New | Swire Pacific Offshore seeks consolidation given weak oil prices
Singapore-based firm open to acquisition opportunities after oil price rout challenges fragmented logistics and supply sector
Swire Pacific Offshore has revealed its desire to consolidate the offshore oilfield service sector, as challenges engulf the fragmented industry after oil prices sank to a six-year low last year.
The Swire Pacific subsidiary, which owns and operates offshore supply vessels providing logistics support in offshore oil and gas fields, said consolidation was much needed after a period of indulgence caused by oil prices running at more than US$100 a barrel which swelled both the industry's size and costs.
"There may be assets or operating businesses for sale. We would certainly be open and alert to those opportunities that come along. If something becomes available which we think is a good long-term fit, we will be interested," managing director Neil Glenn said.
"We will have the resources to do so, being part of a large group. But we don't have any specific acquisitions in mind now," said Glenn, who has headed the Singapore-based firm since 2011.
The offshore supply vessel sector, accounting for 4 to 5 per cent of total capital expenditure in offshore oil exploration and production, comprises about 1,300 firms competing for jobs in drilling sites around the globe.
A five-year oil price rally that ended last year had seen energy majors increase deepwater exploration, buoying the entire supply chain. The world's offshore supply fleet, as a result, grew by 250 per cent over the last decade.
"The industry needs to make some structural improvements in costs, which requires us to work together in unison rather than look for a unilateral price reduction," said Glenn.
"If the industry is prepared to take a long-term approach, through more standardisation, consolidation and technological improvements, we can start to make significant and lasting changes to the cost structure. That requires more work than reducing the contract price by a certain amount," he said, referring to increasing unilateral price concessions demanded by energy firms since the oil rout.
Swire Pacific Offshore owns 91 vessels specialising in a wide array of services such as drilling platform supply, seismic surveys, wind farm installation and handling anchors for oil rigs. They are deployed in the world's key drilling hubs in the North Sea, West Africa, Asia and the Middle East.
Accounting for 10 per cent of operating profit in Swire Pacific's sprawling portfolio from property to aviation, the offshore arm did not go unscathed in the current downturn. Last year, it recorded a 16 per cent fall in profit to HK$1 billion. Operating costs grew 19 per cent while revenue expanded 15 per cent.
"We have a strong parent company to support us, so we can afford to take a long-term view and continue to concentrate on the things we feel important in difficult times," said Glenn, urging his fellows not to compromise safety amid draconian cost reduction.
"The oil price falling hasn't suddenly made the industry safer, or the work the offshore marine industry does any easier," he said.
"Expectation for safety operation and reliability is just as high today when oil is US$60 [a barrel] as when oil was US$100. The industry is not going to trade reduction in cost for increase in risk, nor accept a lower level of performance."
