UMW Oil & Gas still open to pursuing merger

KUALA LUMPUR: UMW Oil & Gas Bhd (UMW-OG) does not rule out the possibility of pursuing a consolidation exercise after its attempt to merge with Icon Offshore Bhd and Orkim Sdn Bhd fell through early this month due to huge capital commitment.

“Our priority now is to strengthen our financials, but we do not discount the possibility of future consolidation,” president Rohaizad Darus told a press conference after the group’s AGM here yesterday.

He said the group has to ensure continued revenue stream from its assets and to fully maximise the value going forward, with an expectation of cash flow and earnings before interest, taxes, depreciation and amortisation (ebitda) positive after the completion of its rights issue by the middle of October.

The 14-for-5 rights issue is to raise proceeds of RM1.8 billion, of which RM1.5 billion will be used to repay bank borrowings and RM310 million for working capital.

Rohaizad said UMW-OG’s performance will be driven by the 100% utilisation rate following the latest award of two contracts from Petronas Carigali announced yesterday for its two jack-up drilling rigs – UMW Naga 3 and 4 – with a total value of US$34.81 million (RM151.08 million).

The two contracts are for five and two firm wells each, with the option of a further six and three wells, effective next month. If the option is fully exercised, it will be for at least eight to nine months and could be up to a year. Both UMW Naga 3 and 4 have a drilling depth capability of 30,000 feet.

UMW-OG has no plans to add more drilling rigs to its current portfolio of seven, said Rohaizad.

Despite the full utilisation rate, he said, it is still difficult to forecast when the group could return the black given the suppressed daily charter rate.

UMW-OG incurred a widened net loss of RM1.18 billion in 2016 versus RM368 million in 2015, due to weak demand for its drilling an oilfield services and asset impairment amounting to RM780 million.

According to Rohaizad, UMW-OG is bidding for 33 contracts for RM3.2 billion, of which 13 are in Malaysia and 20 overseas.

“We hope that with the continued efforts with the 33 contracts we’re bidding for right now, we will be able to have 90% utilisation rate for the coming years,” he said.

He added that the group will focus on the existing business operations in the upstream space instead of embarking on any diversification plan.

At the current oil prices of US$48 to US$50 per barrel, Rohaizad said, it is still profitable for some oilfield players in Malaysia and Southeast Asia.

“Now with the production reduction by Opec and non-Opec members, you’re seeing a stabilisation in oil prices of about US$50 per barrel,” he said.

On UMW-OG’s disposal of Naga 1 at a huge discount, Rohaizad explained that it was due to the ageing asset. “It was bought in 2005 and we had been earning money for 12 years, so you cannot expect the disposal price to be the same with the acquisition price.”

UMW-OG in April announced the disposal of its entire 50% stake in Naga 1 for US$1.65 million (RM7.2 million) against its cost of investment of US$17 million.

On a separate note, UMW-OG announced the appointment of Datuk Rahman Ahmad as its new chairman, succeeding Tan Sri Asmat Kamaludin, who retired yesterday.