The USD 4 billion merger of 2 of Malaysia’s larger oil and gas firms, Kencana and SapuraCrest, sent a clear message to their local rivals: size matters.
Small oil and gas services companies dot the Malaysian market and analysts think it makes strategic sense if firms join hands to add value to their portfolio.
Mr Jason Yap Wah Ming analyst of OSK analyst said that “Everyone these days wants to be a one stop solution provider. As state owned oil giant Petronas starts calling for bids to develop its oil assets, there will be more M&A deals in one to 3 years.
Likely beneficiaries will be those companies that offer under one roof a myriad of services such as maintenance, fabrication operations and marine vessel charter.
In the case of Kencana and SapuraCrest’s merger, a natural fit was found with Kencana’s vessel fabrication expertise and Sapuracrest’s installation capabilities. Given the current landscape of the industry, likely buyers include Petronas’ engineering arm Malaysia Marine, which has cash and cash equivalents of MYR 2 billion. Already, Malaysia Marine has shown its hand and bought conglomerate Sime Darby’s deepwater fabrication yard in Ramunia for MYR 695 million.
Analysts said that but as Petronas’ main engineering arm, Malaysia Marine wants to further bulk up in anticipation of more contracts under the new Petronas spending plan. Another possible buyer is integrated service provider Dayang which is valued at MYR 1 billion.
According to an oil and gas analyst at TA Research, it already has diverse set of services and could benefit from scaling up to take on bigger projects. It could also become a target itself for the same reason.
Mr Yap said that smaller companies may have expertise in certain segments but do not have capital, so the bigger ones may not mind absorbing them. There may also be mergers among companies in the same subsector to kill competition. Offshore support vessel firms such as MISC, Alam Maritim and Perdana Petroleum have been cannibalizing each other’s charter rates in an overly crowded space and analysts have long maintained that they would benefit from consolidation to improve their margins.
There is already increasing market chatter that companies are eyeing each other. Malaysian financial daily The Edge reported last week that Perdana Petroleum may sell its 30% stake in Petra Energy, a maintenance provider.
The Malaysian government has already made sector consolidation a key agenda in its 10 year plan of economic rejuvenation and its control of Petronas can help reshape the industry. The plan has two targets to boost supplies of local oil and gas, but more importantly, to establish Malaysia as a key oilfield services hub to boost foreign investment and to raise national income levels.
Despite the impetus for change, mergers and acquisitions between smaller Malaysian oil and gas companies may be easier said than done. A banker involved with the Kencana and SapuraCrest merger said pitching ideas to smaller companies has been difficult because they are wedded to the status quo. They’ve been working under the old regime for so long that unless they change their mindset, they aren’t going to be realistic about valuations.
Mr Sofiyan Yahya president of the Malaysian Oil and Gas Services Council agrees and said that the government and Petronas will have to drive the consolidation process. The environment must be there to receive the new way of doing business. If you don’t broaden the road, why would I want to drive a bigger car?
(Sourced from www.thenews.com.pk)
