JAKARTA, Apr 30, 2015 - (ACN Newswire) - Wintermar Offshore Marine (IDX:WINS) Q1 2015 revenue was down 39% YOY to US$ 29.2 million, negatively impacted by severe cutbacks in oil and gas spending following the collapse in oil prices and uncertainty of oil price outlook.
Sharp and Sudden Deterioration in the Global Oil and Gas Industry
After the steep drop in oil prices since late 2014, oil and gas companies all over the world have been cutting back on expenditures and retrenching staff in Q1 2015. Over the first three months of 2015, oil and gas companies announced drastic cost cutting plans in turn. As a result, most oil exploration projects have been postponed indefinitely and some ongoing projects were stopped. Rig utilization fell across the board, but particularly in the North Sea and USA. In Indonesia, oil companies initiated drastic cost reduction plans which led to postponement of projects and renegotiation of existing contract, whilst some rigs that had been working were even terminated.
Amidst this very challenging environment, revenues from our Owned Vessels segment fell 39% to US$ 29.2 million, as a result of termination of rigs and the postponement of exploration projects, which affected our high tier vessels more than the low and mid tier. Directed by SKK MIGAS, oil company clients also asked to renegotiate rates. Overall fleet utilization fell from 70% in Q1 2014 to 61% in Q1 2015.
To mitigate this sharp downturn, we were able to deploy our high tier vessels on spot contracts in regional markets, albeit at lower gross margins. Depreciation, which makes up nearly 50% of Owned Vessel direct expenses, is not a variable cost. Therefore as utilization rates fell, the gross margins for Owned vessels fell to 23.4% in Q1 2015 leading to a 73% drop in Gross Profit from Owned Vessels to US$ 4.8 million from US$16.5 million in the same period last year.
Chartering Division revenues declined by 60% YOY as many projects were postponed or terminated by oil and gas companies as a reaction to the volatile oil price situation in the first quarter. Profit from Chartering fell by half to US$ 0.75 million from US$ 1.5 million in the previous corresponding period.
Direct and Indirect Expenses
Total direct expenses fell by 18% from US$ 29.2 million to US$ 23.8 million in Q1 2015, mainly contributed by the fall in chartering expenses as there were few new projects. Segmental direct expenses for Owned Vessels, however, went up, due to higher depreciation and crew costs arising from our fleet expansion into high tier vessels last year. These vessels require higher quality crew to operate because of more sophisticated technology. Fuel expenses also rose, due to higher bunker consumption as utilization dropped to 61% from 70% last year.
Indirect expenses reduced by 17% YOY, as a result of some cost savings measures implemented by Management. These included a hiring freeze and streamlining our organizational structure through a restructuring of responsibilities that achieved operational efficiencies with fewer personnel.
Gross Profit was US$ 5.4 million for Q1 2015, down from US$ 18.7 million, while Operating profit was US$ 2.5 million, down from US$ 15.3 million in Q1 2014.
Other Income and expenses
Net Other expenses fell by 19% YOY to US$ 2.5 million as a result of lower interest expenses, offset by a loss from associates.
Net Income and EBITDA
After tax and minorities, the income attributable to shareholders was sharply lower at US$ 76 thousand for Q1 2015 as compared to US$ 7.9 million in the first quarter 2014. EBITDA halved to US$ 9.8 million from US$ 21.4 million.
Assets and Gearing
As there were no new loans disbursed in the first quarter, the net gearing ratio has improved to 65% as at 31 March 2015, compared to 67% at the end of 2014.
The first quarter was exceptionally dismal, as oil companies started to cut costs and postpone activity due to global uncertainty stemming from the massive fall in oil prices. Exploration work was the first to be postponed, while production continues but with rate negotiations as the global oil and gas industry continues to be plagued by oversupply and uncertainty. Because of the lower oil price, total approved expenditure on upstream oil and gas projects in Indonesia has been revised down from US$ 22.2 billion to US$ 19.9 billion.
Over the past month, the oil price has recovered slightly from the lowest point in January, and there are market expectations that prices may well recover to US$65-75 /brl levels in 2016. We are optimistic that once oil prices stabilize to a new equilibrium, oil and gas companies will resume upstream projects.
The positive outcome of such a swift and severe downturn as experienced in the industry this past quarter is that many aging rigs and vessels have been laid up and permanently removed from global supply. The dramatic fall in daily rates of up to 50% in some segments of rigs and OSVs will also bring down operating costs for oil companies when they resume drilling operations and recontract with subcontractors. The cyclical nature of the oil and gas industry is such that we could see a strong recovery again within a couple of years' time.
Even though oil prices are recovering and at the time of writing Brent Crude is back to US$64-65/brl, the impact of the recent sharp cuts in spending by oil and gas companies will take some time to filter through to the oil services sector. We therefore expect continued weakness in the second quarter, as a result of actions taken in the first quarter. Should oil prices continue to firm up, and a new equilibrium level is reached soon, activity would return by the end of the year or early next year.
There are 4 potential upstream oil and gas development projects in Indonesia of significant size that have production targets in 2018-2020. Out of those, only 1 project is currently actively drilling in 2015. We are optimistic therefore that the current dire situation could turn around relatively quickly when the other projects are activated again. Depending on the oil price outlook, this could happen within a 9-18 months horizon.
During the past months our management has been working to implement cost cutting strategies, which has resulted in a reduction of crew over the 3 months and continual reduction in Crew expenses. In addition, we have warm stacked some vessels to reduce operating expenses. These actions have not yet been fully reflected in the first quarter results. However, as responsible shipowners, we have to hold to our standards of maintenance, which also limits the degree to which we can reduce our operating costs without impacting the quality of our fleet.
Our marketing expenses have risen as marketing efforts have intensified, and we will be working with our strategic JV partner to reach a wider market in the region.
Total contracts on hand as at end March 2015 amount to US$142 million.
Ms Pek Swan Layanto
PT Wintermar Offshore Marine Tbk
Tel +62 21 530 5201 Ext 401
Source: PT Wintermar Offshore Marine Tbk
Sectors: Gas & Oil, Daily Finance, Logistics & Supply Chain
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