JAKARTA — Wintermar Offshore Marine (IDX:WINS) has reported 9M2017 financial results. Gross profit at WINS reverts to positive at US$1.56million for 3Q2017 on the back of higher quarterly revenue of US$14.7million and fleet utilization of 58% for the quarter compared to 56% in 3Q2016.
A sustained rise in fleet utilization for the third quarter 2017 boosted revenue for 3Q2017, which grew 12% QoQ to US$15.3million. Gross Profit returned to the black in 3Q2017, making YTD gross profit of US$0.5million for the first 9 months of the year. Revenue for the nine months ended 30 September 2017 was US$44million. The upturn in 3Q2017 was contributed by drilling projects in Indonesia and Papua New Guinea.
Activity has improved gradually over the course of the year, particularly in the mid and higher tier vessel segments which are involved in some deeper water development and production areas.
Owned Vessels and Chartering
The second and third quarter saw the commencement of a seismic project and other engineering work in Eastern Indonesia. Through intensified marketing efforts we signed on new clients supporting work in niche markets like seismic, cable laying diving and ROV (Remote Operated Vehicle) services which led to a steady increase in utilization of our mid and high tier vessels. We also started new projects in Papua New Guinea and Micronesia. Low tier vessel utilization fell in line with our aim to sell the lower tier vessels.
Revenue has risen steadily each quarter so far for 2017, indicating the worst may be over. However, total Owned Vessel revenue for the first 9 months of 2017 was still down by 28% to US$ 33.8million compared to US$47.2million in the same period in 2016.
Direct expenses for Owned Vessels was down by 7% for 9M2017 compared to 9M2016, as higher maintenance and operations costs related to preparing vessels for new contracts offset the lower crew and fuel costs.
As our vessels start to take on more work, we expect to be incurring higher direct expenses as vessels which were idle are now working with a full crew, and various certifications of equipment and sea trials have to be undertaken to fulfill our clients’ pre-operations requirements.
On a Quarter on Quarter basis however, Direct Expenses for 3Q2017 were still slightly lower than the previous quarter which incorporated Ramadan bonuses that were paid in June.
The Owned Vessels Division recorded a Gross Loss of US$ 0.8million for 9M2017 compared to a Gross Profit of US$10.2million in 9M2016, but it was an improvement compared to a gross loss of US$2.2million recorded for the first half of 2017.
Chartering revenue continued to fall, with only US$7.3million revenue and US$765,000 profit from this division for 9M2017, compared to a gross profit of US$2.4million in 9M2016, although margins remained steady. We are hopeful that a continued recovery in utilization will eventually also benefit our chartering business.
Total Gross Profit
For the 9 months of 2017, the total gross profit was US$0.51million compared to US$13.5million in 9M2016. However, the quarterly trend has shown steady improvement in profitability in 3Q2017.
Indirect Expenses and Operating Loss
Total indirect expenses fell by 14% YoY to US$5.4million for 9M2017, with the largest reduction recorded in staff costs which fell 23% YoY to US$3.2million for 9M2017, contributed to by a selective hiring policy and management reduction in the number of senior and expatriate personnel. Marketing expenses also fell by 40% to US$246,000.
Other Income and Expenses
Total other expenses for 9M2017 fell to US$7.5million compared to US$21.2million in expenses for the same period last year, largely owing to the absence of any large asset impairment in 2017 compared to impairment of US$13.2million undertaken last year in 3Q2016. Earnings from associates remained negative with a loss of US$0.7million for 9M2017 compared to a gain of US$0.6million in 9M2016 as our associate companies were also affected by the poor industry fundamentals.
EBITDA, Interest Expenses and Debt
EBITDA jumped by 64% in 3Q2017 to US$ 6.6million compared to US$4.4million in 2Q2017. For the nine months ended 30th September 2017, EBITDA totaled US$15.5million.
Interest costs fell 11% to US$5.8million for the first nine months of 2017 compared to the same period last year, as we continued to pay down our debt. Our net gearing remains conservative at 49%.
Net Loss Attributable to Shareholders
There was a sharp improvement in the quarterly trend as Net loss attributable to Shareholders for 3Q2017 narrowed to US$1million compared to US$4.7million for 2Q2016.
For 9M2017, total net loss attributable to shareholders was US$9.7million, a YoY drop of 29% compared to the net loss of US$7.5million attributable to shareholders in 9M2016.
Industry Outlook
OPEC’s high rate of compliance to the planned production cuts in oil so far this year has provided strong underlying support for oil prices, and world oil inventories have been coming down. The EIA forecasts growth in world petroleum demand by 30% up to 2040. Despite the threat of shale oil production, the significant cuts in upstream spending that have characterized the oil and gas industry in the past three years will limit the extent of supply increases in the coming years. Therefore there is a growing consensus that oil prices are likely to trend upwards again in the not too distant future.
The International Energy Agency has predicted that South East Asia alone will see a 40% jump in oil demand from 4.7million bpd now to 6.6million bpd in 2040 as a result of rising vehicle and petrochemical demand. Oil production from the region however, is declining as a result of mature fields in Indonesia and Malaysia and the low replacement rate of reserves owing to capex cuts in the past few years.
With global oil demand and supply looking to be more balanced in the EIA’s global projections for oil as seen in the chart above, added to the reduction of inventories over the past three years, there is reason to be more optimistic on the industry prospects.
In the offshore support vessel (OSV) industry, there has been an increase in vessel transactions as a result of forced mortgagee sales and increased scrapping of vessels. This has caused a temporary dislocation in vessel values. The upside is that there have also been new investors willing to buy into restructured companies and pick up assets at bargain values as weaker companies go into liquidation. This will remove some of the oversupply in the OSV market and pave the way for a gradual recovery.
Offshore Oil Activity is Returning
In Indonesia, the news has been more positive in recent months. Pertamina announced their plan to drill 70 development wells and 14 exploration wells in 2018 representing a huge improvement over the 40 wells drilled so far in 2017.
Government regulations have also been conducive to the oil industry, with certain tax incentives and investment credits for upstream operations aimed at attracting new investment into developing future oil production.
The Indonesian Government’s proposal to ink a new agreement with Inpex granting an extension of 20 years from 2028 plus an additional 7 years as compensation for changing the original planned offshore facility to an onshore one demonstrates the government’s commitment to attract more foreign investment into the sector.
Although it is too early to see the impact of these measures this year, they will certainly underpin the domestic oil industry for several years to come.
Strategy
With more vessels in active operation, the focus is now to ensure smooth delivery of services to clients and smooth mobilization of vessels. We will maximize utilization through more intensive domestic and international marketing efforts. While we streamline our fleet, we will continue to emphasize on safety and quality through the implementation of our internal integrated safety program and regular management visits.
The coming months will likely bring more visibility to the market as more drilling programs are expected to be announced for commencement in 2018.
Total contracts on hand as at September 2017 were US$89million.