Uzma cautiously optimistic

It sees a better year but warns of project delays if crude tumbles

SINGAPORE: Oil and gas-related outfit Uzma Bhd is confident that its current order book of RM2.6bil gives it an earnings visibility of at least four years.

However, the company, which provides services for both upstream and downstream players, warns that projects could be delayed if the price of crude oil dips to US$30 per barrel or below.

Managing director Datuk Kamarul Redzuan Muhamed said while the company would likely have a “good year” as it planned to start implementing many of the jobs that were awarded last year and early this year, what could throw off its plans included delays in projects by oil majors.

“There is a potential of that but I don’t think there’s a potential of project cancellations though,” he said when met at the recently concluded Invest Asean Singapore conference here last week.

“If oil goes to US$30 per barrel, generally it will still be feasible to carry out oil and gas activities. However, there will be a knee-jerk reaction and some companies will slow down projects that they had earlier already committed to,” he said.

Since hitting a low of US$26 per barrel last February, the price of crude oil has relatively stabilised this year and has been generally trading at above US$50 per barrel.

In recent days though, the commodity has fallen back to the high US$40s level, on concerns of oversupply and higher inventories.

Kamarul said the jobs that Uzma anticipated to carry out full-steam this year included its contract from Petronas Carigali Sdn Bhd, which is for the provision of services covering the leasing, operations and maintenance of a water injection facility for the D18 field in Peninsular Malaysia.

That contract is valued at between RM350mil and RM400mil.

Without disclosing margins, he said the D18 project would see a “full earnings impact in 2017” and for the next five years.

As for its contract for the provision of hydraulic workover unit (HWU) services in the east coast as awarded by Lundin Malaysia BV in February, Kamarul said Uzma was “already preparing the equipment for this job.”

“We don’t know exactly when will we need to mobilise (the equipment) but preparation has already started.”

This year, the company also plans to commence work on the newly awarded HWU services contract given to it by Murphy Sabah/ Sarawak Oil Co Ltd.

These, along with its other jobs in Indonesia and Thailand, should keep the company busy, Kamarul said.

Consequently, it expects growth in earnings this year but is unable to provide any specific guidance.

For the financial year ended Dec 31, 2016, Uzma made a net profit of RM42.6mil on revenue of RM475.5mil.

Besides current jobs, Uzma has also submitted some RM3bil worth of bids for new work, both locally and internationally.

Kamarul said generally, Uzma had not been that badly affected by the downturn in the price of crude oil.

“It is not as bad for us ... the key thing is because we are more of an operating expenditure kind of player and not a capital expenditure player.”

One of the main challenges

remained in the area of financing, he said. “This is not specific to Uzma but applies to the whole industry,” he said.

Kamarul said there was a need to “have ideas on how to allow money back into the industry.”

“There has been so much curtailment in investments within the oil and gas industry and it has actually slowed down quite a bit of the implementation of work as well.

“We have seen some people being awarded jobs but they cannot deliver because they cannot get financing. This is quite scary for the industry in Malaysia.”

He said that in the bigger picture, somebody had to step up to address this issue, be it the banks or the government.

Notably, banks have been shying away from providing financing to oil and gas-related companies as a result of the weak price of crude.

Some banks have taken large hits on their earnings in the past couple of years as they had to provide for doubtful debts when dealing with such companies.

“People talk about industry consolidation ... but it’s not easy.

“I think Petronas’ idea of consolidation is good but to actually do it, the banking system has to allow for it because when you consolidate, the debts have to be consolidated and there will probably be issues of rescheduling and restructuring accounts.

“Industry consolidation requires a cohesive effort ... but this cannot be forced.”

Shares in Uzma were last traded at RM1.80.