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Malaysian offshore players girding up for the next rush upwards

Malaysian offshore players girding up for the next rush upwards
Some Malaysian offshore oil and gas (O&G) players are taking advantage of the current slowdown in market conditions to reorganise their businesses and prepare themselves for an eventual upturn.

A sharpening focus on the parts of the cluster that are seen as having greater potential is a key element of their strategies. Budding FPSO vessel player Yinson Holdings has engineered essentially a management buy-out of its non-core logistics and trading business, allowing the parent to focus on its much more lucrative O&G business.

Founding shareholders, including group executive chairman Lim Han Weng and his wife, have offered to buy Yinson’s logistics and trading businesses for MYR228m ($60.4m). Lim added that proceeds from the exercise would be used to fund its expansion in the O&G industry.

“The additional capital will improve the group’s headroom for growth,” he said in a stock market filing.

The group’s trucking, construction material trading and warehousing businesses will be hived off and in perhaps a vindication of this decision, recent first quarter results saw the transport and trading segment revenues fall by about a fifth, with only the marine segment seeing an increase in revenue and an accompanying rise in operating profit through operating cost cuts.

Lim said: “It is our plan to streamline our business operation and be a full-fledged O&G player in the industry. Our long-term objective is to develop the group into the most profitable global FPSO player.”

He added that it would use the sale proceeds to reinvest into O&G projects with higher internal rate of return while the sale of the non-core assets would also allow the holding company to fetch better valuations as a pure O&G firm.

Yinson has also proposed a private placement to raise up to MYR300m to reduce debt and cut its gearing from 0.57 times as at Jan 31 to 0.31.

Fellow industry giant Bumi Armada has also made revisions to how its recent rights issue proceeds of MYR1.98bn will be utilised, reallocating a higher proportion to its FPSO and new floating gas solutions (FGS) business units.

Bumi Armada said that the allocation to the FPSO and FGS units had been boosted from MYR1.4bn to MYR1.52b, while the MYR200m allocation for the transport and installation business unit had been reduced to MYR80m and following the recent dissolution of the oilfield services business unit, the MYR80m previously allocated to it has been reallocated to the OSV business unit.

“The reallocation of the rights proceeds reflects the Bumi Armada group’s overall strategy of focusing on its core FPSO business and enhancing its OSV and FGS capabilities. The board believes this is an appropriate strategy to weather the current challenges in the offshore oil and gas sector, brought about by the decline in oil prices since the second half of 2014,” said the company in a stock market announcement.

The company has been under the leadership of acting ceo Chan Chee Beng since the surprise resignation of former ceo Hassan Basma from 1 January this year.

Meanwhile offshore construction specialist Daya Materials, while making use of the downturn to cut costs through rate renegotiations and key asset purchases is also being prudent with the purchase of just one subsea offshore vessel, Siem Daya 1 (SD1), instead of the two it would have been able to under its options, group ceo Lim Thean Shiang told local media.

However, not only was the $120m purchase made at a slight discount to the initial offer price of $140m but the vessel is also supported by long term contracts Daya has with well-known offshore contractors in the North Sea.

Owning the vessel will lower cost of operations and which will be of long term benefit, Lim noted. “In the offshore business, vessel cost is the single largest cost item. It would be commercially viable for us to buy the vessel used for those contracts as opposed to chartering from third parties, which would translate into higher margins,” he said.

Daya is chartering SD1 and Siem Daya 2 (SD2) from Norway-based Siem Offshore for five years with options to purchase them. The vessels are deployed mostly in the North Sea. The company has an orderbook of MYR2bn.