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Petronas moots oil and gas trust for OSV sector

Jose Barrock
Jose Barrock • 4 min read
Petronas moots oil and gas trust for OSV sector
In a nutshell, the unitholders of the trust will be shareholders of OSV companies, financial institutions and banks, as well as Permodalan Nasional Bhd (PNB).
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(May 15): As crude oil prices remain under pressure, Malaysia’s national oil company Petroliam Nasional (Petronas) is pushing for a consolidation in the offshore support vessel (OSV) segment.

Interestingly enough, one of the proposals being discussed is a “Proposed Malaysian OSV Private Business Unit Trust Structure” (see chart).

These plans were highlighted in an online industry dialogue late last month with local oil and gas players comprising members of the Malaysia Offshore Support Vessels Association, the Malaysia Offshore Contractors Association and Malaysia Oil and Gas Services Council.

In a presentation deck viewed by The Edge, it was highlighted that the current situation of the OSV industry as “being plagued by depressed charter rates, oversupply leading to increased competition, the sector being fragmented, players facing a liquidity crunch with banks holding on to loans that are stressed with covenant breaches, collateral values underwater, leading to possible defaults even”.

“Consolidation — the only way out?” the deck reads, before going into the private business trust structure.

Petronas says unitholders of the planned business trust “can participate in the profits or income arising from the management of the assets in the business trust through receipt of distributions declared by the trustee manager”.

The plan

In a nutshell, the unitholders of the trust will be shareholders of OSV companies, financial institutions and banks, as well as Permodalan Nasional Bhd (PNB).

While it is named in the chart, it is not clear if government agency PNB has agreed to participate in the proposal.

Apart from Petronas, PNB has the most significant exposure to the oil and gas sector. Based on its annual report, PNB and its related companies have equity interest of 60.18% in Velesto Energy, 38.21% in Sapura Energy, 12.82% in Bumi Armada, 10.11% in Petronas Gas, 8.27% in Petronas Dagangan, 7.9% in Petronas Chemicals Group, almost 6.5% in MISC and 6.36% in Serba Dinamik Holdings, among others.

Some of the companies stand out. They include Bumi Armada, which has 32 OSVs operating in South-east Asia, West Africa, Latin America and the Russian sector of the Caspian Sea, and Sapura Energy, which has a host of assets in countries such as Malaysia, Brazil, Mexico and Australia, as well as the Middle East. These companies’ reaction to the proposed trust is not known.

Another state-controlled entity, Icon Offshore, which is 42.57% controlled by Yayasan Ekuiti Nasional (Ekuinas), has 32 OSVs. Other large OSV players include Alam Maritim Resources, which has 39 vessels, according to its website, and Perdana Petroleum, which has 16 vessels and is 60.48% controlled by Dayang Enterprise Holdings. There are also other large companies such as floating production, storage and offloading (FPSO) player, Yinson Holdings, which has four offshore support vessels that are largely for its own use.

While these asset-owning companies are slated to have units in the trust, a special purpose company (SPC) will be formed to execute the charter contracts under Petronas’ Integrated Logistics Control Tower and will work closely with a trustee or manager that will oversee the financial operations of the trust.

Petronas went on to highlight a proposal to build new OSVs to the tune of RM3.4 billion ($1.1 billion), with charter rates for all vessels to reach RM3.5 million a day or a little above RM1.2 billion a year.

An industry player says there are some local OSV companies that are fronts and are actually owned by Singaporeans. “The plans sound grand, but implementation is another thing.”

He highlights that in early 2017, Velesto, which was then called UMW Oil & Gas Corp, failed to take over Icon Offshore and Orkim.

While no reason was given for the failed merger, sources say it was not clear if the merged entity would be given any exemptions by Petronas in terms of jobs.

To recap, the deal mooted was for Velesto to buy Icon for 50 sen a share, valuing the latter at RM589 million. Shareholders of Icon could also opt for new shares in Velesto, to be issued at 80 sen each. Also on the cards was for Velesto to buy a 95.5% stake in Orkim for about RM470 million in cash.

The only large-scale consolidation that has taken place is Dayang’s takeover of Perdana Petroleum in 2015.

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