KUALA LUMPUR: The slump in oil and gas (O&G) prices may have prompted many companies to stay away from the sector, but loss-making Asia Bioenergy Technologies Bhd (AsiaBio) has decided that the O&G business is now the right activity to venture into for a better future.
The business incubator, which has been in the red over the past five financial years, has proposed to set its footprint in the O&G maintenance and services business via a tie-up with a Petroliam Nasional Bhd (Petronas)-licensed firm, Coral Alliance Sdn Bhd.
AsiaBio executive director Steve Tan Sik Eek said “whatever goes down will come up again”.
In an interview with The Edge Financial Daily, Tan said he wants to prepare AsiaBio to be in the position to benefit when the O&G market recovers.
He was also quick to point out that the activity AsiaBio is venturing into — mechanical and maintenance services for oil majors — is still relatively resilient and not significantly impacted by the oil slump.
“We are going into the maintenance and services [business] that the O&G platform would need. We are looking at 20 to 30 years old (production plants) that require spare parts replacement,” he said.
He said every commodity is subjected to an upcycle and downcycle due to market forces, and the O&G sector is no exception.
“At the current level, it (the oil price) will creep up to a level where it is more sustainable. If you noticed the last oil price run [about 10 years ago], the price [was initially] around the same level as now. Then it climbed to US$60 per barrel and peaked at US$120 per barrel later,” added Tan, who believed the oil price had entered a recovery stage.
Also, he said the development of the RM60 billion Refinery and Petrochemical Integrated Development project in Pengerang, Johor, is still ongoing, and therefore there is still room for the company to ride on the O&G recovery.
“We have been looking [to diversify into] the [O&G] industry since two years ago. But [at that time] we found the valuation ridiculously high. Now it seems to be more reasonable for us to [venture into] it,” Tan said.
Tan said AsiaBio had participated in several tenders, but did not divulge the figures. “We will make the announcement when we manage to secure any of the contracts,” he said.
The Brent Crude Index has remained weak over the past year. It was traded at a low of US$27.88 per barrel on Jan 20 and surged to a high of US$53.14 (RM234.88) on Oct 10. It has since pulled back slightly, trading at U$45.18 last Friday.
AsiaBio, which currently operates as a technology incubator, notably in the bioenergy segment, on Nov 1 inked a one-year collaboration agreement with Coral Alliance, a bumiputera company licensed with Petronas.
The agreement, signed by its unit AsiaBio Petroleum Sdn Bhd, is to facilitate a joint bid by the two parties for at least RM30 million worth of contracts from Petronas Carigali Sdn Bhd, specifically in the areas of mechanical maintenance services, supply of materials and consumables, as well as manpower.
The company’s diversification is also supported by two O&G veterans, AsiaBio Petroleum head of operation David Chuah, 46, and head of project Melvin Rohan Padmanathan, 44.
Commenting on the new business segment, Chuah said the company is looking to secure at least RM30 million worth of contracts in the first year of the collaboration, before eyeing bigger contracts.
“We will kick-start with Petronas Carigali’s contract and establish ourselves in the O&G industry before expanding our clientele to other global players such as Exxon Mobil Corp and Royal Dutch Shell,” said Chuah.
“The market is soft, but there are no signs showing the oil majors are cutting their production. The production has to be maintained, if not increased. This is due to the fact that oil-producing countries are generating their income through oil production,” he said, adding that asset quality, safety and integrity are the utmost priority for oil majors, including Petronas.
“Also, oil consumption is also increasing, signalling the resiliency of the industry,” he added.
In the longer term, Chuah said AsiaBio Petroleum intends to undertake research and development to address pressing issues such as the rising costs faced by the oil majors.
“For us to do so, we must establish ourselves and be recognised by the industry. With our partnership with Coral Alliance, we believe that once we get accepted by Petronas, then everything else will come online eventually,” he added.
AsiaBio’s share price closed unchanged at 5.5 sen last Friday, valuing the company at RM56.84 million.