This article first appeared in The Edge Malaysia Weekly on September 25, 2017 - October 1, 2017

ICON Offshore Bhd, Ekuiti Nasional Bhd’s (Ekuinas) 42.3%-owned oil and gas services company, is said to be looking for new offshore support vessels (OSVs) despite the nascent recovery in the oil and gas industry.  

Sources close to Ekuinas say representatives of the government-owned private equity firm and Icon were in Singapore’s Keppel Shipyard last week to look at OSVs. “It seems that Icon has an appetite for more vessels,” says one of the sources. However, it is not known what type of OSVs they were looking at.

Icon is one of the largest OSV operators in Southeast Asia, with 35 vessels as at Aug 28. It operates anchor handling tug and supply (AHTS) vessels, straight supply vessels, platform supply vessels (PSV) and accommodation work barges (AWB).

An Icon spokesperson denies that the group is buying new vessels but confirms that it is looking at vessels to be acquired as part of its continuous business development.

In a recent analysts’ briefing, Icon revealed a strategic roadmap — to ride out the storm and into a more promising future — that would see the group undertake fleet renewal and rejuvenation, as well as invest in best-in-class OSVs.

Recall that in 2016, Icon deferred the delivery of four new vessels to preserve cash as it weathered one of the worst downturns in the oil and gas industry. At the time, its managing director Amir Hamzah Azizan said Icon would receive the vessels when the industry recovered.

Crude oil prices averaged US$46.19 per barrel last year, after dropping to a low of US$29.38 per barrel on Jan 21, 2016. Year to date, the average price of Brent crude is US$52.81 per barrel. It dropped to a low of US$45.31 per barrel on June 21.

So, are there more activities in the OSV segment of the oil and gas industry now that crude oil is stabilising at US$55 per barrel? Does Icon and Ekuinas’ presence in Keppel Shipyard signal a bullish view of the OSV segment?

“The OSV sector is interlinked with activities in the upstream [oil and gas] segment. Any increase in activities will lead to better utilisation in the OSV sector. The industry remains challenging as some players are still financially constrained.

“In 2Q2017, we saw increased activities, which has led to better utilisation of the fleet. We are hopeful that this indicates great optimism by the oil and gas players to step up their investment in the upstream sector, given the stronger oil price,” Amir says in an email reply to The Edge.

He is not the only one who thinks the OSV segment is recovering. According to an analyst covering the oil and gas industry, there has been an increase in activities in the OSV segment, with utilisation rates averaging 70% compared with less than 50% last year. “However, whether the industry is back in good shape depends on how one looks at the reasons behind the increase in OSV chartering. Is it increasing because of more upstream activities by the major oil producers or is it because the charter rates have been so low? I think it is more the latter,” says the analyst, who declines to be named.

If the analyst’s deduction is right, it would mean that Icon could still see rough seas ahead. With more vessels, the company has to work harder to secure charter contracts, and given the prevailing low charter rates, the outlook is still uncertain.

Global data by Clarksons Research does not provide a promising outlook. The utilisation rate for AHTS (more than 8,000 bhp) was only 42% in September, while PSV (more than 2,000 DWT) was 43%. The global research firm forecast utilisation rates for both types of vessels at 44% in 2017 and 46% and 45% respectively in 2018.

“OSV rates have stabilised, but recovery will be very slow given the significant amount of overcapacity. Independent OSV players should buy more vessels if they can be sure that they will be able to get close to 80% utilisation or higher,” an analyst tells The Edge.

Of the four vessels whose delivery was deferred last year, Icon has collected two — Icon Aliza, an AWB, and Icon Atiqah, an AHTS. The group says it has secured contracts for both vessels.

As for the other two vessels, delivery has been suspended indefinitely for one and temporarily suspended for the other, and will be revisited in the later part of 2018, says Amir.

However, in May, Amir said the company was eyeing a portion of the RM6 billion maintenance, construction and modification (MCM) contracts that Petroliam Nasional Bhd (Petronas) will be awarding in the second half of the year.

Icon is partnering Deleum Bhd for the contracts. Other bidders, according to media reports, include Dayang Enterprise Holdings Bhd, Petra Energy Bhd, Sapura Energy Bhd’s wholly-owned unit SapuraKencana Pinewell Sdn Bhd, and Carimin Petroleum Bhd.

The MCM contracts is said to be split into four packages, with five-year durations for each. Icon is also bidding for Petronas’ integrated logistics control tower initiative, another multibillion ringgit contract.

Meanwhile, Icon has secured four contracts worth a combined RM88.8 million so far this year. However, most of them are short term and valued at less than RM10 million each.

They include a charter contract with Halliburton Energy Service (M) Sdn Bhd secured on April 7. The nine-month charter of a PSV is worth RM8 million. On May 26, Icon announced that it had secured a charter contract for one of its AHTS from Sarawak Shell Bhd and Sabah Shell Petroleum Company Ltd. The 10-month charter contract is valued at about RM5.4 million. On June 19, the group announced that it had secured a charter contract for an AHTS from PCPP Operating Company Sdn Bhd. The 166-day charter, which has a 30-day extension option, is valued at RM3.4 million.

However, Icon managed to secure one long-term charter contract this year. On March 9, the group announced that it had secured a charter contract for its AWB, Icon Valiant, from Zell Transportation Sdn Bhd, which had been awarded a long-term charter by SPHI Marine Sdn Bhd, a company operating in Brunei.

The three-year contract, with a value of RM72 million, commenced on March 1 and has a two-year extension option to be negotiated on a yearly basis.

In the first half of the financial year ending Dec 31, 2017, Icon reported a net loss of RM13.2 million — compared with RM4.4 million in the previous corresponding period — on the back of a 13% decrease in revenue.

Year to date, its share price has dropped 22% to 28.5 sen last Wednesday, giving it a market capitalisation of RM335.5 million. However, the 28.5 sen was a 29.55% increase from Sept 15’s closing price of 22 sen apiece. The year’s high was 48 sen, reached on April 6.

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