This article first appeared in The Edge Financial Daily on July 7, 2017 - July 13, 2017
KUALA LUMPUR: Yinson Holdings Bhd is expecting more demand for floating production storage and offloading (FPSO) units as crude oil prices start stabilising.
Its group chief executive officer Lim Chern Yuan acknowledged that the charter rate for FPSO has declined, however, the profit margin remains at a profitable level.
“We think the demand [for FPSOs] softened previously because oil prices were not stable,” Lim told reporters after the company’s annual general meeting yesterday. Clients, said Lim, are more concerned about volatile crude oil prices, instead of low oil prices.
“Capital expenditure can be adjusted based on the level of [the] oil price, and recently the cost for production has gone down together with lower oil prices,” he noted, hence the retained margins.
“We do see more projects awarded again. There were three contracts [in the market] over the past six months,” said Lim.
That said, Lim stressed that the company will be selective about securing contracts. Yinson, said Lim, is more inclined towards oil majors and national oil companies. “It’s not just winning projects at the right price, but also on the right terms,” he said.
“We have seen what happens to other players who have taken on jobs from smaller O&G (oil and gas) companies for better returns — when they are no longer around, the players are left with more and more idle assets,” he said.
Meanwhile, Lim does not discount the possibility of lowering its offshore support vessel (OSV) segment, which has been affected by the downturn, prompting the company to be more careful about its investments under this segment moving forward.
“We have four OSVs at the moment. The market is very soft. Despite us having between 75% and 100% utilisation in the past few years, we are near break-even levels because charter rates have gone down a lot.
“The decision to grow or not to grow will be a strategic decision, to grow or to not do the business anymore,” he said.
Meanwhile, Yinson is mulling a dividend policy following two major divestments that will bring home US$337 million (RM1.45 billion).
“With those proceeds, we will look at the board’s decision on how we will reinvest the money to grow our business, or develop a more stable dividend policy,” he added.
The group has no dividend policy currently. It declared a total of 16.6 sen dividend per share for its financial year ended Jan 31, 2017. Its cash pile stood at RM632.76 million against its total borrowings of RM3.36 billion.
Yinson announced on Tuesday that it intended to sell a 26% stake in its indirect wholly-owned unit Yinson Production (West Africa) Pte Ltd to a Japanese consortium — comprising Sumitomo Corp, Kawasaki Kisen Keisha Kaisha Ltd, JGC Corp and Development Bank of Japan Inc — at a price of between US$104 million and US$117 million.
However, the nature of how the stake sale will be satisfied has yet to be finalised. “We still have to go through a share purchase agreement before we welcome our new Japanese partners,” said Lim.
In April, Yinson said it would receive US$220 million in contract termination fees after the now-defunct Lam Son Joint Operating Co, the operator of Lam Son field in Vietnam, issued a notice of termination for the charter of its 49%-owned FPSO PTSC Lam Son at end-March.
However, FPSO PTSC Lam Son will be redeployed at the same oilfield by a new offer by PetroVietnam Exploration Production Corp Ltd, with the contract length and rate to be decided in six weeks’ time.
With five FPSOs and one FSO under its helm, Yinson is the sixth-biggest FPSO player in the world. Presently, Yinson has an order book of US$3.7 billion, excluding the Vietnam-bound FPSO Ca Rong Do contract, which it secured on May 22 this year.