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By Siti Radziah Hamzah
KUALA LUMPUR, March 22 (Bernama) -- The oil and gas services and equipment (OGSE) industry recorded a significantly lower total industry revenue of RM56.2 billion in 2020 (FY2020) from RM65.1 billion in 2019 as the overall oil and gas industry was badly hit by low oil prices and COVID-19.
The Malaysia Petroleum Resources Corporation (MPRC) said the total revenue recorded in 2020 was contributed by 1,328 OGSE companies, which registered a pre-tax loss of RM4.3 billion during the year with an average loss of margin by 9.2 per cent.
It also noted that the contributing factor of lower revenue includes recognition of impairments by asset heavy players, namely Sapura Energy at RM3.2 billion, followed by Velesto Bhd (RM461.7 million), Bumi Armada Bhd (RM357.3 million), and MISC Bhd (331.8 million).
In contrast, Yinson and Dialog were in the black, with double digit pre-tax profit margins of 13.1 per cent and 32.4 per cent, respectively.
MPRC head of corporate strategy and research Ilham Sunhaji said to navigate an uncertain future, the OGSE industry has reduced asset ownership and diversified into less asset-intensive sectors.
As for the financial year 2020, total financial assets (TFA) for top 100 OGSE players stood at RM100.7 billion against RM109.9 billion in the previous financial year compared to industry's TFA at RM103.1 billion versus RM112.7 billion a year earlier.
"This is their strategy to survive," she told Bernama and Harian Metro in an interview recently following the release of the latest MPRC's publication on OGSE100 for FY2020.
Overall, the industry also recorded a lower compounded annual growth rate at 4.69 per cent per year from 2017 to 2020.
A Rebound in Financial Performance
However, MPRC does not anticipate the OGSE industry to rebound this year despite global crude oil prices breaching US$100 per barrel.
MPRC vice president for special projects Ezwan Zakaria said the increase in crude oil prices would result in increased operating cost but it might not result in a growth in revenue.
"They may not enjoy the same benefit like what Petronas enjoys. The nature of oil and gas business is that most of the contracts by the OGSE service providers are usually over a few years. For OGSE suppliers, their contracts were signed up a few years back when the oil prices were quite low.
"During that time, there were joint initiatives with Petronas and OGSE players to manage the cost. Their revenue derived purely from the service and also the equipment they provided at that price. Even though oil prices have increased so much, chances are their rate has not moved in tandem with the prices,” he added.
Dependency on Petronas Capex
The weaker OGSE industry performance for the year was also contributed by lower allocation of capital expenditure (capex) by Petroliam Nasional Bhd (Petronas) from 2015, weighed down by several factors, including lower global oil prices.
"From there we see a turning point for the industry. That is when spending was significantly cut and the industry relies heavily on Petronas' capex spend. Because of the reduction that has been done partly due to oil price, it resulted in a lost opportunity to the market," said Ezwan.
Prior to 2015, the OGSE market had been quite healthy with a lot of investments and asset building, which later on resulted in overall impact to the industry in the last few years.
In 2020, Petronas recorded RM15.9 billion total global capex, whereby RM5.4 billion was allocated to international portfolio investments in key countries, including Canada and Iraq, while domestic capex spend stood at RM17.5 billion from RM24.7 billion in the previous year.
OGSE Sustainability Reporting
Despite the pandemic, the local OGSE players showed significant improvement in disclosing their progress in terms of sustainability for FY2020.
MPRC reported that 39 per cent of its top 100 OGSE has reported sustainability practices, comprising 25 per cent public listed companies and 14 per cent non-listed companies.
"We are planning to embark on the OGSE sustainability plans this year, whereby we want to discuss with the industry and stakeholders on the challenges on adopting sustainability practice and what the plans will be moving forward," said Ilham.
President and chief executive officer Mohd Yazid Jaafar said the OGSE players must adopt sustainability practices to ensure their survival.
"The whole world now is adopting sustainability standards, and the space where you get your support is getting less and less. Sustainability has become part of business, and it has become a necessity for you to have safety, health and environmental standards,” he added.
Sustainability is part of the 10-year National OGSE Industry Blueprint. The blueprint was launched in 2021 and underlined several goals for the OGSE industry in terms of export value, technological developments, as well as the threshold for diversification into adjacent sectors such as renewable energy.
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