Will new licences change Yinson’s fortunes?

  • Business
  • Saturday, 15 Nov 2014

Yinson’s headquarters in Johor Baru. The Petronas licences have given the company a fresh catalyst.

Yinson Holdings Bhd is one of the oil and gas (O&G) service providers which has suffered from the recent selldown, following weakening oil prices.

When the oil price began crashing to almost its four-year low, which is also a 30% drop since July to US$75 (RM251) per barrel currently, Yinson too was not spared from the backlash affecting many industry players, as the company has lost more than RM860mil in market capitalisation since mid-September.

Nevertheless, the recent announcement on its new Petroliam Nasional Bhd (Petronas) licences has given the counter a fresh catalyst to be back on the radar screens of investors.

Yinson had hogged the headlines after Tan Sri Mokhzani Mahathir from O&G giant SapuraKencana Petroleum Bhd and his right-hand man Yeow Kheng Chew emerged as Yinson’s second largest shareholders via Kencana Capital Sdn Bhd with a 18.52% stake in the middle of last year.

On Wednesday, Yinson announced that it had been awarded three Petronas licences that qualify the company to tender and participate in upcoming works related to floating offshore facilities, mobile offshore facilities and naval architecture as well as marine engineering.

Based on reports, Yinson is the third company in the country to have a Petronas licence related to an FPSO facility, after MISC Bhd and Global Mariner Offshore Services Sdn Bhd, a company controlled by Zahar Mohd Hashim Zainuddin, Dynac Sdn Bhd, Shafinaz Shaukat and Datuk Freezailah Che Yeom.

Although these licences will provide Yinson with a new avenue to bid for local jobs, its rationale is that it will only start looking for local jobs from next year onwards based on the short time-frame left this year.

Yinson is confident there will be no cutback on FPSO jobs until 2017.

“There are new jobs around Malaysia for expression of interest of an advanced stage of bidding.

“Weak oil prices wouldn’t affect the bidding opportunities in the next two years, because the exploration is usually done much earlier with a lot of investments from oil majors.

“But with the selective capital expenditure (capex) spending by oil companies now due to the current weak crude oil price, there could be lesser jobs from 2017 onwards,” a representative of Yinson’s management told StarBizWeek recently.

Obviously, the representative admits that there is a slim chance for Yinson to bid for any jobs in Malaysia this year, as the company just obtained the licences towards the end of the year.

“Malaysian FPSO jobs are usually smaller relative to international projects in terms of value of around US$200mil (RM668.7mil) to US$400mil (RM1.3bil) and the contract durations are generally shorter too,” he says.

However, with the falling oil prices, the FPSO segment is generally believed to be becoming a tougher market for the players, as they are service providers and charter rates would depend on exploration activities that tend to come down when oil prices are low.

Nevertheless, RHB Research in its latest O&G report explains that FPSO counters will be relatively sheltered from the oil price volatility, as these companies are involved in the oil production phase and not the exploration side.

“FPSOs are chartered out on a long-term basis, normally eight years or more, with the charter rates locked in from the start.

“The oil companies involved will still be paying such firms the daily charter rate, even in the event that oil prices make it uneconomical for the field to remain in production,” it says.

RHB Research adds that Bumi Armada Bhd and Yinson are still bidding for projects around the world.

“Bumi Armada is bidding for large FPSO projects that require a capex of more than US$1bil, while Yinson is looking at mid- to small-sized FPSO projects that require about US$500mil in capex,” it says.

Bumi Armada, the fifth largest player in the global FPSO league, does not operate any FPSO vessel in Malaysia currently. Its market capitalisation too has seen some RM5bil being wiped out since mid-June.

While previous news reports indicate that oil prices will stabilise once the surplus is absorbed, RHB Research says it would seem that calls from weaker Organisation of the Petroleum Exporting Countries (Opec) members to cut production quotas are also coming into play.

“We believe that crude oil prices will see some positive movements, possibly over the next three to six months, as supply is lowered – either from the higher-cost producers or from the Opec members cutting production quotas.

“We expect that the crude oil price will trade in the US$90 to US$100 per barrel range, averaging US$95 per barrel over the next 12 to 24 months,” it says.

Meanwhile, AmResearch says the licences will provide Yinson with a new source of income, which can now directly tender for works relating to FPSO vessels, floating storage and offloading vessels and mobile offshore production units for Petronas and other O&G companies or operators in the country.

“Having said that, we do not expect Yinson to secure jobs within Malaysia anytime soon, as project roll-outs have been delayed and slowed down recently amid the falling oil price environment,” it says.

AmResearch points out that the catalysts for the group stem from additional FPSO contracts overseas in West Africa and South-East Asia, which the group is currently bidding for.

Management had earlier indicated that the result of a large FPSO tender is likely to be revealed by year-end, while small to mid-sized projects would be known next year.

The group recently signed a memorandum of understanding with Golden State Petro to buy a Samsung-built 309,000 deadweight tonnage very large crude carrier, Ulriken, which was built in 1998.

The FPSO is likely earmarked for the Sankofa-Gye Nyame field under the Offshore Cape Three Points licence offshore Ghana.

The research house maintains its “hold” call on Yinson, with an unchanged fair value of RM2.97.

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