Right move can ensure revival

 

Even the world’s biggest players were badly hit by the plunge in oil prices but timely measures by their stakeholders saw them through the troubled times.

PETALING JAYA: Oil and gas (O&G) contractors, by nature of the services they offer, are invariably vulnerable to the fluctuations in crude oil prices. However, a viable rescue plan has helped many get back on their feet again.

The 2014-2015 oil price crash is a case in point. Crude oil was trading at US$114 a barrel in August 2014. By February 2016, it was selling at just over US$40 a barrel.

Oil companies were forced to review the contracts with their service providers. As a result, revenue for the O&G contractors declined, even for the big boys. Practically almost all of them reported losses for most, if not all, of the six years from 2016 to 2021.

For instance, Seadrill, a shallow to ultra-deep-water drilling service provider, saw its revenue drop steadily from US$3.2 billion in 2016 to just US$1 billion in 2021. In the same period, the company reported losses ranging from US$111 million in 2016 to US$4.7 billion in 2020.

TechnipFMC, a French outfit that offered project management, engineering and construction services for the energy industry, also reported huge drops in revenue and extensive losses. Its revenue declined from US$15.1 billion in 2017 to US$6.4 billion last year.

In 2018, TechnipFMC reported losses of US$1.9 billion. This rose to US$2.4 billion in 2019 and then to US$3.3 billion in 2020.

Italian oilfield service provider Saipem S.p.A. saw its revenue drop steadily from €10 billion in 2016 to €6.9 billion in 2021. In the same period it reported annual losses ranging from €328 million to €2.1 billion.

Others similarly affected were McDermott International of the US, Subsea 7 of the UK, US drilling contractor Transocean Ltd, Baker Hughes which is another US player, and Velesto Energy of Malaysia.

Covid-19 only led to a further deterioration in the financial health of the O&G players as countries went into lockdown, resulting in delays as well as standby and quarantine costs.

For 2020 and 2021, Technip incurred an additional US$160 million in costs no thanks to Covid-19.

The pandemic cost Saipem €188 million in project delays and other unexpected Covid-19 expenditure.

Subsea 7 lost US$97 million as a result of Covid-19, while Sapura Energy Berhad was left approximately RM570 million poorer.

However, stakeholders have responded positively to these companies’ efforts to restructure to enable them to return to profitability.

McDermott and Seadrill went into Chapter 11 to reduce debt. McDermott emerged from the exercise with US$2.4 billion in letter of credit capacity and US$544 million in funded debt.

Seadrill now boasts a stronger and cleaner balance sheet. Its debts have been reduced by 85%, or US$4.9 billion out of the original US$5.6 billion sum. It also managed to raise US$350 million in new capital.

TechnipFMC has been split into two – TechnipFMC will be a fully-integrated technology and services provider, and Technip Energies will focus on global energy transition.

Saipem has received commitment of €1.5 billion from its largest shareholders for its €2 billion cash call.

Despite claims otherwise, Malaysian national oil corporation Petronas said it has done what it could.

In a recent interview with The Edge weekly, CEO Tengku Muhammad Taufik Tengku Aziz said Petronas had been helping Sapura Energy Berhad (SEB) with “milestone payments” and accelerated credit terms, while reducing performance guarantees “so that they don’t have to pay as much”. He dismissed claims that oil companies were leaving the vendor ecosystem go under.

There had been allegations that the increase in the prices of oil had “disproportionately” benefited major oil companies operating in Malaysia while others in the supply chain were suffering. - FMT

Yeoh Guan Jin is Business Editor at FMT.