High oil price to benefit O&G support industry

High oil price to benefit O&G support industry

The high price of crude is giving oil majors an incentive to further invest in exploration and production, which will also benefit companies providing services and equipment to the oil and gas (O&G) industry.

Crude oil has been trading above US$100 a barrel for the past two weeks as a fall in the US dollar fuelled speculation in crude, commodities and gold. On March 12, the April delivery for US light sweet crude settled at US$109.92 on the Nymex in after-hours trading in Singapore.

Demand from emerging economies and geopolitical factors have also, to a certain extent, affected the price of crude.

Alam Maritim Resources Bhd managing director and chief executive officer Azmi Ahmad said the rise in the price of crude would fast track exploration and oil extraction projects, which in turn would require offshore support vessels (OSVs). The company owns and operates one of the largest fleets of OSVs in terms of tonnage in Malaysia.

Azmi said the impact on the company’s revenue would depend on charter rates and that largely depended on demand.

”It won’t happen overnight. If there’s an increase in upstream activity, then we’ll see an increase in demand for OSV services,” he said.

Muhibbah Engineering (M) Bhd group chief financial officer Shirleen Lee said the bigger margins would be an incentive for oil majors to increase capital expenditure (capex), especially for deep-sea extraction where technology and expertise were needed.

”Their capex is our revenue. For example, our unit Favelle Favco Bhd is one of the top suppliers of cranes to the oil majors and we also supply tugboats and OSVs as well as O&G structures such as oil terminals, jetties and storage tanks,” she told StarBiz.

Muhibbah’s expertise is in marine construction.

Lee said the cost of deep-sea production had also gone up from US$15 a barrel several years ago to US$20 to US$25 today due to higher equipment and shipping costs.

”Another factor for the high cost is the oil majors neglecting investments in O&G infrastructure over the past 10 years. They only looked into it in 2006 when crude price began to rise above US$40,” she said.

Lee said only a few companies had the financial capability and technical expertise to supply the infrastructure.

Tanjung Offshore Bhd chief financial officer Joachim Tan said construction costs had gone up by between 20% and 30% due to higher material costs while charter rates had also increased by 30% from 2004/05.

”There is also a shortage of engines for OSVs and slots in shipyards for the construction of these vessels. The situation has gone from bad to worse and everyone is in the queue with construction taking anything from 2½ to three years compared with 15 months before,” he said.

Tan said that due to the increased demand for offshore services, the integrated O&G services provider had ordered five more OSVs. ”They’ll be ready next year and we would have 12 OSVs in total,” he said.

He said the company, which is an agent for Siemens’ gas turbines and compressors, had seen sales of these go up as companies looked to enhance oil extraction.

”We should see robust growth this year,” Tan said.


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