UMWOG (5243) - [UMWOG] UMW O&G returns to the black in 3Q after seven consecutive quarters of losses


KUALA LUMPUR (Nov 24): Increase in activities in the oil & gas (O&G) industry helped to bring UMW Oil & Gas Corp Bhd (UMW OG) back to the black in the third financial quarter ended Sept 30 (3QFY17), after it had been in the red for seven consecutive quarters.

UMW OG announced a net profit of RM3.4 million, or 0.16 sen per share, in 3QFY17, compared with a net loss of RM135.4 million or 6.26 sen per share in the year-ago corresponding quarter.

Its quarterly revenue increased by more than three times to RM180.5 million during the quarter from RM49.7 million recorded in 3QFY16.

The group attributed the improved earnings performance to stronger demand for drilling services as a result of more activities in the O&G industry against the backdrop of current steadier oil prices

According to the note filed with Bursa, all seven jack-up rigs were income generating and four of them contributed full quarter revenue in 3QFY17.

“The average utilization rate was 90%. As a result, the drilling services segment reported revenue of RM176.4 million or 97.7% of total revenue of RM180.5 million, an increase of RM130.1 million or 281.0% over the RM46.3 million recorded in the same quarter of 2016,” it said.

The oilfield services segment contributed revenue of RM4.1 million, an increase of 24.2% over the RM3.3 million recorded in 3QFY16. The revenue improvement was mainly the result of higher demand for repair and premium connection threading services at the Group’s plant in Tianjin, China.

As for the first nine months of its financial year ending Dec 31, 2017 (9MFY17), UMW OG narrowed its net loss to RM151.7 million from RM267.8 million in the corresponding period a year ago.

The accumulative revenue for the same period grew by 47.6% to RM394.7 million from  RM267.3 million registered in 9MFY16.

Moving forward, UMW OG said the gradual but continuous increase in oil price indicates potential further recovery in the oil and gas industry, albeit at a slow pace.

With the benchmark Brent oil price stabilising above US$50 per barrel for almost a year and breaching US$60 per barrel in late October 2017, more confidence is seen in the upstream sector, resulting in more activities especially in drilling, it explained in the result announcement.

“All seven jack-up drilling rigs of the Group are currently under contracts serving multiple oil and gas operators. The Group is continuously bidding for new contracts to replace expiring ones and also negotiating for extension of existing contracts. While there is no guarantee for continuous full utilization of the Group’s drilling rigs, utilization rate is expected to stay at relatively healthy levels in the near future. However, time charter rates remain challenging due to global oversupply of rigs,” said UWM OG.

As for the oilfield services, UMW O&G expects the sector to lag in recovery compared to the drilling space as oil majors continue to control costs by making use of existing stocks. The emergence of new competitors in this low-value and low-entry-barrier business also increases the pressure on prices. However, the financial impact to UMW OG is immaterial as this segment’s contribution to the group is minimal.

Overall, UMW OG noted that it is presently on a stronger financial footing with the completion of the recapitalisation and refinancing exercises in October and November 2017, respectively.

As of closing, UMW O&G’s share price edged higher by 1.7% to 30 sen with about 8.2 million shares changed hands, giving it a market capitalization of RM2.47 billion.