Southeast Asia’s Oilfield Service Minnows Come Of Age

By Rujun Shen and Yantoultra Ngui

SINGAPORE/KUALA LUMPUR, July 22 (Reuters) – From hauling rigs to delivering toilet paper, firms from Southeast Asia are cornering lucrative niches of the oilfield services market to deliver growth that far outstrips that of much larger global peers.

SapuraKencana Petroleum and Ezion Holdings lead a group of top 20 Malaysia- and Singapore-listed companies that grew assets by 30 percent to $8.4 billion last year, according to Reuters analysis of company data.

Their expertise ranges from laying steel pipes at the bottom of the ocean and moving huge rigs from the South China Sea to the Gulf of Mexico, to delivering provisions for the rig crews.

The breakneck expansion has driven the shares of SapuraKencana up by 30 percent and Ezion by 36 percent this year, outpacing gains in their local markets and for larger global rivals like Schlumberger and Technip.

But it also poses the largest risk for the sector as they run into bottlenecks ranging from talent to equipment.

“In many cases, they are squeezed with high costs and the need to provide competitive prices,” Mark Mobius, executive chairman of Templeton Emerging Markets Group, told Reuters by email.

“Nevertheless, well-qualified companies with special technical capabilities and unique know-how can do very well and provide excellent profitability,” said Mobius, who oversees more than $50 billion in emerging markets equities at Franklin Templeton Investments.

Many firms are heading to debt and equity markets to fund their asset buys. Conglomerate UMW Holdings Bhd plans to spin off its oil and gas services unit and raise $740 million in what could be Malaysia’s largest IPO this year.

Singapore’s Swiber Holdings, which owns the world’s largest fleet of offshore construction vessels for shallow water and wants to venture into deepwater, is looking at Islamic bonds, or sukuk, after raising $754 million from corporate bond markets.

“You’ll see more companies like ourselves looking at sukuk,” Francis Wong, group chief executive officer at Swiber, told Reuters. “Because we have heavy capex spending, it fits very nicely into one of the models under sukuk which is asset based.”

RIGS AND SHIPS

SapuraKencana, at 24.3 billion ringgit ($7.61 billion) the biggest offshore oilfield services firm in Singapore and Malaysia by market value, has moved to acquire assets in a bid to win bigger jobs. In April it bought over the entire tender rig business of Norway’s Seadrill Ltd for $2.9 billion.

With that one purchase, the firm now owns more than half of the world’s 43 tender and semi-tender rigs – platforms supporting offshore oil production in both deep and shallow water – and a client list that includes Chevron Corp, Shell and BP Plc.

“The fields are getting smaller and deeper, requiring capital intensive drilling rigs,” SapuraKencana CEO Shahril Shamsuddin told Reuters.

Ezion Holdings’ market value more than quadrupled since 2011 to S$2.2 billion as it dominates the Asian market for lift-boats – a type of maintenance support vessel.

It has a 26-strong fleet of lift-boats and service rigs, up from two in 2010, and is expected to increase this to 31 in 2015, said CLSA analyst Saurabh Chugh in a report, citing Ezion and CLSA data.

These Southeast Asian firms have been able to grow from Singapore, a energy trading hub home and world’s two largest offshore rig builders – Keppel Corp and Sembcorp Marine, and oil-exporting Malaysia.

Malaysia’s state oil firm Petronas awards risk sharing contracts (RSCs) to extract more from marginal and depleted fields under a 300 billion ringgit ($93.93 billion)capex programme from 2011 to 2015.

Petronas has so far awarded three out of the 25 RSCs, which have a rate of return of up to 20 percent, a senior state oil firm executive said. Industry analysts have said those in the running for RSC are among Malaysia’s top ten services firms.

MARGIN SQUEEZE

With offshore oil and gas spending in Asia and Australia seen growing 11 percent this year to $104 billion – second to Latin America in scale, competition for equipment and people have grown along with margin pressures.

Despite bagging consecutive jobs, Singapore’s Ezra Holdings Ltd reported a 68 percent plunge in third-quarter profit, as its subsea division suffered losses with project delays and cost overruns.

SapuraKencana said it faces similar risks even though it makes average margins of 10-12 percent globally.

“Each project we get is like $200 million to $300 million. So if you have a 10 percent swing to your cost…that is a lot of money,” SapuraKencana’s Shamsuddin said.

(c) 2013 Thomson Reuters