Demand for Mermaid Maritime's vessels remain strong despite the oil price plunge. A US$50 million 2-year charter contract for its dive support vessel with ROV service (Mermaid Commander) begins this month. Photo: Company
MERMAID MARITIME is benefiting from OPEC's determination, in the face of depressed oil prices, to crowd out competitors that have a marginally high cost structure.
OPEC has kept up its supply of oil and remains profitable because most of its oilfields are in shallow waters, translating into lower break even cost of production.
Baker Hughes data shows that the number of oil rigs deployed in the Middle East is now at a record high (155 units in February 2015 versus less than 100 units 5 years ago) even as rig count plummet in America, which has seen a fall in shale oil production.
CEO Chalermchai Mahagitsiri. Photo: CompanyWhile the plunge in crude oil prices has hit many offshore oil & gas players, the increased oil production in the Middle East means a steady stream of work for Mermaid Maritime, an offshore drilling, subsea, maintenance and logistics services provider.
Mermaid generates 70% to 80% of its profits from the Middle East.
The decline of oil prices has impacted its profit margins, but demand for the Group’s offshore charter fleet remains strong, according to Mermaid Maritime Executive Vice President of Investor Relations, Mr David Ng.
Mr Ng was speaking during a teleconference for analysts on Mon, 27 April 2015.
The Group’s CFO, Mr Katarat Suksawang, also took part in the discussion.
The 3 Asian Offshore Drilling (AOD) high-spec jack-up rigs that Mermaid has equity interest in are enjoying high utilization rates and charter rates as they are deployed in the Middle East.
Mermaid owns a 33.76% stake in AOD, which contributed about 60% of the Group’s FY2014 pretax profit.
(Seadrill owns the remaining 66.24%.)
AOD is expected to contribute even more significantly in the current financial year, as 2 of the 3 AOD rigs were under construction during 1QFY2014 and therefore did not contribute a full year’s activity.
The Group posted profit attributable to shareholders of US$45.2 million for FY2014, up 186.8% year-on-year.
Downturn opportunity for moving up value chain
Bloomberg data“We have a very strong balance sheet - the best among our competitors. Our cash reserves will help us weather this down turn,” said Mr Ng.The Group had cash reserves of US$80.9 million and net gearing of 6.5 times as at 30 September 2014.
“The downturn has given us opportunity to acquire distressed assets. We will take this opportunity to move up the value chain,” he added.
Mr Ng cautioned that the Group’s first quarter earnings were affected by the following factors.
1. Monsoon season.
2. Drydocking of 3 of its largest vessels under a mandatory 5-year maintenance program, which means there will be lower service fees and higher costs from these vessels.
3. One of its dive support vessels, the Windermere, was idle.
Negative impact from the above will be mitigated by the Group’s expansion into new businesses. For example, the Group recently ventured into cable laying.
“We have traditionally been a tonnage provider. Cable laying is an important new business that we want to get into,” said Mr Ng.
“We had teething problems for our new cable laying business during 4QFY2014 but we turned around in the latter half of the quarter.
"We now have good traction with the customers and good profits.”
