Government-industry collaboration urgently needed to lift OGSE players

This article first appeared in The Edge Malaysia Weekly, on May 18, 2020 - May 24, 2020.
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MALAYSIAN oil and gas services and equipment companies have called for industry-specific initiatives that provide critical assistance to companies, amid low oil prices and the coronavirus-induced economic disruptions.

In a joint statement, three associations representing OGSE players have called for a “joint government and industry cost optimisation exercise” at a more holistic level across the whole ecosystem.

The Malaysian Oil & Gas Services Council, the Malaysia OSV Owners’ Association and the Malaysian Offshore Contractors Association said there is a “strong need” to maintain existing awarded contracts and pricing, as they had been negotiated against the backdrop of a depressed market.

“The OGSE players have not yet recovered from the 2014 downturn and we are once again faced with an industry depression,” they said.

“It is imperative that all stakeholders are to jointly find a pragmatic solution to avoid the continuous revenue decline and protect the industry from further shocks that can cause structural compromise to the ecosystems.

“While the Economic Stimulus Package as committed by the government is very much lauded, there should also be industry-specific initiatives that provide critical assistance in facing the sectoral uncertainties.”

The three associations, representing more than 500 companies and a workforce of 60,000, pointed to a meeting held with Petroliam Nasional Bhd on April 30, where they had shared their challenges and recommendations.

“The Malaysian Oil & Gas Engineering Council also provided industry-related input during a pre-discussion session with the three other associations prior to this dialogue with Petronas.”

The other subject that needs to be reviewed is for the industry to be less reliant on the global supply chain, they said.

This is so that players are resilient amid external restriction conditions and become more competitive in the long run.

Meanwhile, the associations lauded Petronas for its intention to maintain its domestic capex this year — estimated at RM26 billion to RM28 billion.

“Both Petronas and the associations agreed that it was beneficial to continue having these dialogues to update the mature Malaysian O&G industry and provide the right information to the market, to effectively manage the challenges ahead better.”

Separately, industry facilitator Malaysia Petroleum Resources Corp noted that companies have begun cost-control measures, owing to focus for cash conservation in the face of uncertainties.

The efforts range from pay cuts to hiring freeze, debt restructuring and intensifying efforts by companies to collect payments for work done, MPRC deputy CEO Mohd Yazid Ja’afar said in an email response to The Edge.

“The OGSE industry is a price taker. This essentially means that OGSE players will have to adjust to the cash preservation and cost-cutting measures of the oil majors.

“Until the fog of uncertainty clears with regard to resumption of economic activities, and the effect and duration of the Covid-19 virus containment measures, cash conservation is an immediate and critical concern for oil and gas players,” said MPRC.

It noted that the 2014/15 oil price crisis introduced several industry reforms to make the OGSE industry more competitive and resilient. “These reforms, such as improving access to financing/funding, are still ongoing. The calls for a consolidation of the industry remain just as relevant, if not more [so].”

 

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