A Bloomberg analyst pointed out that the recent share market rally in Singapore was underpinned by stocks of ship and oil rig-makers, despite the sectors’ fundamentals being weak. The rally, he concluded, was floating on a bit of foam.
Since the crash of oil prices in late 2014, the Singapore offshore services and engineering industry has been hit hard. Anticipating that the good times would continue – always a fallacy – all the capital expenditure and debt incurred from oil’s boom over 2009-2014 came back to haunt the sector after upstream work dried up in the past two years.
Singapore, being the nexus of much of the rig-building, offshore vessel and mechanical engineering contracting in Asia, has been hit the hardest. It came with a delay; the hope was that oil prices recover in 2016 after plunging in early 2015, but that never came. So when Swiber Holdings declared bankruptcy last August, it was a surprise to no one in the industry. In such a downturn, there are always casualties, and other companies – Swissco, Ezion Holdings, KrisEnergy – were also facing critical times. Debt holders of these companies, mainly Singapore banks, had to take a haircut. In response, the financial industry tightened up its portfolios while the Singapore government pledged to aid the industry, but stopped short to bailing the companies out.
The saga continued last week. Industry darling Ezra Holdings – once worth US$2 billion – filed for Chapter 11 bankruptcy in the USA. The international filing is unusual, but it does offer legal and enforcement action protection worldwide, as it attempts to restructure. Also declaring Chapter 11 are related entities Ezra Marine Services and EMAS IT Solution, and possibly also circling the drain is Ezra Holdings’ debt-ridden subsidiary Emas Chiyoda Subsea, which owes the former some US$170 million. Ezra Holdings’ last published earnings declared losses of US$339.6 million, with US$1.51 billion of liabilities. Court filings show that its 20 largest creditors are owed some US$600 million; one – Norwegian shipowner Forland Subsea AS – has agreed not to pursue to repayment of a defaulted charter payment, but the rest are not being so patient.
As Ezra Holdings battles to survive, new concerns over the health of the industry have been cast. Though some argue that Ezra was poorly managed and over leveraged to begin with, it may not be reflective of all other players in the industry. However, investors seem sanguine for now. The banks, for example, have already identified Ezra as a threat, with DBS moving its US$270 debt owed to ‘non-performing’ while OCBC has been stress-testing the sector since Q32015. The financial industry, by and large, has already reduced its exposure to this murky pool, but turbulence beneath the surface still threatens the industry itself. Analysts and auditors are already looking for the next trouble – with Malaysian vessel builder Nam Cheong, Singapore’s Loyz Energy and Rickmers Maritime named as potential threats. Yet, there are those that are hunting for a bargain – British engineering specialists Subsea 7 has expressed interest in purchasing Ezra Holdings assets, as well as those of its embattled joint venture Emas Chiyoda Subsea.
With oil prices having recovered somewhat, the forecast might be brighter, but brace yourself, there are still squalls to come as the upstream industry further consolidates and reinvents itself. Oil companies are putting a lot more cost pressure across their supply chain, and offshore marine contractors are not excluded from this picture. Previous charters rates will certainly not re-appear in the medium terms at least hence the business model of vessel owners will need serious tweaking. Those willing innovate and put their re-engineering skills to use, may look at diversifying their business into offshore renewable energy and other seabed mining sectors.
Something interesting to share?
Join NrgEdge and create your own NrgBuzz today
It seems to have been a topic that has been discussed for years, but a decision could finally be made. The Philippines has short-listed three different groups who are in the running to build the country’s first LNG import terminal, whittling them down from an initial 18 that submitted project proposals. The final three consist of the Philippines National Oil Company (PNOC), a joint venture between Tokyo Gas and domestic firm First Gen Corp and China’s CNOOC. The Philippines hopes to choose the final group by the end of November – an optimistic decision that belies that many, many complications that have come before. And those still to come.
First of all, the make-up of only one of the groups has been finalised. A local partner is a requirement for this project; CNOOC has yet to officially tie-up, although it has been talking to Manila-based Phoenix Petroleum, while state oil firm PNOC does not have a (deep-pocketed) partner yet. Firms including Chevron, Dubai’s Lloyds Energy Group and Japan’s JERA have reportedly contacted PNOC to express their interest, but a month before the Philippines wants to make a decision, its own home-grown hero hasn’t yet got its ducks lined up in a row.
And time is of essence. The once giant Malampaya gas field is running out of resources. Supplying piped natural gas to three power plants that feeds some 45% of Luzon’s electricity requirements, the Shell-operated field is expected to be completely depleted by 2024. With the country aiming to move away from burning coal or (imported) gasoil for power, gas is needed to replace gas. Even though the Philippines is pushing for a bilateral agreement with China to pave to way for joint exploration activities in disputed areas of the South China Sea – to the consternation of its citizens – any discovery in the Palawan basin or Scarborough Shoal will be years from commercialisation.
So LNG is the answer. And LNG has been the answer since 2008, when the need for an LNG import terminal was first identified. And it is not like no projects have been proposed – Australia’s Energy World Corp (EWC) has been wanting to build an LNG receiving terminal and power station in the Quezon province near Manila for years, but the project has been described as ‘trapped in a bureaucratic quagmire’ due to hurdles from various government agencies, or stymied by groups with competing interests.
PNOC itself has been wanting to build its own terminal in Batangas, within range of existing gas and power transmission facilities currently drawing Malampaya gas. But, just like Pertamina in Indonesia, it is cash-strapped and unable to drive the project on its own, hence the requirement for a partner/s. First Gen Corp and Phoenix Petroleum are both private players, with First Gen already operating four of the country’s five gas-fired plants while Phoenix Petroleum has close ties with CNOOC Gas.
Many announcements have been made and gone, but with this shortlist of three groups, it does finally look like the Philippines will be able to get its LNG ambitions of the ground. And it is thinking even bigger; wanting the terminal to become a LNG trading hub for the region – capitalising on the existing habit of ship-to-ship transfers of LNG cargoes into smaller parcels in the Philippine waters for delivery into southern China – challenging existing ambitions in Japan, South Korea and Singapore. But perhaps that is getting a bit ahead of themselves. Getting a project – any LNG project – off the ground is the first priority. And the rest can come after that.
Other Proposed LNG Projects In The Philippines:
Headline crude prices for the week beginning 5 November 2018 – Brent: US$72/b; WTI: US$62/b
Headlines of the week
It is a well-known fact that the oil and gas industry has a lot to offer in terms of opportunities - paycheck, lifestyle, and work-life balance. However, like everything else in life, it has a flip side as well. If you are planning to make a career in oil and gas industry, it is important to know the cons as well. Here is a list of risks associated with working in oil and gas industry that you must know to make an informed decision.
Highly competitive: survival of the fittest
Oil and gas industry is highly competitive and dynamic in nature. The job requires high level of expertise and productivity. With digitization and automation of the industry, the work functions are changing rapidly. The employees who cannot cope up and upskill with changing time and need will be automatically pushed out of the system. The foremost challenge in oil and gas industry is to stay relevant and keep upskilling.
Long work hours
Some job functions in oil industry like offshore rig workers have to work in 12-hours shift, seven days a week and for seven to 28 days in one stretch. Sometimes, overtime is also expected due to emergency or to manage the project deadlines. However, the oil companies do give equal amount of resting period to the rig workers to compensate for the long working hours. Even then, the continuous long hours is strenuous for the workforce.
The accident-prone work environment
Although rigorous safety trainings are provided to the workforce along with numerous safety measures and laws in place; accidents do occur. Sometimes, these accidents can be life-threatening. Here is quick overview of the possible accidents that you might encounter:
Risk of confined space and fall- The line workers in oil and gas industry sometimes work in confined spaces like mud pits, reserve pits, storage tanks, sand storage, and other excavated areas, where they are exposed to potential risk of ignition of inflammable vapors, exposure to harmful chemicals, and asphyxiation. Additionally, these kinds of workplaces involve risk of falls, slips and trips too which can cause severe injuries and can even turn fatal. Though the companies are extremely careful and take all safety precautions, but the risk cannot be ruled out.
Additionally, frequent exposure to chemicals used in refineries and drilling operations can impact long-term health. To offset these dangers, oil and gas companies provide comprehensive training to employees to ensure safety protocols and site-specific features.
Working in remote location
The oil and gas professionals have to work on remote location for exploration, offshore duties, pumping stations, gas plants and more. The workers in remote location often feel isolated and they are on their own to cope up with numerous work-related accidents and health hazards.
Working in oil and gas industry is extremely rewarding in terms of career growth, travelling opportunities and compensation. However, the above points must also be considered before stepping into this industry. It is important to mention here that majority of oil and gas companies are aware of the risks associated and thus have sound safety measures in place to avoid any contingency. Moreover, the government and regulatory bodies also impose strict regulations for safety and security of the workforce. Therefore, in many cases, the risk associated is considerably reduced. So, before you accept any offer from any oil and gas companies, you must carefully verify the safety measures and policies of the company. Once, you are assured, your career in oil and gas will be highly rewarding.
If you are looking for relevant opportunities, check out NrgEdge.com to kickstart your career in oil and gas industry.