| SINGAPORE, April 29
SINGAPORE, April 29 Suppliers of offshore
oilfield services in Singapore, the seat of Southeast Asia's
energy industry, are opening up to mergers and equity buy-ins as
smaller players struggle to find the capital and scale to
compete with the big boys.
Malaysia and Indonesia, the top oil and gas producing
nations in the region, are planning to spend billions of dollars
to unlock virgin reserves trapped in remote deepwater locations
and boost extraction rates at existing but aging fields.
That promises more business for top offshore oilfield
services firms like PACC Offshore Services Holdings Ltd
and Swire Pacific Offshore, a unit of Hong Kong
conglomerate Swire Pacific Ltd. But that does not mean
more business for the smaller players, which have been clubbed
by rising costs and keen competition in an overcrowded market.
People in the industry say the smaller players, which
typically operate 20 to 30 offshore support vessels (OSVs), are
not as cost-efficient as the big boys. And as expenses rise,
they may have no choice but to seek outside capital or lease
their equipment and ships to other operators.
"We have seen a fairly active market, and it will be a
natural progression to see more M&As," said Joachim Skorge, the
Asia head of investment banking at DNB Bank. "What we often see
is when the market is improving, people looking for exit will be
more open to sell."
Drawn by the promising Southeast Asia market, Australia's
Mermaid Marine Australia Ltd bought Jaya Holdings Ltd
for A$550 million ($510.48 million) in February. The
purchase of Jaya, which owns a fleet of 27 OSVs and operates a
shipyard in Batam, Indonesia, was the biggest acquisition in the
region's OSV space in at least a decade.
Singapore-based Ezion Holdings Ltd, which
dominates the region's market for liftboats, bought stakes in a
couple of small companies including AusGroup Ltd and
JK Tech Holdings Ltd . Liftboats are self-propelling
rigs that support offshore energy work such as platform
Ezion is also selling shares to companies under Hong Leong
Group, controlled by Malaysia's third-richest man, Quek Leng
Chan, to expand its fleet.
OSVs carry out different tasks to support offshore oil and
gas exploration and production, from hauling rigs across oceans
and laying pipelines on the seabed to transporting provisions to
PLIGHT OF THE SMALL
The relatively low bar of entry and requirement or
preference to use local service providers by oil and gas
explorers have turned the region into one of the world's most
fragmented OSV markets.
In Southeast Asia, the top five OSV operators account for 23
percent of the market, data from the U.S. research firm IHS
shows. The rest of it is served by many much smaller players.
Their size pales in comparison with the likes of
Singapore-based PACC Offshore Services, which operates 112
vessels. Bourbon SA, the world's top OSV player,
commands a fleet of 458 vessels.
And in times of escalating costs, the smaller players are
the ones feeling the pinch the most.
"Having the right assets is no longer enough," said James
Pang, managing director at Pacific Radiance Ltd, which
together with its joint ventures operates 120 vessels.
Pang said costs are rising due to new safety and environment
regulations as well as increased oversight by oil companies.
Oil companies are demanding safer and more sophisticated
equipment, as well as more inspections and audits, adding to
capital spending and operating costs.
In addition, international conventions regulating anything
from the amount of natural light in crew cabins to how ballast
water ought to be treated means more money being spent, Pang
"You will see a lot of consolidation. We've already seen the
beginning of it," said Alex Yeo, chief executive officer of OSV
operator Swissco Holdings Ltd, which has recently
taken over Scott and English Energy Pte Ltd to expand into the
drilling rig owning and rental business.
Most of the new oil and gas prospects in the region will
come from offshore fields and in deepwater areas. The untapped
resources are set to sustain demand for offshore services in the
coming years - for those who are still around.
"If you look at this part of the world, you see that the
rise in E&P spending is higher than the world at large," Geir
Sjurseth, general manager of the DVB Group Merchant Bank (Asia)
Ltd, told a recent industry conference.
He expects a 7 percent gain in Asia's E&P spending and 4
percent growth globally.
The region has rich natural gas resources. It had proven gas
reserves of 253 trillion cubic feet in 2013, or under 4 percent
of the world's total, data from the U.S. Energy Information
Gas production has more than doubled in the last two
decades, and is expected to climb in the next 20 years, led by a
72-percent jump in Indonesia's output between 2011 to 2035, the
International Energy Agency (IEA) said in a report.
($1 = 1.0774 Australian Dollars)
(Editing by Ryan Woo)