KUALA LUMPUR: UMW Oil & Gas Corp Bhd (UMW-OG), which will be listed soon on Bursa Malaysia, says there is demand for its latest jack-up rig, which is due to be completed in May, a signal that demand for drilling rigs is on the rise.

Rohaizad Darus, UMW-OG president, said the company is engaging with potential clients for the charter of the Naga 5 jack-up rig, and its priority is to charter it out to Petroleum Nasional Bhd (Petronas).

“If [Petronas] wants the rig, we will rent it to them … but if it doesn’t want it, we have a few parties we are negotiating with,” he told The Edge Financial Daily in an interview yesterday.

He said the company is talking to several overseas parties to charter out the Naga 5 jack-up rig, “but we cannot put Petronas behind”.

On the outlook for charter rates, Rohaizad said the company expects higher rates moving forward, in the region of between US$160,000 (RM505,600) and US$170,000 per day.

“In fact, charter rates have already crossed US$200,000 in certain markets such as in Mexico, which was unheard of before,” he said, noting that jack-up rental was less than US$100,00 per day 10 years ago.

Rohaizad pointed out that the company’s jack-up rigs can work up to 9,100m below the seabed with air pressure up to 15,000 psi.

UMW-OG, which will be 55.15% owned by UMW Holdings Bhd post-listing, is the only Malaysian company that owns and operates jack-up drilling rigs. At the moment, it has four offshore drilling rigs and all the assets are on charter.

In March this year, Petronas Carigali Sdn Bhd extended UMW-OG’s contract for Naga 1, a semi-submersible drilling rig, by two years to 2018.

In April, the company was awarded a drilling contract for Naga 2 for six months by PV Drilling for the end-client Hoang Loang joint operating company. It has an option for a six-month extension.

Naga 3 has been deployed in Vietnam since March 2011, with the latest extension for two years awarded in August this year.

Rohaizad said it shows how bullish the Vietnamese market is and UMW-OG’s ability to secure contracts.

He said he has confidence in the O&G market moving forward because many more marginal oilfields are being developed. He reasoned that in order to make the development of marginal oilfields economically viable, the capital expenditure (capex) to develop the field has to be minimal.

“When you want to reduce the capex, all the facilities tend to be small,” Rohaizad said, adding that the jack-up rig market would be an ideal asset to reduce cost.

“Previously 500 million barrels was reserved in one rig, sometimes it could go up to one billion barrels in one rig, but the amount is getting smaller,” he said.

The O&G arm of UMW Holdings Bhd is scheduled to be listed on Nov 1 this year. It will raise RM2.36 billion from the listing, making it the country’s largest IPO this year. Trailing closely is Westports Holdings Bhd, which is sheduled for listing today and is expected to has raise RM2.03 billion.

Of the amount raised from the IPO, parent UMW Holdings will realise RM647.86 million while UMW-OG will receive RM1.71 billion. Of the RM1.71 billion going to UMW-OG, 58% will be used for the acquisition of drilling rigs and hydraulic working units within 18 months of the listing.

About RM579.4 million will be used for repayment of the amounts owing to UMW Holdings. Post listing, Rohaizad said UMW-OG will not have any debts with the parent company.

This article first appeared in The Edge Financial Daily, on October 18, 2013.