DBS Group Holdings Ltd’s Chief Executive Shares His Take on the Oil and Gas Offshore Support Services Sector

Singapore is home to a good number of oil and gas offshore support services companies. These companies include Ezion (SGX: 5ME)Ezra Holdings Limited  (SGX: 5DN)Pacific Radiance Ltd (SGX: T8V)Swiber Holdings Limited (SGX: BGK) and more.

It is no secret that the offshore support services companies have suffered from the decline in oil prices. The problems have spread to these companies’ lenders as well, one of which is Singapore’s largest bank, DBS Group Holdings Ltd (SGX: D05).

In DBS Group’s 2016 third quarter earnings briefing, the bank’s chief executive Piyush Gupta shared his thoughts on the offshore support services sector. DBS Group has been caught up in the troubles at one of its borrowers, Swiber, which had filed for judicial management in July.

One of the things Gupta shared during the earnings briefing was the contagion effect Swiber had:

“There are obviously two or three names which are more directly associated with Swiber through supply chain contacts.

And another few names, which were not directly associated with Swiber, suffering from the tightness in the capital markets, which has come on the back of Swiber. It’s not that easy to raise either equity or debt as a consequence.”

Said another way, the problems at Swiber has had both direct and indirect impacts on its industry peers. For instance, companies that supply directly to Swiber might have trouble collecting payments for their products and services rendered. In another instance, providers of capital – such as banks – have grown more cautious due to the Swiber incident, resulting in scarcer credit for the offshore support services sector.

According to Gupta, offshore support services companies provide services to two main activities: exploration and production. For the former, Gupta said:

“One is those people which do and support exploration activities, so new business drilling, exploration etc. That part of the business is obviously more challenged because, even as oil prices are edging up to $50, the exploration activity has not picked up.

A couple of the majors announced new investments in this quarter, I think Total and BP both announced some stuff, but I think that’s just miniscule. I don’t see that part of the business picking up any time soon.”

At the moment, exploration activity is in the doldrums and Gupta does not expect this situation to improve anytime soon. On the production side, things are looking a lot better. Gupta said:

“The other part of the business is the people who support production of existing oil. These are support services for production facilities, and their job is to move the equipment up and down, to ferry people up and down, to provide [an ability] for people to go and stay at the existing ships and the existing well sites.

That part of the business is obviously holding out a lot better because people aren’t shutting down the wells. The wells are still in production. In fact, in some cases, because people are trying to extend their oil [base], there’s actually more servicing required than less servicing required.”

In short, production activity has been chugging along as oil is still needed. However, exploration activity might take a while to return to form.

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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.