SCOMI strengthens oil and gas arm

Firm takes advantage of growth phase after global recession

PETALING JAYA: In pace with the uptrend in the oil and gas (O&G) industry, Scomi Group Bhd is strengthening its related businesses to take advantage of the growth phase in the industry post global recession.

This is because the group’s O&G business was not spared from the impact of the global economic downturn.

One of the strengthening measures involves Scomi Oilfield Ltd debt rationalisation exercise of RM630mil nominal value of Murabahah medium-term notes where each series of the notes is deferred by three years with new profit rates that have been recently approved by its note holders.

Scomi Oilfield, a 76% subsidiary of the group, views the improvement in the business environment of the oil and gas sector as an opportunity that should be capitalised on and hence, it is essential for the company to strengthen its financial position (improve cash flow).

According to a Scomi Group spokeswoman, even without the rationalisation, the company would be just about able to service the bonds.


Shah Hakim Zain ... ‘We expects some stability returning to the markets in 2011.’
“But we need the rationalisation to better match the bonds’ repayment with our cash flow and earnings before interest, tax, depreciation and amortisation (EBITDA) as well as to grow the business simultaneously.

“The plan to comfortably repay the bonds according to prior schedule was also affected by the impact of the global recession on the industry. In O&G, Scomi is exposed to international volatility where the rigs count in the US has sharply fallen to 200 during the crisis from 2,000 pre-crisis (currently the rig number is growing),” she told StarBiz, adding that this year repayment would be as scheduled and only consequent future repayments were rescheduled.

Besides the debt rationalisation, Scomi Oilfield had also streamlined and rationalised its operation that resulted in annual cost saving of about US$20mil starting last year.

The spokeswoman added that as the Western hemisphere was still recuperating from the crisis, the company decided to re-focus to the Eastern hemisphere that included India, Iraq, Indonesia and Brazil.

“We will position ourselves where the rigs are,” she said, adding that Scomi Oilfield orderbook currently stood at US$600mil.

Scomi Group chief executive officer Shah Hakim Zain said it continued to see growth and improvements in the oilfield services division with higher than expected revenue of RM204.4mil coming from the Eastern hemisphere in the first quarter ended March 31.

“Recovery from the global economic recession is expected to be the primary driver in the oil and gas sector. However, 2010 will be a transitional year with uneven development from region to region.

“We expect some stability returning to the markets in 2011,” he said in a recent statement accompanying its first quarter results this year.

Scomi Group recorded a 43% increase net profit to RM13.6mil for the first quarter from a year ago on the back of RM459.3mil in revenue.

AmResearch in its report said although the net earnings (Q110) made up only 19% of its estimates, this was largely within expectation as stronger earnings were expected in the subsequent quarters.

“The group recorded strong growth in earnings despite registering slower growth in revenue. The stronger margins can be attributed to lower operating costs from various costs containment measures especially at the oilfield services unit and also lower financing costs,” it said.

Another notable recent developments in terms of oil and business of the group is the agreement with its African units for a series of acquisition in Nigeria that formed part of the group’s restructuring exercise to strengthen the balance sheet of the respective companies.

Scomi and its subsidiary Scomi Nigeria Pte Ltd would take a 100% stake in Oiltools Africa Ltd from Scomi Oiltools (Africa) Ltd and Scomi Oiltools Bermuda Ltd (SOBL) for a total of US$17.5mil.

Scomi Nigeria will also acquire a 49.9% stake in Titan Tubulars Nigeria Ltd from Scomi Oiltools Bermuda for US$3.46mil cash and another 2% in Titan from Wasco Oil Services Co Nigeria Ltd for US$40,000.

In the first quarter of this year, Scomi Engineering, a 69% company of the group, proposed to sell off its machine shop business for US$110mil as demand for machine shop products and services had dropped due to falling worldwide oil drilling activities.

Scomi Engineering said the corporate exercise was in line with the company’s strategy to position itself as an urban transportation solutions provider focusing on the monorail sector.



By SHARIDAN M. ALI
sharidan@thestar.com.my