UMW confident of another contract for it's oil rig


  • Business
  • Wednesday, 08 Jul 2009

PETALING JAYA: UMW Holdings Bhd is confident of securing a new contract for its jack-up drilling rig, Naga 2, to replace the US$170mil contract that was terminated by PCPP Operating Co Sdn Bhd recently, said president and chief executive officer Datuk Abdul Halim Harun.

“We are not worried at all. We have now reverted to Plan B – to look for other alternatives – and are talking to other parties, local and foreign oil majors, about Naga 2.

“I believe chances are very good for us to secure another contract for the rig. We hope to see Naga 2 in operation by September,” he told StarBiz in a telephone interview.

Halim said one reason the contract was terminated was a delay in the delivery of Naga 2 to early August instead of May as there was a change in the contractor for the rig.

Another reason was that PCPP wanted to re-negotiate the terms of the contract especially for lower charter rates as oil price had dropped since the signing of the earlier contract, he added.

“This is a minor hiccup for us. It does not mean that our oil and gas business is going to collapse. We believe the contract termination will not affect bottomline significantly unless we cannot secure a new contract,” Halim said.

Kenanga Research, while optimistic that UMW will secure a new contract from other production sharing contract (PSC) operators, expects lower average daily rig charges of US$140,000 to US$150,000 from a new contract in line with current industry rates versus US$163,000 as negotiated previously.

“The impact on earnings following the contract termination is expected to be insignificant.

“To date, UMW’s main earnings contribution is still primarily from the automotive division and associates which manufacture oil country tubular goods especially Wuxi Seamless Oil Pipe Co Ltd in the oil and gas division,” it said.

Nevertheless, Kenanga is tweaking lower its net profit for fiscal years 2009 and 2010 (FY09/FY10) by 1% to 5% to RM343.8mil to RM482.8mil underpinned by new assumptions of a daily rig rate of US$140,000 and shorter operating period.

MIDF Research views the setback as temporary and expects Naga 2 to be in operation within the stipulated timeframe with a new contract from other PSC operators but sees lower charter rates of US$110,000 to US$120,000 per day.

It is also revising UMW’s earnings downwards for FY09 and FY10 by 2.2% and 3.6% respectively on the back of lower charter rates for Naga 2.

OSK Research, however, sees the risk of a further delay in UMW securing a contract given the oversupply of jack-up rigs in the market, which has led to lower charter rates amid the volatility in oil prices.

It is maintaining its earnings estimates at this juncture pending further details.

“UMW’s earnings impact is biased to the downside and is likely to be detrimental on new contracted charter rates (likely to be lower) although this will likely be offset by the higher gains from its oil and gas operations overseas,” the research house noted.

UMW shares fell 15 sen, or 2.5%, to RM5.85 with 566,400 shares traded yesterday.

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