Singapore’s Swiber Holdings (SWBR.SI) is hoping to secure an offshore services contract from a major oil company based in Brunei that would pay the company $80-$100 million ($96-$120 million) every year to 2016, its chief executive officer said.
“Brunei has been doing offshore oil and gas production for quite a number of years, so there’s a certain life span of all these structures in the field,” CEO Francis Wong told Reuters in an interview. He did not disclose the name of the oil major.
“The pressure in the reservoir will reduce, so as a result of that they need to upgrade the equipment. That naturally will give us work,” Wong added.
Brunei Darussalam is known for its vast reserves of petroleum and gas, which have fuelled the nation’s economy for almost eight decades.
Two major companies currently operating in Brunei are Royal Dutch Shell (RDSa.L) and Total (TOTF.PA). Brunei Shell Petroleum is a joint venture between Royal Dutch Shell and the government of Brunei for oil and gas exploration and production.
Wong also expects offshore construction activities to pick up in the next 12-18 months, driven by Asia and the Middle East, despite the weakening economic outlook in the United States and Europe.
Up to 2016, the company has identified 30 potential projects worth US$45 billion in the Middle East, 30 projects valued at US$6.2 billion in South Asia, and 88 projects with a total value of around US$4.3 billion in Southeast Asia.
These will be a combination of newly formed and existing sites. Wong said he hopes to achieve gross profit margin of 15-20% across the markets that Swiber operates in.
“Based on the bidding activities happening now in the industry, I would say that compared to 2009, 2010, it’s quite a different scenario,” Wong said. “Offshore construction activities will pick up 12-18 months from now.”
He added that he expects a utilisation rate of 70-80% across Swiber’s vessels in the next 12 months, comparable with the company’s historical level.
Swiber has a fleet of 50 vessels, comprising 12 construction vessels and 38 support vessels. The company had an order book of US$752 million as of August 15, which is expected to contribute to its results over the next two years.
Wong said that based on the feedback that Swiber has received, the company is comfortable with an oil price of around US$55-US$65 per barrel for the shallow water projects that it is traditionally strong in, depending on the country.
In the industry, shallow water tends to refer to water depths to 400 metres.
“The outlook for offshore services is still positive. There are still a number of jobs out there and people are ramping up production,” said DMG & Partners analyst Jason Saw.
“If oil price were to go down to US$50-US$60 a barrel, the shallow-water jobs will still be there, whereas some of the deep-water projects will require US$80-US$90 for them to be feasible.”
However, Saw noted the competition for projects remains intense, which may put some pressure on Swiber’s profitability. Other risks include project execution and the company’s relatively high gearing level, he added.
Swiber competes with larger companies such as McDermott International (MDR.N) and Saipem (SPMI.MI). At 9:50 a.m., Swiber shares were down 1.8% at $0.55.
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