Friday, November 1, 2013

UMW Oil & Gas - Fair Value

Fair Value: 3.15 (JF Apex), 3.03 (PBB), 3.20 (HDBS). 

Among the cornerstone investors are the EPF, Tabung Haji, PNB and KWAP. Others individuals are Tan Sri Abdul Rashid Hussain and Tan Sri Chua Ma Yu.

UMW Oil & Gas aims to grow its fleet by at least one rig per year. This would substantially add to its financial performance as 93% of its revenue is derived from its drilling business.

UMW O&G would be raising RM2.36bil with almost 60% or RM1bil of the proceeds to be allocated for more offshore asset acquisitions to expand its business.

UMW O&G was awarded two jack-up rig contracts and a hydraulic workover unit contract from units of Vietnam’s national oil company PetroVietnam (PV) in a short span of six months prior to Oct 2013.

In April 2013, PV Drilling awarded it with a drilling contract for Naga 2 for six months, while Naga 3 has been deployed in Vietnam since March 2011, with the latest extension for two years awarded in August 2013.

Similarly, Indonesia is starting their oil exploration again, while Philippines and Myanmar has turned aggressive in terms of exploration activities.

Vietnam to leap frog Malaysia with a drilling rig demand of 26 in 2014, up from 15 in 2013.

On the local front, Malaysia, lead by Petronas, is also ramping up exploration with rig count going up to 32 by 2015, up from 20 currently (Oct 2013).

Until now (2013), only 3 clusters of the 24 clusters of marginal fields have been awarded by Petronas, and there is still more room for drilling activity as 105 fields in the said clusters were identified.

With Naga 5 soon to be delivered in May 2014, the group’s contracted backlog for drilling rigs stood at RM1.47bil as at June 2013.

Although its oil field services business seems small with a contribution of just 7% to the group’s revenue, it actually complements its core business and acts as the group’s eyes and ears on the ground.

Its oil field service, mainly pipe threading services, serves an array of international oil companies and made a breakthrough with Thai’s PTT Exploration and Production (PTTEP) oil company when they signed a three-year contract for one of our hydraulic workover units.

With its stronghold in Malaysia, the company’s pipe threading business is also in China and Turkmenistan, which is on its target list to expand.

Petronas will always be its baseline client. But moving forward, it needs to grow and growth will be from South-East Asia and Asia Pacific, and we may go as far as India and China.

Petronas and UMW has a long standing relationship since 1988, and the link has grown after its first semi-submersible rig was contracted to Petronas in 2005.

The company is still in the midst of harvesting low hanging fruits abundant in the region before eventually venturing into deepwater drilling where the big boys like Chevron, ExxonMobil are.

UMW O&G is very interested in the deepwater business after having first forayed into the business with its Naga 1 (contracted to Petronas), the company’s only semi-submersible rig capable of drilling at water depths of 1,000 ft, compared to its fleet of jack up rigs that operates only at about 450 ft.

Its asset base is already built up and it is looking for are premium rigs that can drill better than its competitors. And the upcoming Naga 5, manufactured by Keppel FELS, is top of the line The Naga 5 is similar to its sister jack up rig Naga 4 which is currently (Oct 2013) deployed on a three-year contract till 2016 with Petronas Carigali offshore Malaysia.

It is now (Oct 2013) talking to a few parties and hope to conclude discussions for the Naga 5 contract soon.

At a cost of about US$210mil, Naga 5 will be delivered by May 2014.

Most of its rigs have received extensions with higher charter rates, and in the oil and gas industry, it is always about maintaining relationships.

In FY ended Dec 31, 2012, it recorded RM71.8mil in net profit over revenue of RM724.3mil, and is on its way to join the billion-dollar club of Malaysian companies with revenue over RM1bil.

It has seen a steady three-year growth trajectory from RM348.8mil revenue in 2010, and climbing 57% to RM550.2mil in 2011, while net profit stood at RM79.1mil in 2011 and a loss of RM47.6mil in 2010.

UMW O&G’s IPO involves an offering of 843.18 million shares, comprising an offer for sale of up to 231.38 million shares and a public issue of 611.8 million new shares. It will offer 76% of its IPO portion to institutional investors and the rest to the public at an indicative retail price of RM2.80.

Post-IPO, parent UMW Holdings Bhd would hold approximately 55% of its oil and gas unit spin off.

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