Thursday 28 Mar 2024
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KUALA LUMPUR: UMW Oil & Gas Corp Bhd (UMW-O&G) took delivery of its eighth jack-up drilling rig, called Naga 8, yesterday. 

However, the timing of the delivery has raised eyebrows considering the oversupply of oil that is pressuring crude prices downward. Furthermore, UMW-O&G already has four rigs that are not being chartered out yet. 

In a statement yesterday, UMW-O&G said it officially took delivery of Naga 8 from Keppel FELS Ltd, a wholly-owned subsidiary of Keppel Offshore & Marine Ltd, controlled by Singapore-listed Keppel Corp Ltd.

UMW-O&G said the delivery was taken to address the higher requirement in the market, and that Naga 8 is currently being prepared to be mobilised for a potential client in Southeast Asia.

“At 400ft (123m) water depth, this latest rig will enable us to address a niche market where there is lesser competition. The additional asset will also provide us with the capacity to cover a wider market, both regionally and globally, to continue our growth once the market recovers,” the group’s president Rohaizad Darus said in the statement yesterday.

When contacted, Maybank Kim Eng Research analyst Liaw Thong Jung told the digitaledge DAILY that despite the recent supply glut in crude oil, demand remains relatively higher in the premium rig market, justifying UMW-O&G’s step to take delivery of Naga 8.

“This rig is a premium rig. It can operate at up to 400ft water depth, a niche demand in the jack-up rig market,” he said.

“A contract may be forthcoming, hence the take-up of the rig. Otherwise, in a soft market condition, a rig operator can delay the delivery up to one to three years,” Liaw reckoned.

AllianceDBS Research analyst Arhnue Tan said the delivery of Naga 8 is generally expected and has been factored into their research.

In her note to investors dated Aug 26, Tan slashed UMW-O&G's target price to 65 sen from RM1.75 previously — substantially lower against yesterday’s closing price of RM1.01. The share price has been battered badly, falling nearly 58% year to date. 

“The situation is challenging, but I think UMW-O&G has the muscle (cash flow) to hold on with Naga 8 [operating expenses] for a while,” she said over the phone.

Of the four idle rigs, Naga 2 and 3 are currently under special periodic maintenance. According to the latest annual report, Naga 5’s contract is ending next month, while Naga 4’s expires in April next year, with optional extension until April 2018, while Naga 1’s contract ends in August 2018.

As at June 30 this year, UMW-O&G had a cash pile of RM1.11 billion, while short-term borrowings were RM1.97 billion.

An analyst, who declined to be named, pointed out that despite premium rigs such as Naga 8 enjoying a higher demand in the market, the charter rate for an oil rig has declined significantly due to an oversupply of rigs which does not augur well for the asset owners’ earnings.

“No doubt that Naga 8 is targeting a niche market, but the charter rate has come down from US$150,000 (RM631,800) per day before, to about US$110,000 per day now,” he said.


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This article first appeared in digitaledge Daily, on September 3, 2015.

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