O&G industry debts remain an obstacle

By MARK RAO

Debt-Saddled oil and gas (O&G) companies will have to focus on their finances first, before attempting to venture into new businesses or buy new assets.

Three local O&G companies — Perisai Petroleum Teknologi Bhd, Alam Maritim Resources Bhd and Nam Cheong Ltd — are under financial stress and unable to settle outstanding debt payments.

Nevertheless, some O&G companies are trying to diversify into new revenue streams to manage the subdued oil price environment and slower project rollouts.

MIDF Amanah Investment Bank Bhd research analyst Aaron Tan Wei Min said diversifying into related products, services and market segments is a viable option for industry players to find new sources of income.

“We see a trend now where O&G companies are looking to own businesses and assets that produce a stable flow of income and the assets that presently offer this stable income are in the utilities sector, namely in power generation,” Tan told The Malaysian Reserve.

He said many companies are looking regionally for such assets, as even a small acquisition with a 20-year concession can bring in predictable cashflow to supplement the current income.

“Barakah Offshore Petroleum Bhd is one such company exploring opportunities in the power generation business,” he said.

O&G players are now also leaning towards shorter-cycle projects to lower their risks, given the challenging operating environment.

While diversification may offer an opportunity to uplift themselves from present slump, companies will first need to settle or restructure their debts.

“In order to diversify, companies require strong financing and this cannot be obtained if they are in bad standing with banks. Such companies will first need to settle or restructure their debt before considering such exercises,” Tan said.

O&G companies operating in the red include UMW Oil & Gas Corp Bhd, Perdana Petroleum Bhd and Malaysia Marine and Heavy Engineering Holdings Bhd.

These industry players have been hit on two fronts — first revenue has fallen as work order decreased and many have had to make impairments, especially those engaged in the upstream segment. Additionally, the oil price environment remains with a bearish bias as supply outstrips demand.

Tan said oil prices will continue to be volatile within a predictable band, with a target annual average of US$50 (RM214.50) per barrel. Over the past 12 months, oil prices ranged between US$44.60 and US$60.18 per barrel.