Singapore-based Sembcorp Marine Ltd.'s net profit fell 48 percent to $41 million (SGD 55 million) in the first quarter of 2016 (1Q 2016), compared to $79 million (SGD 106 million) in the corresponding period last year, with the decline attributed mainly to lower revenue recognition from rig building projects, the firm said when it released its financial results Wednesday.
Compared to the decline in net profit, the firm's turnover dipped by a smaller margin in 1Q 2016, down 30 percent to $684 million (SGD 918 million) from last year's $971 million (SGD 1.304 billion). Sembcorp Marine pointed out that lower revenue recognition from rig building projects and fewer vessels repaired were factors contributing to the decline, which was however partially offset by increased revenue recognition from the offshore platform and floaters segment.
"The offshore oil and gas exploration industry is now into its second year of weak prices and CAPEX (capital expenditure) cuts following the collapse of oil prices in mid 2014. Offshore rig charter contracts continue to be negotiated at lower levels and utilization is on a downtrend for all segments," the company said in the press release.
Revenue for the firm's Rig & Floaters business fell 43 percent lower in 1Q 2016 to $402 million (SGD 540 million), compared to $705 million (SGD 947 million) amid lower revenue recognition for rig building projects due to customer deferment request and customer restructuring. Sembcorp Marine revealed that the slow business in this segment reduced its contribution to the firm from 73 percent ot 59 percent during this period although it remains the single largest revenue source.
Meanwhile, the Offshore Platforms sector generated a 10 percent gain in 1Q 2016 revenue to $194 million (SGD 261 million), up from $177 million (SGD 237 million) last year, while the Repair & Upgrades division posted a marginal 1 percent decline to $73.8 million (SGD 99 million) from $74.5 million (SGD 100 million). As a result, the Offshore Platforms' share of its overall revenue rose to 28 percent, up from 18 percent ayear ago, while the Repair & Upgrades unit's price rose to 11 percent from 8 percent.
Turning to work secured in 1Q 2016, Sembcorp Marine bagged $45 million (SGD 60 million) in new contracts for liquefied natural gas (LNG) module fabrication during the same period. Its net order book year-to-date stood at $7.2 billion (SGD 9.7 billion), with deliveries and completion extending into 2020.
Going forward, Sembcorp Marine expects the oil and gas sector to remain fairly turbulent, with the downturn likely to be a more protracted one.
"The global oil and gas industry continues to be volatile and uncertain with the April OPEC and non-OPEC producers meeting in Doha failing to reach an agreement for a production freeze."
As for its Brazilian contracts, comprising the construction of 7 drillships for various units of Sete Brazil, which has since agreed to file for judicial recovery, Sembcorp Marine is maintaining a cautious outlook.
"The Group is prepared not just to overcome these challenges but to lay stronger foundations for the future when the market recovers. The Group will continue to actively manage its balance sheet. It remains optimistic of the longer term prospects of its business with facilities being built to cater to the Industry's demand for the long term," Sembcorp Marine said.
The company has already made provisions of $245 million (SGD 329 million) for the Sete Brasil's contracts in the last financial year.
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