4. RISK FACTORS 4. RISK FACTORS We are exposed to a number of possible risks that may arise from economic, business, market and financial factors and developments, which may have an adverse impact on our future performance. You should carefully consider the risks and investment considerations set out below along with the other matters in this Prospectus before you make your investment decision. The risks and investment considerations set out below are not an exhaustive list of the challenges that we currently face or that may develop in the future. Additional risks, whether known or unknown, may have a material adverse effect on the financial performance of our Company and/or the prices of our Shares and Warrants. 4.1 RISKS RELATING TO OUR BUSINESS AND OPERATIONS 4.1.1 We do not have any operating history and accordingly you do not have a conventional basis on which to evaluate our ability to achieve our business objective As we do not have an operating history, you do not have a conventional basis upon which to evaluate our ability to achieve our business objective, which is to acquire an E&P company or asset in the upstream sector of the oil and gas industry for our Qualifying Acquisition. As at the LPD, we have no plans, arrangements or understandings with any prospective acquisition candidates. As a SPAC, we will not generate any significant revenues until, at the earliest, after the completion of a Qualifying Acquisition. Please refer to Sections 188.8.131.52, 7.1.2 and 7.2.3 of this Prospectus for further details on the experience of our Board and Management Team that may assist you in assessing our ability to complete a Qualifying Acquisition and to manage operations. 4.1.2 We have yet to select a target company or asset as a SUbject matter of a Qualifying Acquisition and are currently unable to ascertain the merits or risks of the company or asset which we may ultimately acquire. Additionally, your rights in relation to the Qualifying Acquisition is limited to voting for or against the proposed target company and/or asset tabled to our shareholders for approval We have yet to identify or select a target company or asset with which to complete a Qualifying Acquisition, thus, IPa Investors currently have no basis to evaluate the possible merits or risks of the target company or asset. While our Management Team will evaluate the merits and risks inherent in a particular target company or asset, we are not able to assure you that they can ascertain all risk factors. As such, we cannot assure you that an investment in our Shares and Warrants will ultimately prove to be more favourable to investors than a direct investment, if such opportunity was available, in a target company or asset. As we have not selected a target company or asset, we have not provided any projections of future returns at this stage in view of the uncertainty in the timing and nature of the Qualifying Acquisition. You should rely on your own evaluation and judgment to assess the merits, likely level of returns and risks of your investment in our Company. Your rights in relation to the Qualifying Acquisition is limited to voting for or against the proposed target asset tabled to our shareholders for approval. Nevertheless, our Management Team will adopt the selection process as set out in Section 184.108.40.206 of this Prospectus for our Qualifying Acquisition. We have also established a Risk Management Committee to enhance our Company’s risk management and procedures, including evaluation of a suitable target company or asset for our Qualifying Acquisition. In addition, the Qualifying Acquisition is subject to our shareholders’ approval at an EGM. The Qualifying Acquisition must be approved by a majority in number of our shareholders representing at least 75% of the total value of securities held by the shareholders present and voting either in person or by proxy. 4. RISK FACTORS (Cont’d) 4.1.3 Our ability to successfully effect a Qualifying Acquisition and to successfully operate the acquired company or asset thereafter is dependent upon the expertise and experience of our Board and Management Team Our ability to successfully effect a Qualifying Acquisition is dependent upon the expertise and experience of our Board and Management Team. Thereafter, we will rely on our Management Team to manage and operate the acquired company or asset upon completion of the Qualifying Acquisition with the guidance and direction of our Board. Hence, the retention of our Board and Management Team is critical to ensure that we can successfully identify and operate the target company or asset. . Our Management Team owns Shares and Warrants in our Company through a holding company, Reach Energy Holdings. Pursuant to the IPO, our Management Team will collectively hold 20.00% equity interest in the enlarged issued and paid-up ordinary share capital of our Company. This will ensure that the interests of our Management Team are aligned with that of our Company. Our Management Team will continue to own the same proportion of equity interest in our Company assuming full exercise of all the Warrants. In addition, as a greater commitment to Reach Energy, our Management Team has entered into the Reach Energy Holdings Shareholders’ Agreements to regulate their relationship as shareholders of Reach Energy Holdings and to put in place the Moratorium. Nevertheless, there can be no assurance we can retain our Board and Management Team which may affect our ability to complete a Qualifying Acquisition and/or manage and operate the target company and/or asset pursuant to the Qualifying Acquisition. Please refer to Section 8.2 of this Prospectus for the details of the Moratorium. Our ability to create value for shareholders depends on our ability to identify, evaluate and acquire a quality asset for our Qualifying Acquisition. Given that some of our Management Team members are at an advanced age, it may raise a concern about our ability to complete a quality Qualifying Acquisition or to continue as a going concern. In this respect, we recognise that in order to maintain our competitiveness and to ensure management continuity, our Management Team, by capitalising on their expertise and experiences, will mentor and develop selected younger and adequately experienced talent as part of a focused management succession planning process. 4.1.4 We may not be able to complete the acquisition of an ideal target company or asset with the desired terms due to our limited resources We may face competition from entities having a business objective similar to ours, including other SPACs, venture capital funds, private equity firms and operating businesses competing for acquisitions. Some of these entities are well established and may have extensive experience in identifying and effecting acquisitions directly or through affiliates. Some of these competitors may also possess greater technical, financial, human capital and other resources than we do. While we believe that there are numerous potential target companies or assets that we could acquire with the net proceeds of this IPO, our ability to compete in acquiring certain sizeable and quality target company or asset would be limited by our available financial resources. Furthermore, the obligation that we have to seek shareholders’ approval for a Qualifying Acquisition may delay the completion of a transaction. 4. RISK FACTORS (Cont’d) In addition, as a SPAC, we are also constrained by the requirement to complete a Qualifying Acquisition within the Permitted Timeframe which may affect our ability to complete a Qualifying Acquisition with the desired terms due to the limited time available for carrying out due diligence and negotiations. Further, our potential vendors may have leverage over us in the negotiation of terms and conditions for the Qualifying Acquisition as they are aware of our requirement to complete a Qualifying Acquisition within the Permitted Timeframe. If we are unable to complete a Qualifying Acquisition within the Permitted Timeframe, we will be forced to liquidate. Nevertheless, there is an abundance of opportunities for development and/or production assets in the Asia Pacific region and globally and hence competition for such ventures may not pose as a major threat to our Company. Our Company riding on the experience and expertise of our Management Team would acquire and work these assets at lower cost base to benefit our shareholders. The critical success factor in this venture is the ability to carefully source, screen, analyse, secure and activate those assets that would deliver the expected returns. 4.1.5 We may not complete a Qualifying Acquisition and realise the benefits arising from the Qualifying Acquisition due to the increase in oil and gas prices or changes in government policies and regulations towards the oil and gas industry Any significant increases in oil and gas prices may potentially result in an increase in the valuation of target company or asset. If such valuations exceed the funds available to us, our ability to complete a Qualifying Acquisition would be adversely affected or we may be forced to acquire a smaller interest or asset than originally enVisaged. Adverse changes to government policies and regulations towards the oil and gas industry may limit the opportunities available. 4.1.6 We may only be able to complete one Qualifying Acquisition with the proceeds of this IPO, which will cause us to be solely dependent on a single company or asset Our Qualifying Acquisition must have an aggregate fair market value equal to at least 80% of the aggregate amount in the Islamic Trust Account (net of any taxes payable). The fair market value of the target company or asset will be determined by our Board based upon one or more standards generally accepted by the financial community (which may include actual and potential revenues, earnings, cashflow and/or book value). In view of the above, to achieve a Qualifying Acquisition, it may entail the simultaneous acquisition of several operating businesses at the same time. However, quality target company or asset usually command a higher price tag which may restrict us to only acquiring a single entity. By completing a Qualifying Acquisition with only a single entity, we would not be able to diversify our operations and our risks would be concentrated on such particular asset. Accordingly, the prospects for our success may be solely dependent upon the performance of such single company or asset. 4.1.7 If we simultaneously acquire several companies or assets, we will need the acquisitions to be executed at the same time, thereby making it more difficult for us to complete the acquisitions due to our limited resources If we simultaneously acquire several companies or assets and such companies or assets are owned by different vendors, we will need each of the vendors to agree that our acquisition of their respective company or asset is contingent upon all approvals being obtained from our shareholders and the relevant regulatory authority as well as the simultaneous completion of the other acquisitions, which may make it more difficult for us and delay our ability to complete such acquisitions. 4. RISK FACTORS (Cont’d) In addition, we may also face additional risks for multiple acquisitions, which include amongst others, additional burdens and costs with respect to possible mUltiple negotiations and due diligence investigations and the additional risks associated with the subsequent assimilation and/or integration of the operations and services or products of the acquired companies in a single operating company or asset. If we are unable to adequately address these risks, these could negatively impact our profitability and disrupt our business operations. 4.1.8 We may face difficulty in obtaining additional financing, if required, to complete a Qualifying Acquisition or to fund the operations and growth of the target company or asset, which may cause us to restructure or abandon a particular Qualifying Acquisition If the net proceeds from this IPO prove to be insufficient for us to complete a particular Qualifying Acquisition either because of the size of the target company or asset, the depletion of the available net proceeds (other than the IPO Trust Proceeds) in search of a target company or asset, or the obligation to convert into cash a significant number of Shares from Dissenting Shareholders pursuant to the Qualifying Acquisition Share Repurchase, we will be required to seek additional financing. However, such additional financing, if any, may not be available on acceptable terms to us and we may need to restructure the transaction or abandon the Qualifying Acquisition and/or seek alternative target company or asset. In addition, we may require additional financing to fund the operations or growth of the target company or asset after completion of Qualifying Acquisition. The failure to secure additional financing may have a material adverse effect on the development or growth of the target company or asset. Notwithstanding this, our Management Team will take into consideration the financial requirements of the target company or asset and our ability to undertake additional financing, if necessary before entering into a Qualifying Acquisition. 4.1.9 If the net proceeds of this IPO not held in the Islamic Trust Account are insufficient to allow us to operate for at least the next 36 months, we may be unable to complete a Qualifying Acquisition We will place 94.75% of the IPO Proceeds into an Islamic Trust Account. The remaining monies raised from the Public Issue which are not held under the Islamic Trust Account together with the monies raised from the Subscription by Reach Energy Holdings and Subscription by the Initial Investor will be used to fund our administrative and operating expenses including but not limited to the expenses to be incurred for the identification of target company or asset, remuneration of our Management Team and listing expenses in the next 36 months from the Listing or upon the completion of a Qualifying Acquisition, whichever is earlier. We believe that the funds available to us (excluding the IPO Trust Proceeds) will be sufficient to allow us to operate for the next 36 months from the Listing or upon completion of a Qualifying Acquisition, whichever is earlier. However, there is no assurance that the funds available to us will be sufficient. We could use a portion of the funds not being placed in the Islamic Trust Account to pay due diligence costs in connection with a potential Qualifying Acquisition or to pay fees to professionals and/or consultants to assist us with our search for a target company or asset. We could also use a portion of the funds not being placed in the Islamic Trust Account as a deposit, downpayment or to fund an “exclusive” provision (an exclusive provision in letters of intent designed to keep the target company or asset from “shopping” around for transactions with others on terms more favourable to such target company or asset) with respect to a particular proposed Qualifying Acquisition. If we enter into such a letter of intent where we have to pay for the right to receive exclusivity from a target company or asset and such funds were subsequently forfeited (whether as a result of our breach or otherwise), we may not have sufficient funds to continue searching for and/or conduct due diligence with respect to any other potential target company or asset thereafter for our Qualifying Acquisition.
4. RISK FACTORS (Cont’d) 4.1.10 If we are unable to complete a Qualifying Acquisition within the Permitted Timeframe, we will be required to liquidate and distribute the IPO Trust Proceeds. We have 36 months from the Listing to complete a Qualifying Acquisition. As such, we are not obliged to return the funds to investors at any time within the Permitted Timeframe. There is no assurance that we will be able to complete a Qualifying Acquisition within the Permitted Timeframe. If we are unable to complete a Qualifying Acquisition within the Permitted Timeframe, we will be required to liquidate our Company and our shareholders will be entitled to the Liquidation Distribution subject to the Non-Participation Obligations. During the Permitted Timeframe, the IPO Trust Proceeds will be held in the Islamic Trust Account and may not be returned to you until after 36 months from the Listing if the Qualifying Acquisition is not completed by then. 4.1.11 Our public shareholders may receive less than the Issue Price per Share and our Warrants will expire worthless in the event of liquidation due to non-completion of a Qualifying Acquisition within the Permitted Timeframe If we are unable to complete a Qualifying Acquisition within the Permitted Timeframe and are forced to liquidate our Company, our shareholders will be entitled to the Liquidation Distribution subject to the Non-Participation Obligations. However, the per-share Liquidation Distribution may be less than the Issue Price due to the expenses incurred arising from this IPO, our general and other expenses and the anticipated costs of identifying a Qualifying Acquisition. Additionally, there will be no distribution with respect to our outstanding Warrants which will expire worthless after the Permitted Timeframe. Please refer to Section 5.1.3 of this Prospectus for further details on the Liquidation Distribution.
4.1.12 IPO Investors may not be able to realise returns on their investment in the Public Issue Shares within their self-anticipated period You may not necessarily be able to immediately realise any gain or derive any benefit on your investment in the Public Issue Shares within your presumed period as our Company is a listed SPAC and requires time to complete a Qualifying Acquisition. Accordingly, the Public Issue Shares may not be suitable for short-term investment. Notwithstanding the abovementioned risks, we have established a selection criterion for the Qualifying Acquisition as disclosed in Section 220.127.116.11 of this Prospectus. In identifying the oil and gas company or asset for the Qualifying Acquisition, we will take into consideration our selection criteria, which include amongst others, a minimum target project IRR of 15%. In evaluating whether the target company or asset will be able to achieve the minimum target project IRR, we are, to a certain extent, dependent on projections and estimations in respect of the target company or asset obtained internally and/or externally such as from third party experts. The projections and estimations include, amongst others, cash flow projections, projected production rate and timeline as well as estimated future costs in respect of the target company or asset. However, the actual performance of the target company or asset may differ from the projections and estimations made in respect of the target company or asset. As such, we cannot assure that the target company or asset acquired pursuant to the Qualifying Acquisition will be able to achieve our minimum target project IRR or if achieved, the quantum and timing of the eventual returns to our shareholders. There may also be a risk that you may not be able to recover or receive returns on your investment in the event the Qualifying Acquisition is not profitable or require longer period than expected to be profitable. 4. RISK FACTORS (Cont’d) 4.1.13 The determination of the Issue Price is more arbitrary compared with the pricing of securities for an operating company Prior to this IPO, there has been no pUblic market for any of our securities. Factors considered in determining the prices and terms of the Public Issue Shares and the Warrants include: • the minimum proceeds to be raised by a SPAC in accordance with the SC Guidelines;
• the estimated capital requirements of our Company to achieve a Qualifying Acquisition;
• different risk levels and timing of entry of our investors; and
• the listing scheme as set out in Section 3.2 of this Prospectus.
Although these factors were considered, the determination of the Issue Price is more arbitrary than the pricing of securities for an operating company since we have no historical operations or financial results as a valuation basis. 4.1.14 If we acquire a target company or asset which is located outside of Malaysia, we could be sUbject to a variety of additional risks that may negatively impact our operations If we acquire a target company or asset which is located outside of Malaysia, we could be subject to special considerations or risks associated with companies operating in the target company or asset’s home jurisdiction, including but not limited to anyone or more of the following: • policies governing foreign investments, exchange control and repatriation of funds;
• tariffs and trade barriers;
• regulations relating to customs and import/export matters;
• longer payment cycles;
• tax issues specific to the jurisdiction of the target company or asset;
• currency fluctuations;
• challenges in collecting amounts receivable;
• cultural and language differences;
• employment regUlations; and
• political and social stability.
These concerns are aspects of political and market risk that need to be considered thoroughly when evaluating entry options to a particular country or legal jurisdiction. If we are unable to adequately address these risks, our operations may be adversely affected.
4.1.15 We are exposed to uncertainties in the evaluation of oil and gas assets The evaluation of a particular oil and gas asset can be uncertain in terms of estimating the Reserves and production potential and the associated costs to develop and produce them. The estimation may also involve subjective judgements and determinations based on geological, technical, contractual and economic information. It is not an entirely exact calculation. There are numerous uncertainties inherent in the basis and assumptions used in the estimation, hence, the actual outcome may vary from the estimation. 4. RISK FACTORS (Cont’d) These risks can be mitigated by having the right expertise and experienced personnel in the evaluation team in order to minimise uncertainties in ascertaining the commercial viability of the resources as well as to formulate an effective FDP, using appropriate techniques, project management workflow and technologies as well as adopting global industry practices and standards for such development and production activities. 4.1.16 We are exposed to corporate governance issues in relation to the acquired asset/company Given that some of the jurisdictions in our Region of Focus may not have adequate corporate governance framework, the target asset/company in these countries may not practise satisfactory corporate governance and best practices and may have fraud and/or mismanagement issues such as excessive risk taking, misappropriation of funds and noncompliance with standard operating procedures, by employees and/or contractors. As a public listed company, we acknowledge the importance of imposing a sound corporate governance structure in our organisation to safeguard the interest of our stakeholders. Hence, we aim to adopt globally accepted corporate governance best practices in relation to our acquired asset/company. 4.1.17 We are exposed to risks in relation to post-completion of the Qualifying AcqUisition particularly risks in relation to development and production operations In view of our business strategy as set out in Section 5.2 of this Prospectus to acquire oil and gas assets or companies in development and/or production stages, we are exposed to, amongst others, risks in drilling, extraction, evacuation and processing activities of oil and gas fields. These risks are directly driven by the strength in design, selection, procurement and installation standards applied to our oil and gas infrastructure as well as operating procedures and emergency response contingency planning during drilling, development and/or production. Weaknesses, such as but not limited to poor design, poor procedures, inadequate physical strength and limited capacity may adversely affect our operations. Additionally, we are also exposed to risks in relation to poor management and maintenance of equipment or infrastructure vis-a-vis the assets that we acquire. This may range from loss, delays and/or decrease in capacity, to ultimately halting our operations altogether. To mitigate these risks, we aim to adopt globally accepted industry standards in the area of design, procurement, operations and maintenance of all our assets. We will also focus on developing robust preventive maintenance and inspection practices, operating philosophies including sparing and strategic vendor arrangements to ensure we obtain consistent and good quality equipment and infrastructures.
4.2 RISKS RELATiNG TO THE OIL AND GAS INDUSTRY The challenges in the oil and gas industry are categorised as follows: (i) Financial and economic risks;
(ii) Strategic risks;
(iii) Compliance risks; and (iv) Operational risks. 4. RISK FACTORS (Cont’dj 4.2.1 Financial and economic risks 18.104.22.168 We are exposed to risk of fluctuations in oil and gas prices Our business and profitability depends largely on oil and gas prices. As oil and gas are commodities, the prices are subject to price volatility which is unpredictable and may fluctuate in response to relatively minor changes in the supply and demand conditions for oil and gas, market uncertainty and a variety of additional factors that are beyond our control, such as, but not limited to, weather conditions, political instability, natural disasters, economic conditions and actions by major oil exporting countries. Any adverse movement in the oil and gas prices will drive our revenues lower, erode into our margins and thus lower profitability. In addition, a prolonged decline in oil and gas prices will adversely affect the amount of our cash flow available for capital expenditures and working capital which may ultimately reduce the amount of oil and gas that we can produce economically and impede our future business growth. 22.214.171.124 We are exposed to financial market risks including interest rate risks and foreign exchange risks We are principally involved in the oil and gas industry, however we are intrinsically exposed to risks related to the financial markets. Such risks may include exposures to interest rate, particularly if we are undertaking borrowings to part finance our Qualifying Acquisition or finance our future operations after completing the Qualifying Acquisition as well as profits received from deposits in financial institutions. As an independent E&P company, we may have business and operations in various countries and our revenues may be denominated in foreign currencies as commodities are principally denominated in USD. However, a portion of our expenses may be denominated in RM and other currencies depending on the locations of our Qualifying Acquisition. The RM operates on a managed float basis and an appreciation of the RM against foreign currencies may materially and adversely affect our financial performance as it may reduce our revenue in RM terms. Accordingly, changes in the foreign currencies to the RM rate could have an adverse impact on our results of operations and financial condition, including translation adjustments , in converting foreign currencies to RM for financial statement purposes. 126.96.36.199 We are exposed to economic and socio-political risks Our Company’s future operations may be adversely affected by political or economic developments or social instability in the Region of Focus or other regions which we may operate in, which are not within our control, including among others, a change in crude oil or natural gas pricing policy, import and export restrictions, the risks of war, terrorism, abduction, expropriation, nationalisation, renegotiation or nullification of existing concessions and contracts, taxation policies, economic sanctions, the imposition of specific drilling obligations, the development and abandonment of fields, fluctuating exchange rates and currency controls. It is difficult to predict the timing or severity of these occurrences or their potential effect. If such risks materialise, they could affect the employees, reputation, operational performance and financial position of our Company. 4. RISK FACTORS (Cont’d) 4.2.2 Strategic risks 188.8.131.52 We may face competition for access to oil and gas resources The oil and gas industry is generally competitive. We may compete with the NOCs, IOCs and other junior independent E&P companies, particularly in seeking access to oil and gas resources. In recent years, government-backed oil companies such as the NOCs control significant oil and gas resources whereas IOCs move towards the development of unconventional Reserves. Following the Iiberalisation of the oil and gas industry in the Region of Focus and various other factors which give rise to the opportunities for the investment in development and/or production assets, our Company could face stiff competition from other junior independent E&P companies that have substantially greater financial resources, workforce and facilities than those of our Company for oil and gas resources. In addition, an increase in competition for resources will affect the entry costs. Our inability to compete effectively with these larger competitors could have a material adverse impact on our business activities, financial condition and operations. Hence, our future success will depend on our strength and ability to further exploit and develop the existing assets and to identify and acquire suitable producing assets or prospects in the exploration/appraisal and/or development stage.
184.108.40.206 We are dependent on the infrastructure of third party service providers It is common in the oil and gas industry that we may not own or maintain the entire oil and gas infrastructure for the development, production, storage and transportation of oil and gas which includes amongst others, rigs, platforms, drilling equipment, pipelines, storage tanks and vessels. Some of these infrastructures are often leased from third party service providers. We may be dependent on such operators for the timing of activities related to such infrastructures and will be largely unable to direct or control the activities of these operators. We may, from time to time, face a delay in the availability of these infrastructures due to technical and logistical issues. In such an event, our development and production activities may be interrupted resulting in cost overrun and delayed deliveries that may have an adverse impact on our financial performance. 220.127.116.11 We may face integration and other risks associated with our acquisitions of oil and gas assets Increasing our oil and gas Reserves base through acquisitions is an important part of our business strategy. However, there are risks in acquiring oil and gas assets, inclUding difficulties in integrating acquired assets into our business such as culture, technical and operational differences, additional liabilities and expenses associated with the acquired assets, diversion of management attention and increased costs of operating in new geographical areas and complexity of operations.
18.104.22.168 We may have disputes with our strategic partners Inherently, oil and gas operations globally are conducted in a joint venture and/or partnership environment. Hence, we may, from time to time, enter into joint venture arrangement and form strategic alliances with our partners as well as acquire a controlling stake and/or operatorship in a company for the development and/or production of oil and gas assets. 4. RISK FACTORS (Cont’d) Notwithstanding having an operatorship role over the oil and gas assets, we could still be exposed to the risks associated with the affairs of the assets as we have limited influence and control over the behaviour and decision of our joint venture and/or strategic partners. Disputes with our partners and/or stakeholders may arise due to non-alignment on various strategic decisions or business directions. Our partners or members of a joint venture may also not be able to meet their financial or other obligations to the project, threatening the viability of the projects. These disputes may result in operational or production inefficiencies or delay that could adversely affect our business growth, financial performance and operations. 4.2.3 Compliance risks 22.214.171.124 We are sUbject to host government policies and regulations towards the oil and gas industry which may affect the level of E&P activities Host governments implement various policies and regulations towards the oil and gas industry to influence the level of E&P activities in their respective countries. To promote the level of E&P activities, host governments may offer favourable fiscal terms and/or tax incentives to the E&P operators. Any adverse change or development to the existing host government policies and regulations towards the oil and gas industry such as, but not limited to, imposition of new or higher taxes, higher profit sharing ratio to the host governments or a requirement for domestic sale at a significant discount may adversely affect our future business operations and financial performance. 126.96.36.199 We are exposed to risks associated with future energy regulatory changes All phases of the oil and gas business pose environmental risks and hazards and are subject to environmental regulation pursuant to a variety of laws, regulations and legal systems of the respective jurisdictions. Environmental legislation provides for, amongst others, restrictions and prohibitions on spills and emissions of greenhouse gas and pollutants produced in association with oil and gas operations. The legislation also requires that wells and facility sites be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. Compliance with such legislation can require significant expenditures and a breach may result in the imposition of fines, penalties and liability for clean-up costs and reputational damages. Over the years, there has been increasing emphasis on regulation and environmental legislation evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs to the oil and gas operators. In addition, existing or new laws, regulations or treaties (including incentives to conserve energy or use alternative energy sources) could also have a negative impact on our business and financial performance. 188.8.131.52 We could be SUbject to substantial penalties, fines, restrictions on operations, remedial liabilities and sanctions if we fail to comply with some applicable statutes, rules, regulations and orders The oil and gas operations (exploration, production, pricing, marketing and transportation) are subject to extensive controls and regUlations imposed by various levels of government (federal, state and local). Each country would have differing degrees of laws and regulatory regimes and legal systems. Furthermore, oil and gas operators including the E&P companies require numerous licences, permits and approvals from various governmental agencies in order to commence operations. These laws, regulations and obligations could change with the promulgation of new laws and regulations or a change in the interpretation of existing laws and regulations. 4. RISK FACTORS (Cont’d) We are required to comply with the laws and regulations of the respective jurisdictions where we operate. In addition, we are required to apply for approvals, licences and permits from various governmental authorities in order to carry out the exploration, development and production activities and there can be no assurance that we will be able to obtain all necessary approvals, licences and permits. Compliance with these laws, regulations and obligations could require substantial expenditures and efforts from our Company. Should we fail to obtain such approvals on a timely basis, fulfill the material conditions imposed for such approvals or comply with these requirements or any other applicable administered statutes, rules, regulations or orders, we could be sUbject to delay or disruption in operations, substantial penalties, fines, restrictions on operations, remedial liabilities and sanctions which would materially affect our operations, financial conditions and results of operations.
4.2.4 Operational risks 184.108.40.206 We are exposed to exploration, development and production risks The exploration of oil and gas is uncertain and may involve unprofitable efforts, not only from dry wells, but from wells that are productive but uneconomical. Such activities may require substantial investments which may not be recoverable. The key factors in determining the commercial viability are the size of the Reserves, extraction costs, recovery rates and commodity price. In addition, physical exploration activities are sUbject to unforeseen adverse events during the operations such as, but not limited to, well blowouts (uncontrolled release of high pressure gas and liquid), oil spills and inadequate procedures or equipment failures. The geological environment of the area of operation may also complicate and increase the level of risks involved. The development of oil and gas fields requires significant capital investment from the E&P companies and involves the specific design and construction of the infrastructure, which includes the wells, platforms, process equipment, pipelines and storage facilities. In view of the substantial capital commitments and various forms of approvals and permits required during the development process, there may be risks of cost overruns and delays during the development stage. Any material increase in estimated capital expenditure requirements including development expenditure and operating costs, delay in obtaining the relevant approvals and permits and unavailability or delay of equipment and services may have an adverse effect on our business, financial conditions and operations. The production of oil and gas is subject to risks typically associated with operations activities, including unexpected formations or pressures, premature decline of reservoir pressures and the invasion of water into producing formations. In addition, the production operations may also face other inherent risks and hazards such as, but not limited to, fire, explosion, blowouts, cratering, sour gas releases and oil spills and other various field operating conditions each of which could result in increased cost of operations, damage to oil and gas wells, production facilities and the environment or personnel injuries. Losses resulting from the occurrence of any of these incidents or risks could have a materially adverse effect on our business and financial performance. While diligent supervision, monitoring and effective maintenance operations can minimise such occurrence, there is no assurance that we can completely eliminate any production risk.
220.127.116.11 We face the risk of inadequate Reserves replacement The long-term commercial success of an E&P company will depend on the ability to find, acquire, develop and commercially produce oil and gas Reserves and to replace the depleted Reserves. Without the continual addition of new Reserves, our existing Reserves will decline over time with production. 4. RISK FACTORS (Cont’d) Our future success depends largely on our ability to find, develop or acquire additional oil and gas Reserves that are economically recoverable. However, we may not be able to find, develop or to acquire additional Reserves at an acceptable value due to increasing competition from other E&P companies. In addition, substantial capital is required to replace and grow the Reserves. There is no assurance that further commercial quantities of oil and gas Reserves may be successfully discovered or acquired to replace our Reserves. Inability to replace our existing Reserves may have an adverse impact on our future business growth and financial performance.
18.104.22.168 We face the risk of an increasing cost structure E&P spending is the cost incurred in the process of exploration, development and production of oil and gas. These costs typically include geological and geophysical costs, drilling of wells, construction and installation of production facilities and infrastructure and operational costs. Corresponding with the higher oil and gas prices, the cost structure of E&P activities has generally increased over time partly due to the cost pressures from shortages and bottlenecks in many sectors (including providers of oil field services, materials and equipment as well as workforce). The increasing cost structure in the oil and gas industry is likely to cause an increased focus on cost control by the oil and gas operators in order to remain competitive. Although our Company will strive for continuous improvement in planning and procurement and to achieve cost optimisation and reduction, there can be no assurance that our Company will be able to successfully manage our cost. This in turn could erode our competitive position and adversely affect our financial performance.
22.214.171.124 We are exposed to evaluation risks The process of estimating oil and gas Reserves is complex and involves a significant number of assumptions in evaluating available geological, geophysical, engineering, economic and production data. The process also requires certain economic assumptions such as oil and gas prices, drilling and operating expenses, capital expenditures, taxes and the cost of funds. The accuracy of Reserves estimate is a function of quality and quantity of available data, interpretation of that data and accuracy of various mandated economic assumptions. Any significant variance could materially affect the quantities and present value of the Reserves. Hence, successful acquisitions depend on the extensive evaluation and accurate assessment. However, factors such as recoverable Reserves, exploration potential, future oil and gas prices, operating costs and potential environmental and other liabilities are inherently uncertain. If a high impact prospect identified by our Company fails to materialise in a given period, our future business prospects may be adversely affected. These risks can be mitigated by using appropriate techniques, project management workflow and technologies as well as adopting global industry practices and standards for such evaluation activities. 126.96.36.199 We face the risks of shortage of skilled and experienced workers in the oil and gas industry There is a shortage of skilled and experienced workers in the oil and gas industry due to the boom in E&P activities globally as a result of high oil and gas prices in recent years. The issue of workforce shortages can be attributed to the previous lack of investment in training or developing skilled and experienced young workforce during the low oil price period of the early 1990s. While developing a skilled workforce for the oil and gas industry has expanded recently, there is still a shortage of oil and gas workforce with sufficient years of experience. 4. RISK FACTORS (Cont’d) The competition for qualified personnel or workers in the oil and gas industry is intense due to the shortage. The workforce shortage could threaten investment, growth and sustainability throughout the entire oil and gas value chain. There can be no assurance that our Company will be able to attract and retain all personnel necessary for the development and operation of our business. The loss of any personnel to competitors or our inability to recruit sufficient workforce could adversely affect our operational performance and growth strategy.
188.8.131.52 We are subject to changes in technologies in the oil and gas industry We operate in the oil and gas industry where the most advanced technologies are needed to remain competitive. New technologies and techniques are developed to increase oil and gas production and commercialise complex projects such as deepwater, LNG, shale gas and oil and other imminent frontier technology plays. These new technologies may alter the supply, demand and commodity prices in local and global markets. Hence, the industry is increasingly reliant on better technologies and techniques to deliver more accurate and timely information for strategy planning and to enhance operational efficiency. Our inability to successfully deploy the right technologies and/or anticipate the impact of new technologies may adversely affect our business.
184.108.40.206 We are exposed to the risks in relation to HSE in our operations The oil and gas industry requires high standards of HSE practices in view of the risks inherent in the oil and gas business given the geographic range, operational diversity and technical complexity of the activities. These risks include major process safety incidents, failure to comply with approved standards and policies, effects of natural disasters and pandemics, social unrest, civil war and terrorism, exposure to general operational hazards, personal health, safety lapses and crime. Any changes in the HSE requirements could increase our cost of operations in the future. A major HSE incident could result in injury, loss of life, environmental harm and disruption to business activities which may have an adverse effect on our business.
220.127.116.11 We are exposed to limitations on insurance coverage Our Company’s involvement in the E&P activities may subject us to liability for pollution, blowouts, .property damage, personnel injury or other hazards. We will obtain insurance coverage in accordance with industry standards to address such risks. However, such insurance has limitations on liability that may not be sufficient to cover the full extent of our obligations for liabilities arising from material environmental incidents. Hence, the occurrence of a significant event that is not fully insured against could have a material adverse effect on our business. 4.3 RISKS RELATING TO THE IPO 4.3.1 There is no prior market for our Shares and Warrants and an active market for our Shares and Warrants may not develop after Listing Prior to this IPO, there has been no public market for our Shares and Warrants. There can be no assurance that an active and liquid market for our Shares and Warrants will develop and continue to develop upon or subsequent to our Listing or, if developed, that such a market will be sustained. We believe that a variety of factors could cause our share price to fluctuate and such fluctuations may adversely affect the market price of our Shares and Warrants. 4. RISK FACTORS (Cont’d) The Issue Price has been determined after taking into consideration a number of factors as stated in Section 3.4 of this Prospectus. There can be no assurance that the Issue Price will correspond to the price at which our Shares will trade on the Main Market of Bursa Securities upon or subsequent to our Listing. 4.3.2 Our Management Team’s effective cash cost per Share is RMO.075 and accordingly, the IPO Investors would face immediate and substantial dilution in the NA per Share after the Public Issue and may experience future dilution The Issue Price is higher than our NA per Share after the Public Issue. The lower NA per Share is partly because of the Management Team’s effective cash cost per Share of RMO.075 which is 90% lower compared to the Issue Price. The lower cash cost per Share of RMO.075 may give rise to a potential unrealised gain of approximately RM172.53 million (based on the Issue Price) to Reach Energy Holdings upon the IPO. After the Public Issue and payment of listing expenses, the NA per Share is RMO.03 per Share as compared to the Issue Price and the IPO Investors will experience an immediate dilution in NA per Share of RMO.72 per Share. The decrease in our pro forma NA per Share to the IPO Investors is also due to the IPO Trust Proceeds placed under the Islamic Trust Account is deemed as a liability to our Company prior to completion of the Qualifying Acquisition. As a SPAC, our Company is required to return the IPO Trust Proceeds under the Islamic Trust Account to the IPO Investors if the Qualifying Acquisition is not completed within the Permitted Timeframe. Subsequent to the completion of the Qualifying Acquisition within the Permitted Timeframe, the IPO Trust Proceeds placed under the Islamic Trust Account will be reclassified from liability to equity as our Company has no further obligation to refund the IPO Trust Proceeds. The NA per Share will be RMO.59 per Share as compared to the Issue Price and the dilution in NA per Share will be RMO.16 per Share. SUbsequent to the completion of the Qualifying Acquisition within the Permitted Timeframe and full exercise of the Warrants, the NA per Share will be RMO.67 per Share as compared to the Issue Price and the IPO Investors will experience dilution in NA per Share of RMO.08 per Share. In the future, after the completion of the Qualifying Acquisition, we may require additional funding and we may consider offering and issuing additional Shares or equity-linked securities. The IPO Investors may experience further dilution in NA per Share if we issue additional Shares or equity-linked securities on a non-pro rate basis in the future. Please refer to Sections 3.3.1, 3.7, 18.104.22.168, 22.214.171.124 and 126.96.36.199 of this Prospectus for information on the dilutive effects of the full exercise of the Warrants on the issued and paidup share capital, shareholding structure and pro forma NA per Share of our Company. In addition, due to the differences in entry cost or effective cash cost of Reach Energy Holdings, the Initial Investor and the IPO Investors, the equity IRR to the IPO Investors will potentially be lower than the project IRR. Solely for illustrative purposes, assuming that we undertake the Qualifying Acquisition of a target company and/or asset with a minimum project IRR of approximately 15% and where the acquisition is fully funded via equity (i.e. the IPO Proceeds), the derived equity IRR to the IPO Investors is approximately 8.4% (based on our financial model which takes into consideration certain assumptions such as production profile, oil price, royalty structure, cost and taxes). Nevertheless, we may finance the Qualifying Acquisition via a combination of debt and equity. Under such circumstances, the equity IRR to the IPO Investors (based on the financial model) will be higher than 8.4% based on prevailing borrowing costs. 4. RISK FACTORS (Cont’d) 4.3.3 Investment in the capital market exposes the investor to capital market risk The performance of the local bourse is very much dependent on external factors such as the performance of the regional and world bourses and the inflow or outflow of foreign funds. Sentiments are also largely driven by internal factors such as the economic and political conditions of the country as well as the growth potential of the various sectors of the economy. These factors invariably contribute to the volatility of trading volumes witnessed on Bursa Securities, thus adding risks to the market price, which may already fluctuate significantly and rapidly as a result, inter-alia, of the following factors: • differences between our Company’s actual financial and operating results and those expected by investors and analysts;
• announcements by us or our competitors of significant contracts, acquisitions, strategic alliances, joint ventures or capital commitments;
• fluctuations in stock market prices and volume;
• changes in our Company’s operating results;
• changes in securities analysts’ estimates of our Company’s financial performance and recommendations;
• change in market valuation of similar companies;
• our involvement in litigation, arbitration or other forms of dispute resolution; • additions or departures of key personnel; and
• changes in general economic and stock market conditions.
4.3.4 Forward-looking statements may not be reflective of our future prospects Our Prospectus contains forward-looking statements which are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Whilst the interpretation of this information may be forward-looking, the contingencies and inherent uncertainties underlying this information should be carefully considered by the investors and should not be regarded as a representation by our Company and our advisers that the objectives and the future plans of our Company will be achieved. Any differences in the expectation of our Company from our actual performance may result in our Company’s financial and business performances and plans to be either, materially or immaterially, different from those anticipated. 4.3.5 Occurrence of certain events could result in the delay in Listing or the termination of the Listing exercise The occurrence of anyone or more of the following events, which may not be exhaustive, may cause a delay in our Listing or our Listing to be aborted: (i) the Underwriter exercising the rights pursuant to the Underwriting Agreement to discharge itself from its obligations thereunder; or
(ii) we are unable to meet the public spread requirement as determined by Bursa Securities, i.e. at least 25% of our enlarged issued and paid-up ordinary share capital must be held by a minimum number of 1,000 public shareholders holding not less than 100 Shares each at the point of our Listing.
4. RISK FACTORS (Cont’d) In such an event, our Board will endeavour to take the necessary steps in the best interests of our Company and our shareholders as well as the economic conditions at that point in time, including, subject to restrictions set out in Section 4.3.6 below, return in full without interest, all monies paid in respect of any Applications accepted. Our Directors will endeavour to ensure compliance with the various requirements for our successful Listing. 4.3.6 Delay between admission and trading of the Public Issue Shares may result in prolonged delays or the inability for investors to recover monies paid in respect of the Public Issue Shares After the Public Issue Shares and Warrants have been allotted and/or allocated to the respective investors’ CDS accounts in Bursa Depository, which would occur at least two clear Market Days prior to the anticipated date for Admission, it may not be possible to recover monies paid in respect of the Public Issue Shares from us in the event the Admission and the commencement of trading on the Main Market of Bursa Securities do not occur. Delays in the Admission and the commencement of trading in shares on Bursa Securities have occurred in the past. In respect of the Public Issue Shares, following their allotment and issue to investors, a return of monies to such investors may be effected by way of a reduction of our share capital. A capital reduction would require the approval by special resolution of our shareholders as well as approval by the Malaysian High Court. Further, such capital reduction shall not be effected if on the date the reduction is to be effected, there are reasonable grounds for believing that we are, or after the reduction would be, unable to pay our liabilities as they become due. THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK