KUALA LUMPUR: Oil and gas services provider Kejuruteraan Samudra Timur Bhd may divest part of its land drilling rig services business in an effort to bring the company back into the black.
“We are open to the idea. If anybody can come in and help us secure contracts, we are willing to reduce our shareholding [in this segment] provided they take the driver’s seat in some sort of partnership with us,” said executive director Darmendran Kunaretnam after the company AGM yesterday.
The company’s land drilling rig services segment has been plagued with low revenue contribution and high maintenance costs, with the division’s loss after tax deeping to RM16.15 million in FY11 from a loss of RM12.69 million the year before, according to its annual report.
It contributed to the company’s total net losses, which widened to RM14.81 million for the financial year ended June 30, 2011, from a net loss of RM13.71 million in FY10.
Samudra operates two land rigs in Indonesia, Ikhlas 2 and Ikhlas 3, which are rated 750HP and 1,000HP, according to its latest annual report.
Ikhlas 3 was contracted to service a drilling programme of two exploration wells in East Kalimantan under an exploration project of a local oil corporation in Indonesia. Samudra noted in the annual report that the operation under this contract “went through tremendous challenges during mobilisation of the rig to the well location as a result of undesirable weather and road conditions”.
“It is apparent to any analyst that this segment has been dragging us down, so we want to make sure that the party we are talking to [for the potential divestment] is much better in securing [long-term] contracts [of more than two years] so we can reduce our uncertainty in this area,” said Kuneratnam.
He said there have been interested parties for the majority stake in the segment, which carries RM85.05 million in assets against RM113.42 million in liabilities.
He added that any gain from the divestment would go towards paring down the company’s debt, which is its main priority at this stage.
As at Sept 30, Samudra had net debt of RM88.47 million, some 3.5 times its shareholders funds of RM25.24 million. Its net assets per share stood at 17.6 sen.
“We had earlier identified our borrowing costs, which were as high as RM10 million four years ago, and we have brought this down to about RM6 million. Our immediate target is to further reduce this, it would be good if we could halve the current amount,” Kunaretnam said.
He added that the debt payments have been depleting the company’s operating cash flow, which has become a hindrance for investment.
The company generated RM8.802 million in operating cash flows last year, of which RM5.34 million went towards interest payments.
“If we manage to pare down debt we will have free cash flow, and would be able to look into expanding or [going into] revenue-generating areas,” he said.
The company has been in a loss-making position for the past five years, mainly due to its land drilling rig services segment.
For its 1QFY12 ended Sept 30, the company registered a net profit of RM3,000 compared to a net loss of RM3.05 million in the previous year while revenue more than doubled to RM34.4 million from RM14.6 million. The improved performance was due to better earnings from its tubular handling services segment, which saw profit increase 630% to RM4.9 million from RM0.67 million a year ago on the back of higher work orders.
However, Kunaretnam asserts that the high growth for its tubular handling segment during the quarter was “an exception”.
Profit from its inspection and maintenance services fell to RM0.24 million from RM1.59 million the year before, while its land rig services and pipe threading services segments both recorded losses totalling RM2.59 million. The stock was untraded at 14 sen yesterday. It has lost about a third of its value year-to-date.
This article appeared in The Edge Financial Daily, December 21, 2011.
“We are open to the idea. If anybody can come in and help us secure contracts, we are willing to reduce our shareholding [in this segment] provided they take the driver’s seat in some sort of partnership with us,” said executive director Darmendran Kunaretnam after the company AGM yesterday.
The company’s land drilling rig services segment has been plagued with low revenue contribution and high maintenance costs, with the division’s loss after tax deeping to RM16.15 million in FY11 from a loss of RM12.69 million the year before, according to its annual report.
It contributed to the company’s total net losses, which widened to RM14.81 million for the financial year ended June 30, 2011, from a net loss of RM13.71 million in FY10.
Samudra operates two land rigs in Indonesia, Ikhlas 2 and Ikhlas 3, which are rated 750HP and 1,000HP, according to its latest annual report.
Ikhlas 3 was contracted to service a drilling programme of two exploration wells in East Kalimantan under an exploration project of a local oil corporation in Indonesia. Samudra noted in the annual report that the operation under this contract “went through tremendous challenges during mobilisation of the rig to the well location as a result of undesirable weather and road conditions”.
Kunaretnam: It is apparent to any analyst that this segment has been dragging us down.
“It is apparent to any analyst that this segment has been dragging us down, so we want to make sure that the party we are talking to [for the potential divestment] is much better in securing [long-term] contracts [of more than two years] so we can reduce our uncertainty in this area,” said Kuneratnam.
He said there have been interested parties for the majority stake in the segment, which carries RM85.05 million in assets against RM113.42 million in liabilities.
He added that any gain from the divestment would go towards paring down the company’s debt, which is its main priority at this stage.
As at Sept 30, Samudra had net debt of RM88.47 million, some 3.5 times its shareholders funds of RM25.24 million. Its net assets per share stood at 17.6 sen.
“We had earlier identified our borrowing costs, which were as high as RM10 million four years ago, and we have brought this down to about RM6 million. Our immediate target is to further reduce this, it would be good if we could halve the current amount,” Kunaretnam said.
He added that the debt payments have been depleting the company’s operating cash flow, which has become a hindrance for investment.The company generated RM8.802 million in operating cash flows last year, of which RM5.34 million went towards interest payments.
“If we manage to pare down debt we will have free cash flow, and would be able to look into expanding or [going into] revenue-generating areas,” he said.
The company has been in a loss-making position for the past five years, mainly due to its land drilling rig services segment.
For its 1QFY12 ended Sept 30, the company registered a net profit of RM3,000 compared to a net loss of RM3.05 million in the previous year while revenue more than doubled to RM34.4 million from RM14.6 million. The improved performance was due to better earnings from its tubular handling services segment, which saw profit increase 630% to RM4.9 million from RM0.67 million a year ago on the back of higher work orders.
However, Kunaretnam asserts that the high growth for its tubular handling segment during the quarter was “an exception”.
Profit from its inspection and maintenance services fell to RM0.24 million from RM1.59 million the year before, while its land rig services and pipe threading services segments both recorded losses totalling RM2.59 million. The stock was untraded at 14 sen yesterday. It has lost about a third of its value year-to-date.
This article appeared in The Edge Financial Daily, December 21, 2011.
