@ MTQ's AGM: Honest look at oil & gas prospects - Overseas business expansion

Q: Is this downturn a structural change that will result in write-downs of the subsidiaries that you acquired (such as Neptune Marine Services and Binder)?

Kuah Kok Kim (Chairman): The market will recover and our services will be continually required. But I can be honest with you that we do not see any sign of recovery at the moment. In today’s news, we have Shell sheding headcount because it expects the downturn in oil prices to continue for several years.

Executive Chairman Kuah Kok Kim. NextInsight file photoOur core business is in servicing the oil & gas sector.  What we can do now is to get our core structure in shape and to sharpen our tools, so that when the upturn comes, we are ready to enjoy as many benefits as possible.

There will be those who retire. As with any other organization, we will let go of the less productive people. However, we are mindful that we need to upgrade the skills of our core people.

Q: National oil companies are still maintaining their budget, especially in the Middle East. Why are you not expanding your activities there?

Kuah Kok Kim: The dominant player in the Middle East is Saudi Arabia. They have not cut back. But, we must bear in mind that there is severe price cutting pressure. What we did for a dollar 2 years ago, the customer is only prepared to pay 70 cents now (July 2015). We need to structure ourselves to be able to cope with these new margins.

Q: What about North Africa?

Kuah Kok Kim: Countries like Libya, Algeria and Egypt are too far away from us. Our business requires hard assets like machinery near our markets. We are tapping on our contacts in Bahrain to develop business in the Middle East.

Kuah Boon Wee:  A colleague who was in Nigeria recently discovered that the ROV business has worked in North Africa.  You are right to say there are activities in some of those places, where the national oil companies are involved. But as a Group, we have to realize our limitations. A lot of the things that we do require being near to the underlying activity. In this environment, it is not realistic to spend capital expenditure in new markets. We are not at the right stage of the industry cycle.

Q: You expanded tremendously in Australia. The Australia economy is not doing well. How has the weakening of the Australian dollar impacted you?

Kuah Boon Wee:  The Australian business that we bought focused a lot on the offshore LNG development. Much of the subsea services that we provide are in inspection, repair and maintenance. Those activities will remain. One cannot stop maintaining long term assets in this area. Some LNG projects will be put on hold. But there is sufficient activity going on in the sector for us to carry on this work. As the Chairman has said, yield pressure is something that everybody is facing.

Kuah Kok Kim: Over the recent years, Australia has embarked on a quite a few offshore projects. Some of these have a capital expenditure budget in the billions. Some of these projects are in the process of being built, projects that cannot be simply kick started or halted and we will have a role to play in these. Projects that have not been started will obviously be put on hold.