OGSE industry to consolidate further

The challenge for the OGSE industry is to be able to adapt to a changing investment landscape

By AFIQ AZIZ / Pic source MPRC Facebook page

MALAYSIA Petroleum Resources Corp (MPRC) expects local oil and gas (O&G) services and equipment (OGSE) players to reduce asset ownership this year despite the easing of movement restrictions and modest economic recovery.

MPRC president and CEO Mohd Yazid Ja’afar (picture) said for 2020-2021, it will be a challenging period for OGSE players due to disruption of economic activities which has led to grounding of thousands of airplanes and destruction in demand for oil.

“We expect 2021 to be a slightly better year for the OGSE industry as major economies start to reopen, albeit with strict adherence to Covid-19 standard operating procedures like observing physical distancing, and countries like the UK, US, China, India and Malaysia have rolled out their vaccination campaigns,” he said in a statement yesterday.

Global energy prices have increased in the past few months in anticipation of a prick in demand fuelled by the roll-out of the vaccination programmes across the world, while the production levels remain controlled by the OPEC+ coalition.

The Brent crude oil contract currently trades at US$67 (RM276.14) a barrel which has led many sector analysts raise their call on the sector companies.

Mohd Yazid, however, stated concerns about global demand for O&G in the medium term and its future in the global energy transition will still weigh on the OGSE sector as a whole.

“In fact, amid the global energy transition story, environment, social governance (ESG)-focused programmes are also likely to grow in significance for OGSE companies,” he noted.

According to the OGSE100 report by MPRC, its industry in Malaysia recorded a profit before tax (PBT) of RM1.1 billion in the financial year 2019 (FY19), up from a loss of RM1.4 billion in FY18.

Total fixed assets owned by OGSE100 companies fell 5.1% year-on-year to RM112.7 billion in FY19 from RM118.8 billion in the previous year.

The OGSE industry returned to the black in 2019 since 2015.

The MPRC report noted the huge losses in 2018 were due to a number of asset-heavy companies having completed their impairment exercises.

Mohd Yazid also stressed the importance of OGSE companies to map out measures that will not only enable them to survive in the near term, but allow them to be in a position to thrive in the medium to long term.

According to Mohd Yazid, the measures should recognise that despite the energy transition, O&G will continue to be an important part of the energy mix.

“The challenge for the OGSE industry is to be able to adapt to a changing investment landscape and also evolve in ways that ensure the industry continues to play an important role in decarbonising the energy system,” he said.

In the report, MPRC concluded that the current fundamentals listed by OGSE players in the industry remain weak with a number of unaudited accounts showing negative quarterly PBT.

MPRC noted that this is in line with the current Petroliam Nasional Bhd or Petronas Activity Outlook 2021-2023 that shows nearly flat growth across value chains.

The state-owned national oil company saw only few increase in activities for 2021, such as drilling operation, mid-sized fabrication structures and plant turnaround operations, while the rest is expected to remain flat or scaled-down compared to 2020.