KUALA LUMPUR: That national oil company Petroliam Nasional Bhd (Petronas) and other oil majors are planning significant spending was seen as a great boon for local oil and gas (O&G) support services providers.

But this may not translate into an immediate windfall for domestic offshore support vessel (OSV) operators given the intensifying competition, particularly from foreign players, said the newly formed Malaysia OSV Owners Association (OSV Malaysia).

OSV Malaysia president Tasripin Masotee said local OSV players are unable to offer competitive rates because they do not enjoy the tax benefits granted to Malaysian merchant shippers. These include tax exemptions for spare parts, lower corporate tax and no personal taxes for crew members.

The association was formed last year, lobbying for a “level playing field”, to take on foreign competitors which it claims enjoy tax
benefits from their home countries, Tasripin said in a recent interview with The Edge Financial Daily.

OSV Malaysia has 18 member companies in an industry that comprises 49 OSV owners and operators, and numerous agents and brokers.

According to Tasripin, who is also executive director of OSV player Saujana Marine Sdn Bhd, foreign-owned vessels, including those registered in Labuan, are driving down daily charter rates for OSV vessels by about US$1,000 (RM3,060) to US$2,000. He added that some Malaysian OSV owners also face problems obtaining financing and even when they did obtain financing, it came with unfavourable financing costs.

On the claims made by OSV Malaysia, OSK Research analyst Jason Yap concurred that there is some competition from foreign vessels now. However, he expects foreign players to redeploy some of their vessels out of Malaysia when activity picks up as the US and Europe gradually recover.

He said this year will likely see little excitement for the local OSV market given the current oversupply of vessels in the market which has dampened charter rates.

“Brownfield jobs are mostly at the tail end and marginal oilfield projects are still starting up; so there is a transitional phase that OSV players have to undergo. And when there’s an oversupply, it’s a buyer’s market,” Yap said when contacted.

Yap, however, expects improvement to come from the second half of 2013 when more marginal oil field jobs are farmed out. “Job-wise, it is still positive for the oil and gas industry on a macro perspective, but it could only filter down to the support services in a year or two,” he said.

Nevertheless, market observers said the entry of foreign players bodes well for Petronas and other oil majors to obtain the best price for the O&G support services needed.

“It is getting more competitive and market-efficient. It’s not necessarily a bad thing at all, and this so-called downturn for OSV companies could well be part of the usual cycle of ups and downs in business,” said a market observer.

Though OSV Malaysia concedes the need for Petronas to seek the cheapest OSV rates, OSV Malaysia committee member Mizan Mohd Redzwan argues that this is a short-term gain at the expense of the local OSV industry’s long-term viability.

Industry observers said the market crunch could be attributed to the increased supply of OSVs in the market from 2008 when many players rushed to expand their fleets and capacities on optimism that oil prices would remain buoyant.

OSV Malaysia honorary secretary Sidqi Ahmad Said Ahmad, however, stressed that the association was not lobbying for the government to give incentives to OSV players. “The industry has matured. We can stand on our own feet if we are given the opportunity to compete fairly with foreign companies,” Sidqi said.

OSV Malaysia claims that the local OSV market has been flooded by foreign competitors who are able to register in Labuan under the Malaysia International Shipping Registry (MISR).

“Malaysia has a cabotage policy but this policy has been compromised by the introduction of the MISR in Labuan. The MISR, I was told, was not for the purposes of OSVs but merchant ships. It was to grow Malaysia’s tonnage and promote Labuan,” Siqdi said.

The cabotage policy reserves the transportation of goods in the domestic trades to ships flying the Malaysian flag. It was implemented in Malaysia on Jan 1, 1980.

Sidqi, managing director of Syarikat Borcos Shipping Sdn Bhd, however, said OSV daily charter rates have somewhat improved from that of 2010, when rates were down to about US$1.50 per horsepower.

This improvement was driven by high oil prices and the declining delivery of new vessels, he said, adding that OSV daily charter rates are now at about US$1.80 to US$2 per horsepower on average but still nowhere near the rates seen in 2008.

As an example, Sidqi said average rates in 2008 for an anchor-handling tug supply (AHTS) vessel hit about US$2.40 per horsepower with bigger vessels getting up to US$4 per horsepower.

Some of the listed OSV operators last year pointed out concerns over the intensifying competition for OSV jobs.

Alam Maritim Resources Bhd for one said it was bracing for a challenging operating environment in the OSV segment despite the expected increase in activities in the domestic O&G industry.

“Among the major challenges going forward are margin compression arising from consolidation between domestic players within the industry and the emergence of new market players to compete for sizeable contracts,” Alam Maritim said in the notes to its recent financial results.

Nevertheless, the company said it was expecting another year of growth for FY12 ending December on the back of its existing order book for OSV and its potential expansion into the underwater services or offshore installation and construction (OIC) segment.

For FY11, Alam Maritim returned to the black with a net profit of RM12.93 million compared to a net loss of RM11.82 million a year ago. This was on the back of a 27.22% revenue growth to RM308.12 million, driven by improved vessel utilisation and substantial revenue from third-party vessels during the year.

Meanwhile, another OSV player Tanjung Offshore Bhd said it would stay cautiously optimistic on the prospects of the domestic and regional O&G industry as the market remains fragmented and competitive.

For FY11 ended December, Tanjung Offshore posted a net loss of RM54.35 million compared with a net profit of RM7.58 million a year ago. Revenue fell 15.27% to RM459.04 million from RM541.8 million.

Tanjung Offshore said its losses were mainly due to operational losses and impairment of receivables of its engineering equipment division.
For its OSV division, Tanjung Offshore said the division’s pre-tax profit fell 2.33% year-on-year to RM55.6 million in FY11 while revenue fell 3.58% to RM139.55 million. This was due to higher dry-docking expenses incurred for two of its vessels during the year.

“Whilst we are experiencing a more robust demand for our offshore support vessels (this year), we are undertaking a business rationalisation exercise for the non-marine division to reduce costs and seek strategic growth within our core business divisions,” Tanjung Offshore said.