash, the largest corruption investigation in Brazil involving contracts given by state-run giant Petroleo Brasileiro SA (PETROBAS). Specifically Reuters stated that “the prosecutors described the operation as an attempt to deepen ongoing probes into three contacts worth US$2.7 billion signed between Sapura and PETROBAS.” PETROBAS, an integrated energy company, is a publicly traded corporation with the Government of Brazil as the majority shareholder. Seadrill Limited confirmed that its subsidiary Seadrill Serviços de Petroleo, Ltda was served with a search and seizure warrant from the Federal Police in Rio de Janeiro, Brazil as part of the latest phase of Operation Car Wash according to media publication Offshore Energy.
In immediate response Sapura Energy issued a media notice stating that “Sapura Energy Berhad and its group of companies strongly refute any involvement in any form of bribery or corruption in its business dealings in Brazil and anywhere else in the world.” The company also added that “In an earlier investigation by Brazilian authorities in 2016 and 2017, the Company was cleared of all allegations of bribery or corruption. The Company has in the past cooperated and will continue to cooperate with any investigation or regulatory authority in relation to bribery and corruption. The Company has a strict policy against bribery and corruption and has internal policies and procedures to mitigate this risk.”
Background to Petrobas Contracts
Sapura Energy on 27 June 2013 announced to Bursa Malaysia that it had won a major new award from PETROBAS worth US$2.7 billion to build, charter and operate 3 additional deepwater flexible pipe laying support vessels (PLSVs) for a firm period of 8 years. This new award was given to Sapura’s associate company Nevegacao Maritima S.A. Brazil (SNM). SNM is a 50:50 joint venture with offshore drilling company, Seadrill Limited. The new 3 contracts award were in addition to a US$1.4 billion PETROBAS award to SapuraKencana in November 2011 for 3 pipe laying support vessels (PLSVs). The total value of Petrobras contracts awarded to SapuraKencana was USD$4.1 billion. SapuraKencana announced to Bursa Malaysia on 18 August 2016 that it had delivered the 6th and final PLSV on schedule to PETROBAS.
It seems this is an old matter that has been investigated before by the Brazilian authorities in 2016 and 2017 and Sapura Energy (SapuraKencana Petroleum Berhad changed its name to Sapura Energy Berhad on 24 March 2017) has come out clean having been “cleared of all allegations of bribery or corruption.” This resurfacing of investigations has ruffled investors and stakeholders of Sapura Energy naturally. The company is bidding for fresh multi-billion contracts to sustain its operations and as long as this gray cloud hangs over the company’s name, it would adversely impact negotiations for any new contract award in the near future at least.
The most damaging aspect of the Reuters report was that federal prosecutors in Brazil described an alleged scheme in which Sapura allegedly paid bribes worth 1.5% of the contracts it won with PETROBAS and that “some of that bribe money appeared to have made its way back to two “high ranking” Sapura Energy executives in Malaysia.” The Brazilian federal prosecutors did not release names. And rightly so unless they have indisputable evidence of a trail leading back to the two unnamed executives of Sapura Energy. This must be extremely distressing to the board of the company, shareholders and bankers and all other stakeholders.
Did Tan Sri Sharil know anything about this bombshell 3 days before he announced his retirement on 21 September 2020? Did he retire because he wanted to give the company full reins to move on under a new Chief Executive while investigations by the prosecutors are going on? Tan Sri Shahril spent over 25 years building up Sapura Energy. It took a large part of his life. In the present circumstances, he knows public opinion on who the two “high ranking” officials of Sapura Energy allegedly are would not exclude suspicions on him.
The Head of the Task Force of Operation Car Wash in Brazil, Deltan Dallagnol, 40, tendered his resignation on 1 September 2020 (Reuters). In a social media posting he said that he did so for personal reasons citing the ill health of his 22 month old daughter. He also added that the fight against corruption is under risk by “decisions made in Brasilia,” an apparent reference to political interference according to Reuters. It appears that the Task Force for Operation Car Wash which began in 2014 could be disbanded and the file on investigations closed. It waits to be seen.
Brief history - Sapura Energy
Sapura Energy was the result of a RM11.85 billion merger exercise orchestrated by Tan Sri Shahril in 2012 when SapuraCrest Petroleum Berhad (SapuraCrest) and Kencana Petroleum Berhad (Kencana) were merged into one entity called SapuraKencana Petroleum Berhad. SapuraCrest was one of the largest homegrown integrated O&G service providers in Malaysia with interests in key areas such as offshore oil and gas drilling, installation of pipelines and facilities, marine services as well as maintenance activities for the O&G, marine and power utility industries. Tan Sri Shahril was the Executive Vice Chairman, President and Executive Director while his brother, Dato’ Shariman Shamsuddin was on the board. SapuraCrest’s revenue in 2008 was RM2.26 billion. It passed the RM3 billion mark in 2009 and at 2011 was RM3.18 billion. Profit after tax in 2008 was RM151 million rising to RM374 million in 2011. Sapura Holdings Sdn Bhd was the major shareholder with a stake of 40% in the company. Tan Sri Shahril and his brother Dato’ Shariman were deemed interested in Sapura Holdings’s stake.
Kencana’s core business was providing engineering and fabrication services as well as hook-up and commissioning, onshore construction, offshore marine and drilling services. It was listed on Bursa Malaysia in 2006. Kencana had a turnover above RM1 billion from 2008 and its revenue in 2011 was RM1.493 billion. Profit after tax was RM85 million in 2008 rising to RM223 million in 2011 before the merger. Its Group CEO then was Datuk Mokhzani Mahathir, son of the former Prime Minister, Tun Mahathir Mohamed, who was also the largest shareholder with a stake of 31.8% via his private vehicle Khasera Baru Sdn.Bhd. The two other substantial shareholders of Kencana were Employees Provident Fund Board (9.12%) and Chong Hin Loon (6.18%).
The merger was well received by the market because the O&G industry locally then did not have an entity that provided a full range of support services to take on global turnkey upstream projects. Sapken became one of the world’s largest integrated O & G services provider in terms of market capitalisation and assets. The company was listed on the Main Market of Bursa Malaysia on 17 May 2012. On 24 March 2017 Sapken changed its name to Sapura Energy Berhad to better reflect its global corporate identity and brand image.
(to be continued)
- World Economic Forum. 3 September 2020. Muqsit Asraf, Pedro Caruso, & Pedro Gabriel Gomez Pensado. Reinventing the Oi and Gas Industry: Compounded disruption. https://www.weforum.org/agenda/2020/09/reinventing-the-oil-and-gas-industry-compounded-disruption/
- Sapura Energy Berhad. 5-Year Group Financial Highlights. Annual Report 2020. http://ir.chartnexus.com/sapuraenergy/annual_report.php
- The Edge Markets. 22 September 2020. Syafiqah Salim. Maybank IB: Sapura Energy CEO Shahril's planned retirement an 'unexpected surprise'. Sapura Energy's huge debt of about RM10 billion still needs to be refinanced with 14 banks by December 2020. https://apps.theedgemarkets.com/article/maybank-ib-sapura-energy-ceo-shahrils-planned-retirement-unexpected-surprise
- Reuters. 2 September 2020. Head of Brazil's 'Car Wash' anti-graft task force quits with team's future in doubt. https://uk.reuters.com/article/uk-brazil-corruption/head-of-brazils-car-wash-anti-graft-task-force-quits-with-teams-future-in-doubt-idUKKBN25S614
- The Edge Markets. Reuters. Gram Slattery. Sapura Energy, Seadrill latest firms to be targeted in Brazil's 'Car Wash' corruption probe. https://www.theedgemarkets.com/article/sapura-energy-seadrill-latest-firms-be-targeted-brazils-car-wash-corruption-probe
- Sapura Energy Berhad. Media Release dated 31 December 2019. PNB and its associated funds collectively own a 40% stake. https://www.sapuraenergy.com/press_release/sapura-energy-appoints-pnbs-president-and-group-chief-executive-en-abdul-jalil-abdul-rasheed-as-new-director/
- Sapura Energy Berhad. Media Releases dated 27 June 2013 and 18 August 2016.
- The Edge Financial Daily. 23 January 2019. Chester Tay. Sapura Energy deems RM4b cash call a ‘success’. https://www.theedgemarkets.com/article/sapura-energy-deems-rm4b-cash-call-success
- Sapura Energy Berhad. Annual Report 2020. President and Chief Executive Officer’s Review. Financial Performance. https://www.sapuraenergy.com/wp-content/uploads/2020/07/SEB20_FullWeb_020720-2.pdf
- I3Investor. 12 December 2018. Shahril who run business RM200,000 survives ouster move. PRESIDENT and CEO of Sapura Energy Bhd Tan Sri Shahril Shamsuddin was visibly pleased when The Edge met him last week. https://klse.i3investor.com/blogs/shahril_survives_outster_move/2018-12-12-story-h1456204967-Shahril_who_run_business_RM200_000_survives_ouster_move.jsp
- Sapura Crest Petroleum Berhad Annual Report 2011. http://ir.chartnexus.com/sapuraenergy/docs/ar/sapura_ar2011.pdf
- Kencana Petroleum Berhad. Annual Report 2011. Analysis of shareholdings as at 21 October 2011. https://klse.i3investor.com/servlets/staticfile/107608.jsp
- Sapura Energy Berhad. 21 September 2020. Press Release. Sapura Energy Berhad announces Leadership Succession Plan. https://www.sapuraenergy.com/press_release/sapura-energy-berhad-announces-leadership-succession-plan/
- Reuters. Head of Brazil's 'Car Wash' anti-graft task force quits with team's future in doubt. https://www.reuters.com/article/uk-brazil-corruption-idUSKBN25S614
- Global Investigations Review. 10 September 2020. James Thomas. Brazil grants Operation Car Wash task force a short extension. https://globalinvestigationsreview.com/article/1230704/brazil-grants-operation-car-wash-task-force-a-short-extension
- Seadrill. About us. https://www.seadrill.com/about-us/
- Oil NOW. 24 September 2020. Seadrill targeted in operation carwash probe. https://oilnow.gy/featured/seadrill-targeted-in-operation-carwash-probe/
- Offshore Energy. 24 September 2020. Nermina Kulovic. Offshore drilling contractor Seadrill and oilfield services provider Sapura Energy are being investigated by the police in relation to the Brazilian Car Wash corruption probe. https://www.offshore-energy.biz/seadrill-and-sapura-targeted-in-brazilian-bribery-probe/
- Offshore Energy. 28 March 2017. SapuraKencana Changes Name. https://www.offshore-energy.biz/sapurakencana-changes-name/
- Sapura Energy Berhad. 24 September 2020. Media Statement in response to investigations in Brazil. https://sapuraenergy.com/press_release/media-statement-in-response-to-investigations-in-brazil/
- Sapura Energy Berhad. Corporate Overview. Annual Report 2020. https://sapuraenergy.com/about-us/corporate-overview/
- The Star. 22 September 2020. Shahril to retire from Sapura in March, Anuar is CEO designate.
- Reuters. 10 September 2020. UPDATE 2-Brazil's 'Car Wash' probe targets Petrobras forex transactions
- Reuters. 24 September 2020. Gram Slattery. Seadrill, Sapura latest firms targeted in Brazil's 'Car Wash' probe. https://www.reuters.com/article/us-brazil-corruption-seadrill-idUKKCN26F12A
- Marine Link. 24 September 2020. Bartolomej Tomic. Operation Car Wash: Seadrill Served with Search and Seizure Warrant in Brazil. https://www.marinelink.com/news/operation-car-wash-seadrill-served-search-481924