Oversea-Chinese Bank Corporation Limited’s Chief Executive: “We Cannot Say that this is the Bottom of the Oil and Gas Sector Yet”

The mess at Swiber Holdings Limited (SGX: BGK) has investors questioning whether it would spread to the rest of the support services industry.

Trouble in the oil and gas industry could mean that Singapore’s banks will have to deal with customers who are not able to repay the loan and the accrued interest. This has been a hot topic during recent earnings briefings, including one at Oversea-Chinese Bank Corporation Limited (SGX: O39).

OCBC’s chief executive Samuel Tsien was asked to comment on the Swiber episode and to give his take on the state of the industry. Tsien gave an overview of where OCBC fits into the picture:  

“… our customers are basically the capital equipment owners. They have to deploy the capital equipment to the charterers. And the charterers come in to them for rescheduling.”

All is not well at the charterer level though, as Tsien noted:

“Although the oil price has risen from its lowest level of below US$30 [per barrel] to currently between US$40 to US$50, some of the charterers of these vessels, I think, are still under some pressure.”

“And therefore, they are still coming in to our customers to request for some rescheduling.”

Oil and gas giant Keppel Corporation Limited (SGX: BN4) had recently warned of a “ long and harsh ” winter ahead. Keppel Corporation chief Loh Chin Hua said that higher oil prices will not immediately bring an upturn in Keppel Corporation’s fortunes.

This seems to gel with OCBC’s opinion.

Are we there yet?

Tsien felt that the bottom of the oil and gas market has not arrived yet:

“My feeling is that we cannot say that this is the bottom of the oil and gas sector yet. I believe that it will have at least two more quarters to go before we have some certainty on what is going to be the stance of charterers.”

If Tsien’s prediction is right, then things could get worst before it gets better. Furthermore, there are additional risks to consider. Tsien noted that there was an emerging trend that might put more risks on its customers:

“There is a new phenomenon that recently arose. Some of the charterers also said that they would like to have the charter rates to be pegged to the oil price movements, which essentially passes the market price risk to our customers.”

“So, that’s something new.”

“But on the other hand, in the event that the oil price moved up on a more consistent basis, our charterers may also be able to get more charter hired as a result of that.”

“So, that’s not unreasonable. But the issue and difference is that the market price risk is now moved to the capital equipment owner, rather than retained at the charterer level.”

As investors, we should note that the above is one opinion of many in the market. We may want to listen to the multiple viewpoints to make up our own minds.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.