The Dubai-headquartered OSV operator announced an $818,000 net profit for the six months to June 30 – a 125% improvement on its $3.1m loss for the same period in 2015.
It is an eye-catching turnaround by any measure but particularly when taken in the context of the recent Swiber collapse in Singapore, the merger of Solstad and Rem Offshore in Norway and an increasing distress across the OSV sector including two key Topaz markets, the Arabian Gulf and West Africa.
Revenue for H1 softened to $149.5m, a 14.7% dip from $175.4m for the corresponding period and chiefly due to a tough second quarter of 2016 during which Topaz lost $700,000.
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However, with fleet utilisation of its Caspian Sea with Azerbaijan fleet running at 94% and the redeployment of four vessels from its MENA operations to the Caspian to pursue better rates, Topaz has achieved a 15.3% reduction in costs.
Against this, Topaz has taken the decision to put seven vessels in lay-up, five in MENA and two in Africa, as it rides out the market turbulence in the OSV sector.
The $350m deal signed in May to construct, supply and operate 15 vessels for a minimum period of three years to Chevron operated TengizChevroil (TCO) in Kazakhstan has Topaz ceo René Kofod-Olsen (pictured right) looking ahead with confidence. However, this won’t have a positive impact on current financials with the contracts not starting deployment till Q2 2018.
Coupled with a major 14-vessel BP contract signed in Q1, the TCO deal takes Topaz’s order backlog to $1.6bn, up 23% compared to H1 in 2015. The renewed lower rates on the BP contract saw a drop in $5.6m in revenues in the Capsian.
Further, another “TCO related contract award is expected in the third quarter worth an additional $150m”, Topaz says.
“Our ability to secure such significant and long-term contracts with world leaders in oil and gas underlines the competitiveness and operational reliability of our business,” Kofod-Olsen said.
“These are both agreements based on medium to long term engagements, which enhance our earnings visibility and our credit strength.”
Kofod-Olsen conceded the Topaz’s operations in the MENA and Africa regions had endured a challenging six months as the Mena market moves increasingly to spot rate contracts and clients reduced or delayed investment in the West Africa offshore market.
However, Topaz expects its Caspian and Azerbaijan fleets to continue delivering in the second half of 2016 in regions “where we generate the majority of our EBITDA”.
“As market demands change, we are responding dynamically by optimizing our vessel allocation and our cost structure. Our versatile fleet means that we have been able to redeploy vessels from lower utilization regions to regions where we can put assets to work for clients...we have mobilised four of our vessels from MENA to Russia to pursue long-term work.
“We expect the trading conditions for the rest of the year to continue being highly challenging. However, our major contract wins during the period demonstrate our continued ability to secure long-term work with reputable clients, capturing increasing value from this soft OSV market.”
The $350m TCO contract, which requires vessels able to navigate shallow river systems, has been awarded to Vard. The 15 vessels are scheduled to be deployed in the second quarter of 2018.
Topaz, a subsidiary of Renaissance Services SAOG, a publicly traded company on the Muscat Securities Market, operates a fleet of more than 90 OSVs serving the global energy industry with primary focus on the Caspian, Middle East, West Africa and Subsea operations in the North Sea and Gulf of Mexico.