Firm looks for opportunities amidst uncertainties in the energy sector

  • SME
  • Saturday, 21 Mar 2020

Big revenue component: Up to 80% of its business comes from the energy sector. — Reuters

THE oil glut of the last decade, which started in late 2014, had forced many oil and gas companies to relook their business strategies. This include the move to rationalise their then bloated manpower and operating expenses.

But this downturn in the industry turned out to be a blessing in disguise for D&B Energy Sdn Bhd, a Malaysia-based energy consultancy firm. The company, established at the height of the downturn in 2016, benefited from the downsizing exercises carried out by the big players.

During that period, many industry veterans were either retrenched or had resigned as job flows had stopped and companies in the industry were undertaking large scale cost-cutting measures.

D&B managed to pull an ace as it nabbed these consultants and experienced professionals from the oil and gas sector and put together a strong team for the company that it wouldn’t have otherwise been able to.

“Those initial years were challenging times for many in the energy business, but we managed to pull in the necessary talents and secure jobs mainly because we have the right people with the right connections and knowledge, ” shares co-founder and director Chou Keat Fong.Cautiously optimistic: Chou remains optimistic about the company's outlook this year despite the uncertainties.Cautiously optimistic: Chou remains optimistic about the company's outlook this year despite the uncertainties.

D&B’s core services include providing scientific and technical consultancy services, conducting third-party assessment of hazardous areas and safety measure assessment services mainly for oil and gas projects.

“The oil and natural gas industry has one of the most stringent safety requirements, as the job environment often involves heavy equipment, hazardous materials, high temperatures and high pressure equipment.

“So there will always be demand for third-party assessment services as the industry moves toward becoming an increasingly safer place to work. While we also have customers in other industries such as manufacturing and constructions, up to 80% of our business comes from the energy sector, ” says Chou.

Having a forte in the oil and gas sector also enables the company to scale its risk and safety assessment services to other regions as Chou notes that the industry standards are generally set by global organisations such as the American Petroleum Institute or API. This means that the standards are more or less similar across the board in other regions.

These standards cover a wide range of areas such as designing, installing and maintaining an effective fire protection system, safety processes as a part of safety management, as well as other major hazard concerns that impact environmental damage and business losses.

However, Chou notes that the sector is also a highly competitive one, with more than 200 companies offering similar services in the region. What’s more, many of these players are regional or multinational energy firms such as Technip and Aker Solution.

Having a solid portfolio will be key in gaining customers’ trust, especially given that these clients are no small players themselves.

Opportunities abroad

Chou, who has 21 years of experience in the energy business, says the company has the expertise to tackle different kinds of demand with regards to mitigating potential risks in operations, particularly in oil and gas projects.

D&B has a team of around 10 consultants and a dedicated analysis team, which he says, helps the company assess critical operations from different perspectives based on established international criteria.

“At the moment, D&B’s revenue is still below RM20mil. Based on our current level of manpower and resources, this is the comfortable revenue threshold for us. We cannot expand too fast in chasing revenue growth without adding the necessary staff, ” says Chou.

Nonetheless, the company is eyeing opportunities to expand into other markets to ensure steady growth.

Physical presence: Having offices and knowledgeable representatives in the targeted markets are a must in order to compete effectively.Physical presence: Having offices and knowledgeable representatives in the targeted markets are a must in order to compete effectively.

D&B has been successful in penetrating several overseas markets. Some of the countries it has recently completed projects in include Nigeria, Brunei and Indonesia. Vietnam, he adds, is also becoming an important market for them.

Another strategy that D&B is keen to explore as it looks to grow its operation scale and expand its geographical reach is a potential merger or equity partnership with strategic partners. Chou says they are open to an equity tie up and the existing shareholders are willing to consider ceding majority control of the company.

But these partnerships must be more than just for capital injection, he adds. An ideal partner for D&B would be one who has a strategic presence in key oil and gas markets in the region, including in Indonesia, Brunei and Vietnam. This will help the company make headway in those markets amidst competition.

While there have not been any formal talks with potential partners as yet, the company is open to approaches from any party or advisors who are interested in exploring merger talks.

Amidst growing fear that the economy is heading for a recession, Chou says its overseas expansion plans remain a priority for the company as the local landscape has become too competitive, which reduces the earnings margin from projects.

Securing projects in overseas markets is crucial for the company’s growth as they offer more lucrative terms and faster payment turnaround process, compared to the longer credit terms usually sought by local companies, he says.

That said, D&B is also selective about the jobs that it is accepting.

“We are only taking projects from companies with good payment records. That is just as important, ” he notes.

Nonetheless, he stresses that the company will need to hire a larger pool of people to feed its ambitions overseas as it is necessary to have physical presence in the countries that it intends to expand in. Having offices and knowledgeable representatives in the targeted markets are a must in order to compete effectively with other players.

Keeping up checks: The company conducts third-party assessment of hazardous areas and safety measures for projects in the manufacturing and oil and gas industries. — BloombergKeeping up checks: The company conducts third-party assessment of hazardous areas and safety measures for projects in the manufacturing and oil and gas industries. — Bloomberg

But Chou is also aware of the fact that it is not easy to set up shop in other countries. While D&B can easily replicate its services and remain in compliance with international standards in other markets, navigating the different work cultures and country specific regulations is another issue altogether.

Businesses have often noted that keeping up with local regulations and work culture is usually the more challenging part about expanding overseas. Most prefer to tie up with a local partner or other strategic partners who have knowledge about the local market.

Market disruption

Chou says the stabilisation of oil prices over the last two years have brought back more oil and gas jobs into the market and it has become increasingly important for companies to maintain adequate manpower with specialised skills and ensure strong cash flow to scale up their operations in preparation to take on more jobs.

But the start of this year has undeniably seen a few factors that could throw a spanner in the works for companies like D&B.

For one, there is no telling what the full impact of Covid-19 on the oil and gas industry, and the broader economy, will be. In the worst case scenario, it has the potential to pull the oil and gas industry into another recession, which will put D&B in a challenging position.

As it is, Chou says there are already indications from potential customers overseas that some of the scheduled meetings for several job opportunities could be postponed as a safety precaution in the midst of the Covid-19 pandemic.

Another challenge on the horizon is the ongoing oil-price war between Russia and Saudi Arabia. Early this month, a fallout between the two countries brought prices of crude oil down by more than 30%. This week, prices were trading near the US$20 per barrel level.

Demand for oil has declined as people stopped traveling and working as a result of the coronavirus. However, the world’s biggest oil producers are boosting supply in a fight for market share.

Saudi Arabia has announced it will supply record volumes of more than 12 million barrels a day next month while Russia will add 500,000 barrels a day. Other major oil producing countries such as the United Arab Emirates, Iraq and Nigeria are also planning production increases.

Once the other nations increase supply, the surplus in the market is expected to be at more than 6 million barrels a day by the second quarter, which will inevitably put a strain on high-cost producers and economies that are highly reliant on oil revenues.

Certainly, this development will leave a huge impact on the industry, says Chou. With uncertainties facing its biggest business segment, he expects future job flows to slow down.

For now, though, Chou is still positive about D&B’s growth.

“Our projection for 2020 is still positive. We are still expecting positive revenue growth due to our existing backlog of jobs, ” he says.

These jobs, he thinks, should put the company on a sure footing while it prepares to face the unknown. Chou remains optimistic that by putting together the right people, D&B will be able to weather the vagaries of the energy business and somehow thrive on its journey to becoming a regional player.

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