KUCHING: UMW Oil and Gas Corporation Bhd (UMW O&G) is in a solid niche position being the first Malaysian owner and operator of three premium jack-up drilling rigs apart from bring the sole Malaysian owner and operator of Hydraulic Workover Units (HWUs) and a Petronas-licensed provider of HWU services.
According to analysts at HwangDBS Vickers Research Sdn Bhd (HwangDBS Research), UMW O&G has established a strong track record with drilling services customers such as Petronas, Petrovietnam and HESS.
In the workover services sector, UMW O&G has contracted for Petronas, Shell, Petrovietnam, PTTEP and Murphy Oil.
“These customers only engage with companies that meet their rigorous international standards, meaning UMW O&G is in an advantageous position whereby they are eligible for any global jobs that might be open for tender in the future,” it said.
The analysts explained that UMW O&G’s market share of offshore drilling in Malaysia and Southeast Asia is 21 per cent and seven per cent respectively. By establishing a good track record with Petronas domestically, the group has been able to secure contracts in Indonesia and Vietnam.
“In the workover segment, the group commands market share of 36 per cent in Malaysia and 11 per cent in Southeast Asia.
“UMW O&G is one of the few companies in the drilling business which is able to offer both drilling and workover services, thus allowing the group to cross-sell its services.
“Oilfield threading market share in Malaysia and China is 29 per cent and 0.3 per cent of total threading expenditure respectively.
“The market share difference in the two countries is large, given that the Chinese market is approximately 60 times larger than that of Malaysia.
“However, contributions in ringgit terms are roughly split evenly,” the researchers noted. UMW O&G earns revenues from short-term and medium-term contracts for providing drilling and workover services using offshore drilling rigs and HWUs.
The group wholly owns and operates three jack-up rigs (NAGA 2, NAGA 3 and NAGA 4) and four HWUs.
The drilling services segment currently accounts for 93 per cent of total revenues and 72 per cent of total profit before tax (PBT). Drilling revenues have grown at a compound annual growth rate (CAGR) of 42 per cent from 2010-2012, owing to rig acquisitions and upward revision of day rates.
PBT margins have also improved from 12 per cent in 2010 to 30 per cent in the first half 2013 (1H13) as there were substantial costs related to purchases of finished goods for the supply of line pipes to Petronas Carigali’s subsidiary in Turkmenistan in 2010.
UMW O&G’s earnings are projected to grow by 194 per cent and 51 per cent in financial year 2013 (FY13) and FY14 respectively, on the back of jack-up rig acquisitions, better day-rate management from balancing stable long-term charters with more lucrative short-term charters, more efficient utilisation of its assets, and potential cross-selling of their workover services.
The group has also committed to spend 58 per cent of the initial public offering proceeds amounting to RM987m in the next 18 months to acquire additional drilling rigs and HWUs, which could provide further potential earnings growth.
The analysts under HwangDBS Research has also highlighted that under the Government’s Economic Transformation Programme, Petronas has committed to a five-year investment programme to spend a total of RM300 billion on among others, additional exploration and development programmes.