Singapore-based offshore oilfield service provider Ezion Holdings said it expects to lose some charter contracts for its rigs in the Gulf of Mexico.
The company, which first-quarter 2015 profit dipped 9.3% year on year to USD41 million, told analysts that Mexico is a potential headwind.
UOB Kay Hian analysts Nancy Wei and Foo Zhiwei noted that Ezion has six service rigs in Mexico, including one awaiting delivery. These include three drilling rigs that are jointly owned with Swissco.
Wei and Foo said, “Ezion stated that in view of current global drilling rig oversupply, the charter contracts of these rigs face a cancellation risk. However, the recent Troll Solution accident – that involved a drilling rig – in Mexico could be a demand catalyst for Ezion’s drilling rigs in Mexico. We estimate these three drilling rigs contribute about SGD20 million [USD15 million] to Ezion’s annual net profit.”
Otherwise, the charter contracts of five rigs that are due to expire this year are expected to be renewed, as oil companies focus on maintaining current production instead of investing in new oil fields.
In one case, a customer wants to buy the rig. Three of the rig charters will be renewed at the same rate while a fifth rig will be replaced with a bigger unit with an 8-9% increase in charter rates.
Ezion’s soft earnings were due to the absence of contribution from the marine and offshore logistics business in Australia. However, Ezion has maintained ownership of its fleet of over 40 tugs and barges. These vessels are looking for simple jobs, but Ezion intends to dispose of them when opportunities arise.
UOB Kay Hian has cut its 2015 net profit forecast for Ezion by 7% to USD218 million and raised its 2016 and 2017 forecasts by 4% to USD282 million and USD280 million.
This was because of longer-than-expected downtime for some service rigs and lower projected revenue from Australia for the remaining quarters of 2015, as the tug and barge fleet would be doing simple jobs.
Wei and Foo said, “Should there be a contract cancellation and no new contracts for the three drilling rigs in Mexico, our 2016 and 2017 forecasts would be shaved off by 7%.”