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Malaysian OSV players to be hardest hit by Petronas budget cuts

Malaysian OSV players to be hardest hit by Petronas budget cuts
Malaysia's offshore support vessel (OSV) sector is seen being the hardest hit by Petronas' plans to cut MYR50bn ($11.5bn) from its operating and capital expenditure (opex and capex) over the next four years, local reports said.

The OSV segment is considered especially vulnerable because it is relatively more highly leveraged and has a lower cash-coverage ratio compared to other segments such as the offshore facility construction and maintenance as well as hook-up and commissioning segments.

Industry studies were cited which estimate that the six Malaysian “asset-heavy” companies which have close to MYR6bn in fixed assets have an average debt to equity ratio of over one time but a cash-coverage ratio of about 0.84 times.

Alam Maritim Resources group md and ceo Azmi Ahmad said that the group has initiated cost optimization measures to counter the slowdown in demand.

He noted that Petronas, which contributed up to 60% to Alam’s business last year, had started cost-cutting initiatives since last year. “This has been affecting not only Alam but all O&G players,” he said.

Azmi said Alam’s services were very much focused on production activities. “There are still activities utilising our services albeit at a lower utilisation rate.

“We need to have a strong cash position in order to sustain ourselves in the downturn and are hoping to be able to spring back into action when the industry recovers,” he added.

But Alam has been burning through cash, with just MYR114m in cash and bank balances as at 30 September, less than half of the MYR245m it had a year ago. Total borrowings were about MYR191m.

Daya Materials group ceo Lim Thean Shiang said the impact of weak crude prices would be broadly felt across the entire oil and gas (O&G) sector but its effect on Daya was marginal.

“However, in terms of direct contribution, as Petronas accounts for only about 10% of our group business, the direct impact on us will not be significant. Our goal is to work closely with all our customers (including Petronas) to ensure that we all weather through this industry downturn and emerge stronger,” Lim said.

“Subsequently if Petronas cuts deeper, it may have a more direct impact on some of our customers in the longer term and, in turn, us,” he added.

Meanwhile UMW Oil & Gas (UMW O&G) is putting the brakes on further investments. President Rohaizad Darus said the company had already built in measures to address the impact of lower oil prices.

“We are already postponing further capex investment, reducing operational expenses and freezing recruitment besides not renewing employment contracts,” he said.

Rohaizad noted however that UMW O&G is a regional player with a diversified client base, and the impact of Petronas’ decision was not expected to affect it too greatly.

Tanjung Offshore group ceo Rahmandin Shamsudin said that in the current scenario, sustainability was key. “We have adopted a strategy to optimise cost. We may also need to spread our revenue base, perhaps through a diversification. However, we have not taken any action towards this yet.”