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Why Singapore needs to save its offshore O&G services industry

S'pore is well-placed to envision a more tech-driven future for the industry, currently mired in inefficiencies.

Unless there is a paradigm shift in approach, most companies in the offshore O&G sector will be working and struggling just to repay interest and principal for the next 15 years - if not longer.

THE offshore oil & gas (O&G) industry took root in Singapore in the early Eighties. Initially, the industry was limited to providing supplies and services to vessels operating in nearby Indonesia and Malaysia, which were the first O&G exploration hubs in the region. As exploration and production in South-east Asia began to expand, Singapore saw the burgeoning opportunity of servicing this industry.

As the eco-system took shape, the business-friendly policies, the increasingly valued cachet of Singapore-based companies and the talent-friendly environment made Singapore the natural destination for a wide and diverse range of services and asset companies seeking to make a mark in South-east and South Asia.


Between 2002 and 2014, the sector celebrated an unprecedented industry up-cycle. Thousands of jobs were created, hundreds of vessels and rigs ordered and built, dozens of IPOs were launched, many fortunes were made. Singapore was well on its way to becoming the offshore hub of Asia, on a par with Oslo in Europe and Houston in North America. Companies such as Emas, Ezion, Miclyn Offshore, Otto Marine, Pacific Radiance, Swiber and Swissco thrived, becoming the darlings of banks and stock markets.

Untrammelled growth led to unintended consequences. Many family-owned companies started ordering vessels without restraint, mostly with borrowed money and little thought to long-term sustainability. Shipyards - especially in China - began building hundreds of hulls at attractive prices and terms. Banks and financial institutions lent money though exotic structures and at increasingly onerous costs. Owners, banks and regulators focused on asset growth - tonnage registered in Singapore, oblivious to the cyclical nature of the industry. Precious little thought was given to or investment made in people, processes or technologies. Many family promoters ignored the need for professional management, and valued loyalty more than competence.

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In 2014, within a space of six months, oil prices dropped from US$110 per barrel to under US$50 per barrel. The first expense to be slashed by global oil majors and national oil companies was to cut offshore drilling activities to conserve cash. Simultaneously, they reduced/delayed charter payments to supply vessels. The industry was suddenly faced with over-capacity and stretched balance sheets.

Since then, there has been little respite for this industry. Oil prices dropped further, and reached the nightmarish level of US$27 per barrel in Q1 2016. More contracts were cancelled, more charter rates slashed, more assets retrenched from the oilfields to languish in droves alongside already crowded quays. Revenue has been unable to cover costs. Principal and interest repayments stopped. Thousands of employees have been retrenched. Vendors were left with unpaid bills.

Sadly, SGX stalwarts such as Swiber and Swissco have fallen by the wayside. Other previously unshakeable titans have begun crumbling. Emas has applied for Chapter 11 protection in the US. Ezion went through a long and tortuous restructuring discussion with its banks. Otto has applied for judicial management. Miclyn Express Offshore defaulted on their bond coupons. Nam Cheong entered into a scheme of arrangement with its creditors.

The struggle to survive

Today, the industry in Singapore is in disarray. Globally, while oil prices have recovered and are now hovering around the US$70-75 per barrel mark, there continues to be distrust in the stability of oil prices.

The supply overhang is still overly large, reckoned at 1,400-1,500 vessels standing idle, warm- or cold-stacked. The continued prospect of increasing shale oil production at steadily diminishing costs hangs over the offshore O&G industry exacerbating the gloom.

Besides the barrage of external forces that have beset it, the offshore sector in Singapore also suffers from a myriad internal weaknesses.

It is a fragmented industry consisting mostly of small, sub-optimal players. It is laden with debt. Most companies' equity has been eroded to non-existent, and debt. And Ebitda ratios range in the mid-teens and more.

Most companies' operations are limited to one to two markets, with overdependence on a few clients and a lack of knowledge/expertise or scale to go beyond. Most companies suffer from a narrow vertical focus, leading to them being small cogs in a large, inexorable machine. The focus is on assets rather than on service, which is what the clients seek.

Other than in a few isolated cases, there is little investment in people, systems and technology (partially an outcome of fragmentation).

Today, the six largest companies in Singapore owe more than US$3.5 billion in loans and bonds, with a potential (in the current market) to deliver an Ebitda of US$200 million at best. This means a pay-back period of more than 20 years, coupled with the inability to renew, replace or expand these businesses, leading to steadily depreciating assets with a limited future.

Unless there is a paradigm shift in approach, most companies in this sector will be working and struggling just to repay interest and principal for the next 15 years, if not longer.

This will hurt Singapore, impacting its position as an offshore hub, and have adverse effects on GDP and employment in an industry it chose to incubate a few decades ago.

A new offshore industry is taking shape which needs support.

The industry is now at the cusp of a groundswell of technological change. Robotics, machine learning, autonomous vessels, AI, sensor technology will disrupt and transform this industry over the next five to 10 years.

Additionally, we need to build value-added allied services - a Singaporean classification society, a Singaporean P&I Club, a specialised Singaporean maritime & offshore bank, a Singaporean technology valley that would drive the next generation of semi-autonomous vessels, engines, propulsion systems, rules and standards.


Today, Singapore is well-placed to grasp these opportunities and build on them, but with a focus on the very different technological future that is in store, thus staking its claim to be a global pioneer in designing and developing the new frameworks that will guide the future of the industry.

Hydrocarbon energy still supplies 81 per cent of the world's needs. Oil prices have started climbing gradually, and have been stable above US$60 per barrel over the past six months. As a country, as a fraternity, we need to find solutions to the internal issues that plague the domain.

We need to de-fragment, restructure, and develop a financial and technological eco-system that will give Singapore an unbeatable edge in the coming decades. South-east Asia and South Asia will remain energy-hungry and offshore oil exploration and development will continue.

We believe that the time is ripe for a willing and capable equity investor, with encouragement from the premier financial and regulatory institutions of Singapore, to play a critical role in consolidating in Singapore. This investor should help create a right-sized, appropriately priced, optimally structured global group with low leverage that will create a global leader of scale anchored in Singapore - one strong, robust, technologically advanced platform.

It will be a services-focused organisation - rather than asset focused as it is currently - that will offer a wide range of solutions to global clients, and one large enough to engage with IOCs and NOCs on equal footing.

That is the industry - rising from the ashes of the old one - that Singapore should be keen to support as it will attract IP, high-value jobs and investments to our nation.

  • Girija Pande is chairman, Apex Avalon Consulting Singapore, and was previously President, Tata Consultancy Services for Asia. Venkatraman Sheshashayee is former CEO and executive director of Miclyn Express Offshore & Jaya Holdings.

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