Wintermar suffers loss amid oil, gas industry downturn

By Ruli Setiawan

IDX-listed PT Wintermar Offshore Marine Tbk, which is engaged in providing offshore supporting transportation services for oil and gas firms, turned to red last year due to the oil and gas industry slowdown.

The company said in a statement Wednesday that it made a net loss attributable to shareholders of US$5.7 million last year, compared to a net profit of $21.7 million last year.

?Oil and gas companies aggressively cut capital expenditure on exploration and demanded to renegotiate existing contracts for lower charter rates, which impacted our utilization rates and margins, especially in the third quarter of 2015,? Wintermar said in the statement.

The company provided the following explanations about its performance last year.

Our high tier vessels which are geared towards exploration and development were hit harder than the mid and low tier vessels, which mainly support the production phase of the oil industry. This resulted in a sharper fall in revenue from high tier vessels where utilization dipped to 50 percent in the second half compared to 80 percent the previous year.

In the Owned Vessel segment, revenue fell 41 percent to $65.9 million, largely because of the lower utilization rate of 57 percent in 2015 compared to 73 percent in 2014.

However, there was a slight improvement in revenue in 4Q2015 compared to the previous quarter as some activity returned in Indonesia, especially for some development projects which had been postponed for over 12 months.

Revenues from the Chartering Division were similarly affected by the downturn, falling by half to $27.1 million in 2015 compared to the previous year, while gross margins from Chartering were only marginally lower.

Management took action to reduce cash costs through warm stacking to reduce crew and fuel costs, which resulted in an 18 percent YOY (year-on-year) fall in crew costs and 14 percent YOY fall in other operating costs. However because of higher depreciation arising from the delivery of a new vessel during the year, total direct expenses fell only 7 percent, resulting in lower gross margins of 13.8 percent compared to 45.1 percent a year ago.

Total direct expenses fell 27 percent to $87.1 million in FY2015 as compared to the preceding year.

Gross Profit was $12.8 million for FY2015, compared to $58 million the previous year.

Tighter cost controls resulted in a 23 percent fall in indirect expenses, and operating profit was $2.9 million for the full year of 2015, compared to $45.2 million in FY2014.

Despite taking on new debt for the acquisition of a new vessel, total Interest expenses fell by 20 percent YOY to $9.4 million for FY2015, largely because of debt repayment. There was a slight loss of $173,000 from the sale of vessels, however, equity in the net earnings of associates saw a sharp recovery from $500,000 in FY2014 to $1.6 million in FY2015.

After the impairment charge for long outstanding doubtful debts and asset values, the Company made a net loss attributable to Shareholders of $5.7 million, with EBITDA for the full year reaching $30.7 million.

The lower volume of business, in particular for the chartering division, resulted in reduced account receivables and payables.

In view of the uncertain outlook for the industry in 2016, and the likelihood of a longer period of low oil prices, the management thought it prudent to make a provision for doubtful debts of $2.5 million, mainly receivables from a PSC customer that has closed operations in Indonesia.

During the year we sold three older vessels and added one new unit of 6000BHP AHTS. We also made a provision for asset impairment of $1.1 million in our fleet, thus total assets declined to $446 million at year end 2015 compared to $501 million last year.

Net of impairment and reclassification the carrying cost of our fleet as at end 2015 was $361 million.

Net gearing fell to 57 percent as loan repayments exceeded the loan disbursed for the new vessel. Total bank debt at year end was $120 million.

Although 2016 started with a sharp decline in oil prices, the recent discussions amongst major oil producers Saudi Arabia, Russia and Iran seem to indicate that a production freeze is likely. This has injected some stability in market sentiment and at the time of writing, oil prices have rebounded off their lows. However, world oil inventories are still high and expectations for continuing weakness in global growth for 2016 point to a lack of stimulus for a sustained recovery in oil prices in the near term.

Looking further into the future, there are some positive signs. US oil production has been declining steadily, and the cost of oil services has been reduced by approximately half since the peak, thereby reducing the cost of oil production. The severe cuts in capital expenditure have affected future oil production capacity. Should demand pick up next year, there could well be a robust oil price recovery. The US Energy Information Administration (EIA) has projected demand and supply equilibrium in mid 2017. (see below chart).

In Indonesia, some projects have started in 2016 which had been held back for the past year. Although price competition has driven down charter rates, our higher value vessels have seen better utilization since the end of last year.

The sharp and sudden downturn in the industry in the past year has led to a sharper focus on efficiency and cost monitoring. The silver lining in this experience has been the improvement in controls and renewed commitment from management as well as staff and crew to work together to improve quality and effectiveness.

On the marketing front we have been successful in gaining more visibility in South and South East Asia and will continue to expand our international network to secure higher utilization for our higher value vessels.

We are optimistic that the recent activity in our domestic market will pick up as oil prices stabilize. The government is targeting an improvement in oil lifting which will be contributed by the commencement of several development projects in Indonesia which expect to start production in the coming few years.

With the increase in activity, our order books have also picked up. Contracts on hand as at March 2016 amounted to $170 million.

Editing by Reiner Simanjuntak