The fall in oil prices has hit many offshore oil & gas players, but Mermaid Maritime has tripled its FY2014 earnings, is declaring dividends and looking out for acquisition targets.
L-R: Executive Director Joseph Chia, CEO Chalermchai Mahagitsiri, Director of Corporate Strategy Vincent Siaw, Executive Director of Mermaid Offshore Services Paul Whiley at its media briefing.
Photos by Sim Kih
Brent crude oil prices on Monday hit a 4-year low of US$68 a barrel. Yet, oil producers are not decreasing production.
Tumbling oil prices have dented the earnings of shipyards that build vessels for oil exploration and production, as well as companies in the related capital equipment supply chain.
On the other hand, sustained levels of oil production have helped lift the earnings of oil drilling services providers.
Opportunity knocks when oil prices are soft
"We will charter-in a new vessel only if we are confident it will be profitable," said CEO Chalermchai Mahagitsiri.
That’s why Mermaid Maritime was able to triple its FY2014 net profit year-on-year to US$45.3 million (year-end September).
It has an outstanding order book worth some USD 470 million that will be filled through 2016, mainly for deployment of its subsea vessels in the Middle East and the North Sea (81%).
It is also paying a final dividend of USD 6.7 million (0.47 US cents per share) and is likely to declare an interim dividend of another USD 4.5 million next year.
“Times are challenging because of the drop in oil prices. It also means there is better M&A opportunity.
"Our low gearing helps as we seek to acquire assets in other parts of the energy and offshore supply chain,” said CEO Chalermchai Mahagitsiri at a media briefing on Tuesday at Suntec City Convention Centre.
The Group had a net gearing of 0.07x as at September 2014 and intends to establish a SGD 500 million MTN programme for further balance-sheet support and for the acquisition of distressed assets.
On 2 December, Maybank-Kim Eng analyst Yeak Chee Keong, CFA, maintained its ‘Buy’ call on Mermaid Maritime with a target price of 42 cents, citing possible market share gains if weaker players fail.
His 42-cent target price is 40% higher than the stock's closing price of 30 cents on 2 December.
Mr Yeak also likes the Group for its strong exposure to Middle Eastern clients with stable demand.
The Group has a USD 530 million subsea inspection, repair and maintenance (IRM) contract and 3 jackup rig contracts with Saudi Aramco.
Some 75% to 80% of its USD 470 million order book comes from national oil companies and low-cost Middle Eastern clients who intend to maintain oil production, according to the analyst.
Strong earnings position
"Our operating expenses come down when demand is soft," said Executive Director Joseph ChiaTotal service income of the Group was USD 313.0 million in FY2014, up 16.1% year-on-year.
The main reason its net profit spiked was due to its 33.76% stake in Asia Offshore Drilling (AOD), which owns 3 high-specification jack-up rigs (AOD I, AOD II and AOD III).
Share of profit from the associate company increased six-fold to USD 31.1 million, as AOD II and AOD III commenced operations in FY2014.
The leading provider of offshore oil & gas subsea and drilling services operates one of the youngest fleets of shallow water subsea vessels.
Its subsea vessels provide IRM services, infrastructure installation support, remotely operated vehicle support, emergency callout & salvage, as well as cable & flexible pipe laying.
Below is a summary of questions raised at the media briefing and the replies provided by the management.
"Day rates for drilling rigs have been going up," said Executive Director of Mermaid Subsea Services Paul Whiley.
Q: How much of your revenue comes from subsea services?
98% of our outstanding order book of USD 470 million is for subsea contracts. The remaining 2% is from the tender drilling rig MTR-2.
This does not include revenue from associated earnings which will add another USD 110 million to drilling revenue.
If we add this in, the total order book inclusive of associate earnings is actually USD 580 million comprising 80% from subsea contracts and 20% from drilling contracts.
We own two tender rigs (MTR-1 and MTR-2) and have another two (MTR-3 and MTR-4) under construction in China.
Tender rigs act as support platforms for drilling rigs. Besides providing tender-assist drilling, our tender rigs also provide accommodation facilities.
Q: Are your oilrigs competitive at current oil prices?
PTT Exploration and Production PCL (Thailand's national oil company) is looking for cost competitive drilling solutions.
Tender rigs are cheaper than jack-up rigs. Drill-ships are way too expensive. PTTEP would rather replace their jack-up rigs with tender rigs.
So, the current lower oil prices creates a better environment for tender rigs because it gives oil majors the incentive to keep their costs down.
We have 7 vessels working on IRM in Saudi Arabia 7 days a week for the next 7 years.
This includes our own vessels and those from our strategic joint venture partner Zamil Offshore Services.
The infrastructure there is at least 33 years old.
Recent story: MERMAID MARITIME: FY14 Core Net Profit Tripled To US$44.4 M
