New work order expected in commissioning oil contracts

KUCHING: Dayang Enterprise Holdings Bhd expects some of the new works orders for its hook-up commissioning (HUC) contracts, which are based on call-up basis, to come slower than earlier anticipated from oil majors.

This is because Petroliam Nasional Bhd (Petronas) and all other oil majors are re-negotiating with their contractors and service providers with a view of lowering their capital expenditures and operating expenditures by up to 30% if world’s crude oil price remains at the current low level following the recent plunge, according to the company executive chairman Datuk Hasmi Hasnan and managing director Tengku Datuk Yusof Tengku Ahmad Shahruddin.

They said a slower issuance of the work orders might affect Dayang’s financial performance. The re-negotiation process could lead to delays for new projects. Miri-based Dayang is an integrated service provider to the oil and gas industry.

“We still have call-out contracts estimated at RM4bil which will at least last until FY2018.

“For first half of FY2014, we were excited with the strong prospects for the group as we were busy rolling out the Pan Malaysia HUC projects for Shell, Murphy and Nippon. The HUC work orders have been called up progressively since we secured the massive contracts in May-2013.

“However, this excitment was shortlived and things started to take a turn for the worse in the second half of FY2014 when crude oil prices plunged by more than 50% to US$50/barrel on the concerns of global surplus, and the slower economic growth in China and Europe threaten to reduce the demand for the commodity,” they said in a joint message to shareholders in reviewing the company’s performance last year.

This totally unexpected event, according to them, has resulted in a ripple effect throughout the entire value chain within the oil and gas sector as the national and international oil companies were directly hit by the much lower earnings.

Hasmi and Tengku Yusof said Dayang’s synergistic collaboration with associate firm Perdana Petroleum Bhd not only ensured adequate vessels supply for Dayang to execute the HUC jobs but also enabled Dayang to position itself to take on engineering projects.

Dayang has raised its stake in Perdana Petroleum to 28.6% after paying RM50.9mil for additional 30.4 million shares acquired in the open market.

Last November, Dayang secured a RM280mil contract from Petronas for the provision of brownfield major modification works for Bardegg-2 and Baronia EOR development.

The contract win, they said, marked Dayang’s maiden success in the engineering, procurement, construction and commissioning (EPCC) field and enable the company to move up the value chain.

Anticipating the 2015 business environment to be challenging, Hasmi and Tengku Yusof said Dayang was adopting various cost-cutting measures and initiatives to streamline its operations to enhance efficiency.

For FY2014, Dayang group’s pre-tax profit surged to RM218mil from RM175mil in FY2013 as revenue jumped by 58% to RM877mil.

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