Singapore-based offshore oilfield service provider Pacific Radiance could suffer what would possibly be its worst-ever quarterly earnings for the second quarter of 2015, opined UOB Kay Hian Securities on 6 July.
This is because none of the company‘s diving support vessels (DSVs) have been utilised for the period.
UOB Kay Hian analyst Nancy Wei and Foo Zhiwei explained, “From our channel checks with shipbrokers, we learned that Pacific Radiance’s DSV utilisation was 0% for the second quarter of 2015, [compared with] 22% in the first quarter of 2015. The subsea market outlook has become bleak as oil companies continue deferring inspection, repair, and maintenance (IRM) work as part of their cost-cutting drive. Already, the downturn in subsea has driven many established players (Harkand, Halin, and Caldive) out of the market. Low utilisation of the DSVs in the first quarter caused earnings to plunge, and we expect the second quarter performance to be worse. The negative impact may be softened by cost savings from warm-stacking of vessels. The silver lining is that activity will eventually return strongly as IRM work cannot be indefinitely deferred due to safety requirements.”
While offshore support vessel (OSV) activities are recovering on oil prices stabilising at USD60 per barrel, oil majors are still refraining from exploration and production work, hampering a strong rebound for the OSV sector.
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Accordingly, UOB Kay Hian cut its 2015-17 net profit forecasts for Pacific Radiance by 75%, 17%, and 5% respectively, to USD10 million, USD48 million, and USD60 million.
Pacific Radiance had a profit of USD69 million in 2014.
Shipbroker sources told UOB Kay Hian that Pacific Radiance only saw a marginal improvement in its OSV utilisation, from 51% to 55%. Utilisation for the platform supply vessel (PSV) segment remains lacklustre, with many small PSVs in the segment unable to secure work.
OSV day rates have fallen by 10-15% as opportunistic oil companies have requested for sharp discounts of as high as 30%.
Wei and Foo said, “Low activity levels have also impacted demand for newbuild vessels. Management now expects gains from vessel sales to be lower than its previous guidance of USD15-20 million per year. While market prices of vessels have fallen, they are still 10% above the group’s newbuilding cost.”
Pacific Radiance is also deferring delivery of two vessels to 2016, reducing delivery for the second quarter to six vessels. This is in response to the low tender activity for OSV vessels. The revised newbuilding delivery schedule now stands at 10 vessels for 2015 and eight for 2016.
Year to date, the company has taken delivery of three anchor handling tug supply vessels and one PSV have been delivered, of which all have secured work except the PSV.