This article first appeared in The Edge Financial Daily, on June 1, 2016.

KUALA LUMPUR: UMW Oil & Gas Corp Bhd (UMWOG) unit UMW Offshore Drilling Sdn Bhd has received a conditional letter of award from Petronas Carigali Sdn Bhd for the provision of a jack-up drilling rig for an undisclosed value.

In a statement to the bourse, UMWOG said it will assign its UMW Naga 6 rig for the contract for a duration of two years. The contract also carries a one-year extension option.

“UMW Naga 6 is a premium independent-leg cantilever jack-up rig that has a drilling depth capability of 30,000 feet (9,144m), and has a rated operating water depth of 375 feet,” said the group.

It said the contract will contribute positively to the group’s earnings and net assets for the financial year ending Dec 31, 2016 (FY16).

The winning came amid analysts’ bearish view of the stock, on concerns that the oil and gas services provider’s earnings may continue to be under pressure due to the weak demand for oil rigs and drilling service, coupled with the declining charter rates for jack-up rigs.

This has prompted them to revise UMWOG’s full-year core net loss forecast for FY16 to FY18 by 35% to 84%, in anticipation of a lower average rig utilisation going forward.

“It is difficult for jack-up rig services provider to find employment for their rigs. Jack-up rigs are used for the exploration part of the oil and gas value chain, and exploration capital expenditure is the first to be cut in a sustained oil price bear market,” CIMB Research said in a note dated May 24.

AllianceDBS Research shared the same sentiments, saying five out of eight of UMWOG’s drilling rigs are still idle.

“Its average rigs utilisation rate fell from 95% in 2014 to 52% in 2015. We expect it to fall further to 41% in 2016,” AllianceDBS analyst Tan Jianyuan said in a report last Tuesday.

Last Monday, UMWOG announced a net loss of RM65.08 million or 3.01 sen a share for its first quarter ended March 31, 2016, compared to a net profit of RM32.15 million or 1.49 sen a share a year ago, as its drilling service and oilfield service segments incurred losses due to weak demand.

UMWOG shares fell one sen or 1.13% to 87.5 sen yesterday, with a market capitalisation of RM1.89 billion. Year to date, the counter has slipped 17.8%.