Outlook remains ‘turbulent’ for UMW-OG

by **Cals** Wed 21 Oct 2015, 04:08

Outlook remains ‘turbulent’ for UMW-OG

By Maybank Investment Bank Research / The Edge Financial Daily | October 20, 2015 : 10:36 A

This article first appeared in The Edge Financial Daily, on October 20, 2015.

[You must be registered and logged in to see this image.]

UMW Oil and Gas Corp Bhd
(Oct 19, RM1.36)
Maintain sell with an unchanged target price of 80 sen: We gather that [size=16]UMW Oil and Gas Corp (UMW-OG) ([You must be registered and logged in to see this image.]Valuation: N/A, Fundamental: N/A) has secured a charter for its Naga 8 jack-up rig, delivered in September 2015.

The rig is now on location to carry out its multi-year drilling campaigns at SapuraKencana Petroleum Bhd ([You must be registered and logged in to see this image.] Valuation: 0.80, Fundamental: 0.65)’s operated SK 408 field (Jerlun-1 well).

The contract is from October 2015 until 2017 with a break of six to seven months in between.

This is positive but not unexpected. The daily charter rate (DCR) secured is about US$100,000 (RM421,000), we understand, comparable to current market DCRs of US$80,000 to US$100,000.

Compromising DCRs for utilisation is of greater priority now for a jack-up rig under financing, as it ensures cash flows to part cover interest payments and operating expenditure.

The operating outlook remains turbulent for UMW-OG. Some 75% of its rigs are off hire.

It would be a tough act to secure charter for six idle rigs in the fourth quarter of 2015 (4Q15) as drilling programmes enter the monsoon period.

Overall jack-up rigs’ utilisation in Southeast Asia will remain weak till 3Q16, at least.

We raise our net loss forecasts for UMW-OG by 11 times, 80% and 89% for the financial year 2015 (FY15), FY16 and FY17 respectively, largely taking into account lower overall rigs’ utilisation and DCRs.

We expect a core net loss in second half of FY15 (2HFY15) versus 1HFY15’s RM36 million core net profit with 2QFY15 profit having weakened to just RM4 million.

A foreign exchange gain from a stronger US dollar will mask weak headline results with jack-up rig contracts denominated in US dollars.

We do not rule out UMW-OG impairing its rig assets come end-2015. The asset value, DCRs and utilisation for jack-up rigs have fallen considerably. — Maybank Investment Bank Research, Oct 19
[/size]