Local O&G companies continue to be hurt by 2014 oil rout

Firms must not lose sight of the need to become more diversified, says deputy CEO

by MARK RAO / pic by ISMAIL CHE RUS

The 2014 global oil rout continues to impact the oil and gas (O&G) sector in the country.

Perisai Petroleum Teknologi Bhd’s regularisation plan was rejected by Bursa Malaysia and its share was suspended on Jan 22. The company had appealed the decision on Feb 8 and its official delisting from the Main Market is pending the outcome of the appeal.

CLIQ Energy Bhd distributed RM6.12 million from its trust account to shareholders on Jan 31 after the special-purpose acquisition company failed to secure a qualifying asset within the three-year deadline and will soon be delisted.

Scomi Group Bhd is also reeling from the 2014 oil fiasco.

The O&G service provider and its indirect wholly owned unit Scomi Rail Bhd recently was served notice of demands totalling RM315.87 million from Malayan Banking Bhd for defaulted bank repayments last week.

Scomi Group had posted 10 consecutive quarters of net losses on lower activity and revenue from its oilfield, marine and transport divisions.

As of its second quarter ended Sept 30 last year, the company posted negative cash and cash equivalents of RM31.97 million, while raking up RM697.43 million in debt and borrowings. The company’s shares are now trading at a record 4.5 sen low.

It will have to submit a regularisation plan to Bursa Malaysia and demonstrate it can generate adequate cashflow from operations, failing which the company will face delisting.

Malaysia Petroleum Resources Corp deputy CEO Mohd Yazid Ja’afar (picture) said O&G firms whose operations cut across both upstream and downstream segments fared better than players who ope-rated within crowded segments.

“Companies (in the former category) developed the agility to manoeuvre and ride out the vagaries of the oil market and diversify into adjacent industries to generate income beyond a single, overcrowded segment,” he told The Malaysian Reserve (TMR).

“If there is a key takeaway from volatility in oil markets the past few years, companies must not lose sight of the need to become more diversified for continued survival,” he said.

Companies that embrace structural reforms provide economies of scale and integrated solutions, and develop sound export capabilities are better equipped at competing in an increasingly open market, he said.

Mohd Yazid cited Malaysian-based O&G service and equipment companies Pro-Eight Sdn Bhd and Romstar Sdn Bhd as examples of players who leveraged on technology and scaled up their operations.

“Coming from a limited market presence in 2006, Pro-Eight today holds a 93% market share in Malaysia’s mechanical seals market.

“With this track record, the company made inroads in the global market and is now considered among the top five mechanical seal manufacturers in the world.”

He said pipeline inspection service provider Romstar developed a proprietary inspection solution called “magnetic flux leakage” which raised the company from a domestic to a regional player — with export markets now making up 70% of its business.

“This is the time for Malaysia O&G service and equipment players to tap into global opportunities and not depend solely on domestic jobs.”

He also named listed O&G service provider Serba Dinamik Holdings Bhd as a company who successfully diversified its revenue stream within the energy industry and expanded overseas.

This is in view of the company diversifying its operations and maintenance business into power generation and renewable energy, while growing its international presence in regions like the Middle East.

Mohd Yazid said this is a clear example of how income and market diversification can help address reduced capital expenditure in domestic markets.