Malaysia's UMW O&G Incurs a Loss Before Tax of $16.6M in 1Q 2016

Malaysia's UMW Oil & Gas Corp. Berhad (UMW O&G), an oilfield and drilling services contractor, recorded a loss before tax of $16.64 million (MYR 68.42 million) in first quarter 2016 (1Q 2016), compared to a profit before tax of $10.33 million (MYR 42.46 million) in the previous year, as low oil prices weighed on demand for services in these two segments, according to the latest quarterly results released by the company Monday.

Revenue for 1Q 2016 declined 71.9 percent to $21.32 million (MYR 87.68 million), down from $76 million (MYR 312.50 million) in the same period last year, with the fall attributed to lower oil and gas exploration, development and production activities in the current industry environment. Drilling services segment contributed 92.7 percent of the firm's total revenue.

The firm, which has a drilling fleet of seven jackups, posted a loss before tax of $22.71 million (MYR 93.38 million) in 1Q 2016 in its drilling business, compared to a profit after tax of $9.38 million (MYR 38.56 million) in 1Q 2015, while revenue slipped to $19.76 million (MYR 81.26 million) from $73.04 million (MYR 300.05 million) in the corresponding period.

The decline in revenue in the March quarter was "principally due to low utilization of some of the assets in the Group during the first quarter of 2016, the after effect of significant cut in capital and operating expenditures by oil majors due to low oil prices." But revenue contributions from two new jackups, UMW NAGA 8 (400' ILC) and UMW NAGA 7 (375' ILC), which commenced operations in September 2015 and November 2015, respectively mitigated the slump in revenue in 1Q 2016.

UMW O&G's oilfield services segment contributed a loss before tax of $340,000 (MYR 1.4 million) in 1Q 2016, compared to a profit before tax of $650,000 (MYR 2.67 million) a year ago, while revenue fell to $1.56 million (MYR 6.42 million) from $3.03 million (MYR 12.45 million).

"(The) oilfield services segment was also adversely affected by the cut in operating and capital expenditures by oil majors," UMW O&G said in the press release.

Looking ahead, the company noted that despite gradual improvement in the drilling services segment recently, oil price is expected to remain volatile in the near future although offshore drilling activities, while low, are showing signs of little signs of recovery with increasing tendering activities. Still, UMW O&G said "present rig utilization remains challenging as oil and gas companies are taking a cautious appraoch with regards to their exploration and drilling programs."

"As some of our existing contracts are expiring this year, we are expecting lower drilling and workover activities in the near future. While the day rates remain lower in line with global market, the reduction in utilization is being cushioned with the support of PETRONAS (Petroliam Nasional Berhad) and other regular clients."

Similarly, the firm expects the market in the oilfield services segment to remain challenging in the near and medium term since the business is highly dependent on drilling activities.

Early last week, UMW O&G announced that it would cut nearly 300 jobs, affecting mostly contract staff in rig operations as the company streamlined its workforce to combat the downturn in oil prices.

Chee Yew has covered the upstream and downstream sectors of the oil and gas industry in Asia for more than 15 years. Email Chee Yew at cheeyew.cheang@rigzone.com

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