by NG MIN SHEN / Pic by MUHD AMIN NAHARUL

UMW Oil & Gas Corp Bhd (UMW-OG) expects to return to the black within one to three years through continued costcutting initiatives, stabilising global oil prices and confidence in securing profitable contracts. 

“We target to break even within as early as one year or as late as three years. If oil prices stabilise then we will be able to return to profit sooner,” Rohaizad Darus, president of the upstream service provider told reporters after the company’s AGM in Kuala Lumpur recently. 

“We would like to break even on profits from all the contracts, not just a few of them,” he added. 

The loss-making oil and gas (O&G) player’s remaining orderbook presently stands at RM525 million. However, Rohaizad cautioned that some  of the contracts will be expiring by year-end. 

“We have some contracts expiring in October and December and so on. So we are working very hard to replace these contracts with new ones, but there’s no guarantee that at the end of these contracts there will be a replacement.” 

The company is currently tendering for 24 new contracts worth RM2.94 billion, of which 15 contracts are local and nine are overseas. 

Rohaizad noted the group’s chances of landing overseas contracts are slimmer compared to local contracts as foreign countries would give priority to their local companies. 

“So, we will focus more on securing local contracts but we’re not ignoring overseas contracts. It is not guaranteed that we will land them but from our experience in the past year or so, I believe we have a strong chance of securing the  local contracts,” he said.

The group is also looking to continue reducing operational, manpower and financing costs. At the company’s EGM last Friday, shareholders gave their approval for UMW-OG’s RM1.8 billion rights issue aimed at helping the loss-making group pare down debt. RM1.5 billion or approximately 83% of the proceeds raised will be used towards debt reduction, with the remainder for  working capital purposes.

The recapitalisation exercise will help to lower the group’s debt level from about RM4.1  billion to RM2.6 billion.

The rights issue was first announced when its former parent company, UMW Holdings Bhd, announced its intention to demerge UMW-OG from the parent as the O&G business had been dragging  group earnings down.

Permodalan Nasional Bhd (PNB) and the funds under its  management are now the direct major shareholders of UMW-OG with the completion of the exercise on July 11, 2017. 

The group also obtained shareholders approval for all its resolutions, including exempting PNB from undertaking a mandatory offer for all the remaining UMW-OG shares and warrants not already owned by them. 

UMW-OG’s net loss for the first-quarter ended March 31, 2017, widened to RM104.12 million from RM65.08 million a year ago, mainly due to lower time charter rates and reduced foreign-exchange gain on translation. 

Revenue for the quarter fell 15.3% to RM74.28 million from RM87.68 million previously, attributed to lower revenue from the drilling services and oilfield services segments, mainly due to softer time charter rates from drilling contracts and weaker demand for oilfield services.