KUALA LUMPUR: Sumatec Resources Bhd says it will not be going through with its proposed plan to take control of the Rakushechnoye oil and gas (O&G) field in Kazakhstan via the acquisition of CaspiOilGas LLP (COG), which it announced last year.

It announced last July that it would be acquiring Markmore Energy (Labuan) Ltd (MELL), the parent company of COG, for US$205 million.

The deal would have given Sumatec ownership of MELL’s O&G reserves at Rakushechnoye, the concession of which belongs to COG.

“We will not be acquiring COG through Markmore (MELL). We will instead focus on our gas utilisation plan and building a liquefied petroleum gas (LPG) plant that will allow us to start extracting LPG,” Sumatec’s managing director Abu Talib Abdul Rahman told reporters after the group’s annual general meeting yesterday.

Abu Talib was referring to a framework agreement signed on Feb 17, 2017 among Sumatec, MELL and Ken Makmur Holdings Sdn Bhd, which will see the production of LPG and condensate from the natural gas supplied from the Rakushechnoye O&G field.

The proposed LPG production is intended to provide Sumatec with a new source of income and allow for the monetisation of the gas produced at the Rakushechnoye field.

The LPG plant, to be located within the O&G field, will be funded by Sumatec for an estimated US$95 million (RM404.7 million). It is scheduled to be operational in two years. Abu Talib said the company hopes to start work on the plant by September.

Abu Talib’s announcement came after Sumatec revealed on Wednesday that the Kazakhstan government had granted COG an extension on the exploration area within the Rakuschechnoye lease allotment, and extended the mining lease for COG and Sumatec, the designated operator of the field, by up to 25 years. COG’s initial 25-year concession would have expired in August 2025. As such, COG plans to drill up to six more new wells in the area.

Sumatec was appointed the designated operator of the Rakushechnoye field after sealing a joint investment agreement (JIA) in March 2012 with MELL and COG, under which it is allowed to carry out all operations relating to the production of oil from the Rakushechnoye field.

The JIA entitles Sumatec to 100% of the profits for the first two million barrels of produced oil, and 50% of it thereafter. Abu Talib added that the existing JIA, which would have been terminated if the acquisition went through, will continue as normal.

“We thought about [the proposed acquisition] and think it is more viable for us to keep to the JIA and focus on our framework agreement to build the LPG plant, which will give us good returns in the future,” he said

Sumatec shares closed unchanged yesterday at 5.5 sen yesterday for a market capitalisation of RM193.3 million.