Struggling Barakah Offshore could face impairment in FY17

by MARK RAO

LOW activity at Barakah Offshore Petroleum Bhd’s offshore transportation and installation (T&I) business could force the oil and gas (O&G) service provider to recognise impairment for the current fiscal year.

CFO Firdauz Edmin Mokhtar said the upstream O&G segment in the country is set for a challenging year ahead, with companies struggling to secure sufficient orderbooks amid slower project rollouts.

Firdauz said the group’s T&I asset will remain idle should it fail to obtain any new contracts for the year.

“We want to avoid impairment for the year, but this will depend on talks with the auditors at the end of the financial year ending Dec 31, 2017 (FY17).

“If we can show that we have enough works for the T&I segment to sustain us, we can avoid it — but if the asset stays idle for too long, then the impairment will come,” he told the press in Kuala Lumpur last Friday.

The group suffered a net loss of RM4.6 million for the first-quarter ended March 31 this year (1Q17), compared to the RM1.27 in profit that was posted in 1Q16.

Revenue also tumbled by 25.6% year-on-year (YoY) to RM76.84 million for the quarter, following the lower turn- over brought in from installation and construction services.

Lower contribution from the segment by 44.3% YoY to RM45.9 million was mainly driven by the completion of T&I works brought forward from 2016 and no new work orders secured in 1Q17.

The fall was partially mitigated by ongoing engineering, procurement, construction and commissioning (EPCC) projects for the group.

However, Firdauz cautioned the group’s EPCC works are still operating at lower levels compared to the O&G peak, with the industry presently marked by competitiveness amid a low oil price environment.

“With prices where they are now, we really have to squeeze every penny by looking at our cost structures,” he said.

He added that Barakah will continue to practice cost utilisation in FY17, though the industry will remain challenging due to oil prices staying muted.

Oil prices performed at US$114.81 (RM491.39) per barrel on June 20, 2014, before plunging downwards to a low of US$28.94 per barrel on Jan 15, 2016.

The decision to cut production via the OPEC and non-OPEC agreement on November last year helped cushion prices to above US$55 per barrel from December 2016 to March this year.

However, oversupply — especially with US shale ramping up production — continued to hinder any meaningful rally, with prices dipping to a seven-month low at US$46.93 per barrel last Friday.

Barakah was among the many other O&G companies that began the year at a loss. They include UMW Oil & Gas Corp Bhd, Perdana Petroleum Bhd, Perisai Petroleum Teknologi Bhd and Malaysia Marine and Heavy Engineering Holdings Bhd.

Firdauz said the challenging operating environment has affected upstream players more acutely than downstream players.

“Especially for companies like us who committed capital expenditure at a high cost, with oil prices at the current level it may not be sufficient to cover the initial commitment.

“Most O&G investments were made at the peak of the industry and will be difficult to sustain now,” he said.

He added that whether the group’s business can sustain at the current oil price environment will largely be dependent on clients’ willingness to roll out projects.