Handal ploughs on despite tough obstacles

  • Energy
  • Saturday, 16 May 2020

Handal Energy Bhd's cranes

THE outlook for the oil and gas (O&G) industry remains bleak, with the ongoing Covid-19 pandemic and lacklustre oil prices.

Integrated O&G solutions provider Handal Energy Bhd is not spared from the harsh tailwinds of the pandemic and oil price volatility that is affecting all players in the O&G ecosystem, save for those in the storage services.

At least two of its major contract activities have been deferred or dropped since February 2020 due to the pandemic and clients’ cost reduction efforts. The group has also received requests for contract renegotiations and commercial rates discount.

Handal group managing director Sunildeep Singh Dhaliwal tells StarBizWeek that a majority of deferred activities will likely be reassessed and rescheduled to the first quarter of 2021.

However, he says critical activities to maintain overall safety and technical integrity of clients’ facilities, such as crane and pipeline maintenance, remain operational as the group is under the essential services industries.Since the beginning of the movement control order (MCO) and now with the ongoing conditional MCO, work from home (WFH) is in effect for all support staff. Post MCO, Handal will put a staggered work policy in place to ensure only 30% of staff is at any of Handal’s offices or locations at any one time to prevent overcrowding.

The staggered WFH will continue and policies will be put in place to ensure that deliverables are not affected.

Handal will continue to leverage on the power of technologies.

“The local O&G scene is pretty much dependent on Petroliam Nasional Bhd (Petronas), which has mentioned that there will be temporary suspensions of certain projects due to the MCO.

“Together with the price of oil trading around US$30 per barrel, we expect to see fewer activities, deferment or termination of existing projects, significant staff layoffs and weaker earnings performance for all O&G players in Malaysia.

“As Petronas and other petroleum arrangement contractors expect the suppliers to ask for rate cuts and discounts, this will suppress the O&G players’ margins, ” he says.

Handal’s revenue would be directly impacted by the deferral or cancellation of activities.

Fortunately, the group has maintained a good network of local and international partners who are supporting Handal’s efforts to achieve its cost optimisation and reduction initiatives, says Sunildeep.

“Instead of reducing commercial rates and discounts, Handal offers value added services and/or discounts for any additional work from their client, ” he says.

Currently, Handal has an order book amounting to RM214mil, which will last the group until 2023.

The group has recently embarked on cost cutting measures across 11 key areas in a move to reduce operating costs.

Handal’s monthly staff costs are expected to be reduced by 21%, representing an aggregate reduction of RM4.2mil over the next six months. Overall, cost cutting measures are expected to yield 40% savings in the group’s operating costs.

Apart from that, Handal’s balance sheet remains healthy, at a net gearing of 0.01 times as at Dec 31,2019.

This is due to the strict and prudent financial management plan the group has in place.

The group also has sufficient cash as well as bank credit facilities to meet its obligations as and when they fall due in the foreseeable future.

As at Dec 31,2019, Handal’s fixed deposits as well as cash in hand and at bank amount to RM22.8mil.

As job flow slows, another move that will help O&G service providers cut costs is mergers or consolidations.

While there are currently no such plans in the pipeline for Handal, the group is always open to synergistic opportunities that are complementary to its current services.

The group’s recent acquisition of a 51% stake in Borneo Seaoffshore Engineering Sdn Bhd (BSOE) at end-2019 has complimented Handal’s operations and is expected to boost the group’s topline.

“The acquisition of BSOE significantly increased Handal’s order book and further enhanced Handal’s position as an integrated O&G solutions provider.

“One of the many stringent criteria set by the management team is that the business must be self-sustainable and adds value to Handal and our shareholders.

“The management team also takes a more holistic view in terms of spotting M&A opportunities for the synergies that the businesses are able to create to further expand Handal’s product offerings, ” says Sunildeep, who co-founded BSOE in 2008.

In 2018, Sunildeep saw the immense potential that Handal had to offer and started investing in Handal shares via Borneo Seaoffshore Sdn Bhd, which emerged as a substantial shareholder in July 2018.

Sunildeep was subsequently invited to join the board as group managing director on July 31,2018.

With his vast experience from BSOE, Sunildeep is tasked to expand Handal’s expertise and footprint in Malaysia, particularly in East Malaysia, where BSOE is based.

But for now, the group will focus on tiding through the industry’s downturn.

“When the sector will recover is anyone’s guess.

“The timeline for the recovery of oil price will depend on a lot of factors, including the speed of global economy revival, the speed of consumption of the surplus oil that is in the market and the discovery of vaccines for Covid-19.

“This recovery will also be very dependent on how Opec and Opec+ can work together in managing global oil output, ” says Sunildeep.

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