Petronas should be decisive in deciding which companies should be supported in the present downturn

 

By MARK RAO / Pic By AFIF ABD HALIM

 

The Malaysian offshore support industry is bracing for casualties as demand for their services has dwindled drastically, but say what is left would be leaner and stronger if the national oil company takes a proactive lead.

 

The Malaysia Offshore Support Vessel (OSV) Owners Association president Amir Hamzah Azizan said a readjustment among its 38 members is inevitable and some will go out of business as contracts from oil companies, especially from Petroliam Nasional Bhd (Petronas), dry up.

 

He said the association, which collectively own 300 vessels, accept that casualties are inevitable to excess capacity in the industry and create efficiencies.

 

Amir Hamzah said Petronas, which gives out the biggest number of OSV contracts, should be decisive in deciding which companies should be supported in the present downturn in the industry.

 

“As the market starts to adjust downwards, members are put under stress and it becomes a question if the system is able to distinguish who is going to be the survivor and who will be the casualty.

 

“We are supportive of the consolidation storyline that Petronas is promoting, but we encourage the company (Petronas) to do more, because urging consolidation only to let market forces come into play may not be the healthiest approach,” Amir Hamzah told The Malaysian Reserve (TMR).

 

He said Petronas should choose and provide contracts for operators that should remain in the business and prioritise local players over foreign competitors during this difficult period.

 

“Spreading out contracts without sound judgement is not the best approach, especially if the national agenda is to establish Malaysia as a regional oil and gas (O&G) hub and to build a strong base that will come out of this cycle.”

 

Amir Hamzah said the majority of the 38 members in the OSV association, which have 300 vessels that represent 80% of the total tonnage in the country, have taken steps — including to remove redundancies, vessels and recognise impairments.

 

“Realism has hit the system as the sector is preparing itself to be leaner and cost-effective,” he said.

 

TMR reported yesterday that Malaysia Petroleum Resources Corp CEO Datuk Shahrol Halmi said O&G services companies without the required capacities to weather the current difficulties are likely to exit the sector.

 

“This group came in opportunistically (when oil prices were at a high of above US$100 [RM430] per barrel), saddled with some debts, high gearing and have yet to develop the competencies and capabilities to allow them to be really cost-effective,” Shahrol said.

 

As of 2015, there were 3,956 Petronas-licensed O&G services and equipment companies and 32 operators.

 

Oil prices took a nose dive from the middle of 2014 from about US$100 a barrel to around US$50 a barrel now. While it is around half of the price in 2014, the present price is higher than the below US$30 a barrel price early last year.

 

The unexpected downturn for the sector had caused billions in losses for companies that had invested heavily in upstream operations.

 

Despite the gloomy outlook, activities in the downstream and storage sectors remain strong. Operators are seeking additional storage for their oil.

 

O&G maintenance companies continue to gain contracts for the already running platforms, while downstream activities are increasing as demands for petroleum related products rise.

 

Besides production players, OSVs and hook-up and commissioning services are staring at a very difficult period.