TH Heavy Engineering, McDermott End Partnership in Malaysia

Malaysia's TH Heavy Engineering Berhad (THHE), a fabricator of offshore oil and gas facilities, announced Friday that the company and McDermott International, Inc. had entered into a framework agreement to end their partnership, established in October 2013, for cooperation in engineering, procurement, construction and installation (EPIC) projects in the country.

Under the framework agreement, THHE and McDermott agreed to mutually unwind the joint ventures (JV) in Berlian McDermott Sdn Bhd (BMD) and THHE Fabricators Sdn Bhd. (THF). THHE will transfer its 30 percent interest in BMD to McDermott, while the latter will transfer its 30 percent stake in THF to the Malaysian firm. As each transaction was valued at $17.35 million (MYR 71.73 million), there was no payment made by either party.

THHE added that it intends to terminate the joint ventures linked with the partnership under the framework agreement.

"With the dampening crude oil price and persistent supply overhang, THHE and McDermott had decided to pursue different business paths," the Malaysian firm said in the announcement, filed with local exchange Bursa Malaysia.

McDermott said earlier in October 2013 that the partnership with THHE would combine the latter's "experience, assets and knowledge of the domestic Malaysian fabrication market, and the knowledge and experience that McDermott brings with regards to large scale EPIC projects and offshore installation."

THHE explained that it has begun diversifying away from the upstream sector of the oil into downstream and other non-oil and gas businesses such as marine vessel construction and repairs, which will mitigate the recurring volatility of the upstream sector of the oil and gas industry and provide a more recurring income.

In a related development, THHE said it has a main fabrication order book of $32.1 million (MYR 132.5 million) and a minor fabrication crane manufacturing & repairs and supply of equipment order books of $2.3 million (MYR 9.4 million) as at Aug. 30.

The firm is also exploring various ways to raise funds required to complete the floating production storage and offloading (FPSO) Layang conversion works for Japan's JX Nippon Oil & Gas Exploration (Malaysia) Ltd. and to monetize and unlock the value of its assets to generate cash flows and improve its working capital.