UMW-OG's 1Q down 40% on lower drilling contributions

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KUALA LUMPUR (May 14): UMW Oil and Gas Corp Bhd (UMW-OG)’s net profit for the first quarter ended March 31, 2015 (1QFY15) came in 40.1% lower at RM32.1 million or 1.49 sen, compared with RM53.7 million or 2.48 sen in 1QFY14, due to reduced contributions from the drilling segment.

Revenue for the quarter under review was RM312.5 million, up 59.8% from RM195.6 million in 1QFY14, its filing with Bursa Malaysia today showed.

“The profit reduction was mainly due to discounts on time charter rates given to existing clients, in view of the significant drop in oil prices,” it said.

The reduction was also because of additional operating expenses from our new offshore premium jack-up rig, UMW NAGA 7, that was ready for deployment in February, which had its contract with Frontier Oil Corp (FOC) terminated, it added.

It said the segment is expected to brace for difficult times from margins squeeze, as well as the lack of revenue and earnings visibility for some of its assets, due to lower time charter rates from discounts to clients, early completion of existing contracts as options are not exercised, and downward pressure on time charter rates.

“Currently, the segment is participating in various stages of 18 tenders with a total bid value of RM3 billion. The financial performance of the drilling services segment will be dependent upon the success of these tenders,” it said.

On oilfield services, UMW-OG stated it contributed RM12.5 million or 4.0% revenue to the total revenue, which was an increase of RM2 million or 19.0% over the RM10.5 million registered in 1Q14.

UMW-OG attributed improved revenue to its oil country tubular goods (OCTG) threading and repair services, recorded by its Labuan and Turkmenistan operations.

For this year, UMW-OG believes its profitability will be affected by the slowdown in the oil and gas industry.

Its shares closed 3 sen or 1.43% lower at RM2.07 today, with a market capitalisation of RM4.5 billion.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)