KUCHING: UMW Oil and Gas Corporation Bhd’s (UMWOG) earnings are expected by analysts to stay resilient in spite of oil price volatility.
According to the research arm of TA Securities Holdings Bhd (TA Research), UMWOG’s year to date (YTD) financial year 2014 (FY14) core net profit of RM179 million came within its and consensus’s expectations as it accounted for 68 per cent and 69 per cent of full year forecasts, respectively.
It noted that overall results were good, boosted by improved margin on the back of enhanced jackup fleet utilisation, higher daily charter rate (DCR), and contributions from new rigs.
TA Research expects a stronger fourth quarter of 2014 (4Q14), which will receive an uplift from NAGA 6’s maiden contribution.
“This newbuild started work in October 2014 for Petrovietnam in Vietnam at lucrative DCR of US$160,000.
“GAIT 5 will also start work in 4Q14 and provide a minor boost to bottomline,” it said.
On the other hand, the research arm noted that GAIT 1,2 and 5 are only expected to resume operations in 2015.
TA Research expects UMWOG’s earnings to be resilient in spite of oil price volatility in a lower oil price environment.
It explained that this is on the back of Petronas’ affinity for local content coupled with limited supply of Malaysian jackups (10 local jackups by 2017 versus 18 active contracts currently).
This ensures that UMWOG could easily deploy its rigs in Malaysia to ensure full fleet utilisation if new oil and gas (O&G) projects (local and overseas) are suspended due to softer oil prices.
In terms of new jackup prospects, the research arm noted that UMWOG is on track to receive its Naga 7 in December 2014, which already has a secured contract prior to delivery.
“On a medium-term horizon, UMWOG will take delivery of Naga 8 in September 2015.
Order backlog was at RM1.9 billion as at October 2014,” it said.
With five contracts expiring in 2015, Maybank IB Research expects UMWOG’s relatively new, premium jackups to remain contracted, albeit at lower DCRs, in view of the recent weakness in the O&G sector and new supplies entering the market in the first half of 2015 (1H15).
“We have imputed lower DCRs of US$150,000 for new contracts/renewals in 2015 versus US$160,000 in 2014,” the research arm said.
It noted that UMWOG, with its young, premium jackups fleet and track record, is in a stronger position to weather the volatile O&G market versus the old-rig operators.
“Replacement cycle will accelerate as scrapping of old rigs tends to be more pronounced in such conditions as clients demand cost efficiencies and higher safety requirements,” it said.
Maybank IB Research further noted that of the 66 active jackups operating in South East Asia (SEA), 20 are old (over 25 years old).
Overall, the research arm remains optimistic about UMWOG’s prospects in growing its regional footprint in Asia.
“We expect UMWOG to expand its jackup fleet beyond its current seven units.
UMWOG’s objective to add one new jackup per annum beyond 2015 remains a realistic target.
“It has proven itself regionally in penetrating new markets, diversifying client base and securing quality contracts.”