Sembmarine back in the black with Q3 net profit of S$2.72m

Singapore

SEMBCORP Marine returned to profitability in the third quarter with a net gain of S$2.72 million, a reversal from a loss of S$21.79 million for a year-ago period despite a tough operating environment in the offshore and marine (O&M) sector.

Earnings per share were 0.13 Singapore cents compared to a loss per share of 1.04 Singapore cents.

Revenue decreased by 64.3 per cent to S$316.88 million for the three months ended Sept 30, 2017, mainly due to lower revenue recognition for rig building and offshore platform projects. Not helping too is a reversal of revenue in Q3 due to termination of two rigs contracts with a customer.

Consequently, gross profit fell by 82.5 per cent to S$304.44 million. But Sembmarine managed to turn in a net profit mainly on the back of sharp declines in share of losses of associates and joint ventures and general and administrative expenses.

With signs pointing to O&M sub-sectors bottoming out as oil prices firmed slightly between US$46 to US$60 per barrel, Sembmarine is putting emphasis on deleveraging and bolstering liquidity as it seeks to ride through a multi-year trough to the next upswing.

It pointed to significant improvement expected in its net gearing and liquidity with the successful monetisation of its rigs inventory.

In early October, the O&M group concluded the sale of six jack-up rigs that were previously commissioned under terminated contracts with certain owners and three others in various stages of construction to Borr Drilling. The deal was pegged at about US$1.3 billion (S$1.77 billion).

Sembmarine acknowledged that the contracts termination and inventory write-downs arising from the sale of these nine jack-ups have contributed to a decline in Q3 gross profit.

But the deal will also see cash coming in from an upfront down-payment of US$500 million Borr Drilling has made, with the balance US$800 million to be paid at any time within five years from the respective delivery dates of the rigs.

As at the end of Q3 however, Sembmarine's cash and cash equivalents were still lower at S$1.06 billion compared to S$1.49 billion a year ago as The Business Times understands the receipt of Borr Drilling's down-payment came after Sept 30.

Sembmarine's president and chief executive, Wong Weng Sun also added that the group's net debt to equity ratio is set to improve to 1.04 times from 1.31 times.

With the Borr Drilling deal under its belt, Sembmarine has also bolstered its new order intake year-to-date to S$2.07 billion.

Its net order book currently stands at S$7.97 billion or S$4.85 billion excluding the Sete Brasil drillships.

Mr Wong maintained that Sembmarine has extended adequate provisions for the contracts tied to the Sete Brasil drillships and a semi-submersible rig placed by North Atlantic Drilling, a unit of Norway's offshore drilling giant Seadrill, which has embarked on debt restructuring.

While Singapore-based industry players may continue to face headwinds, Mr Wong noted that sentiments have improved in the larger O&M sector and the offshore drilling segment with upstream oil and gas investments showing signs of improvement.

Major oil companies are adapting to the lower oil price environment and better positioned to sanction upstream oil and gas projects that feed demand for rigs and other O&M assets, he explained.

In Q3, Sembmarine's subsidiary in Brazil, Estaleiro Jurong Aracruz (EJA) secured a contract worth US$145 million for works on the integration of the P-68 FPSO (floating production, storage and offloading vessel). The O&M group appears also on track to branch out to the adjacent natural gas sub-sector, with a letter of intent now in place to collaborate with US-based SeaOne Caribbean for the design and construction of at least two large compressed gas liquid carriers.

Sembmarine's shares closed at S$1.93, up 1.5 cents.

READ MORE: Oil treads US$60 line to lift O&M stocks