Sembcorp Marine Ltd’s Take on the State of the Oil and Gas Sector Now

Sembcorp Marine Ltd (SGX: S51), one of the largest oil rig builders in the world, released its 2017 third quarter earnings yesterday. The company posted a net profit of S$2.7 million for the quarter, reversing a loss of S$21.8 million suffered during the same period last year.

In Sembcorp Marine’s results briefing, its chief executive officer, Wong Weng Sun, gave a macro update on the state of the oil and gas sector. Let’s take a look at what he said to understand where the oil and gas sector stands today.

Improving business confidence

Wong started the results briefing by saying that he feels that overall business confidence has increased together with an improved outlook. He mentioned:

“The global economy maintained good momentum in the third quarter of 2017 with sustained growth in industrial production, consumer spending and investment. Business confidence has improved in tandem with the rising optimism in outlook.”

Increasing investment activities

Brent crude oil, which was selling at over US$100 per barrel in 2014, plunged to less than US$40 per barrel in late 2015 and early 2016. It is now at around US$60 per barrel. Oil prices have recovered from where they were early last year.

The higher oil prices have helped to prop up upstream oil and gas investment activities. Wong said:

“Oil prices have firmed slightly along its one-year price range of between US$46 to US$60 per barrel. With this encouraging trend, upstream oil and gas investment activities have started to show signs of improvement, with major oil companies adapting to the lower oil price environment and better positioned to proceed with final investment decisions.”

Oil majors taking the bold first few steps should give much-needed confidence to smaller players to forge ahead as well.

Improving day rates and utilisation levels

Wong was upbeat this quarter about the growing day rates and utilisation levels of drilling rigs. He said:

“Day rates and utilisation levels for offshore drilling rigs have improved, with the higher specification and harsh environment units leading the uptick. Recent mergers and acquisitions amongst drilling companies, coupled with increasing secondary rigs sales are signs of an initial recovery in the drilling segment.”

This is a welcome change. In the second quarter of this year, Wong was less sanguine, stating:

“While offshore day rates for drilling rigs appear to have stabilized and utilization levels have begun to improve, a more robust recovery will take longer”.

The Foolish takeaway

To be sure, a quarter does not make a trend. It is encouraging to see an improvement in the oil and gas sector. However, it is still too early to tell if we are seeing light at the end of a long and dark tunnel.

We have to check back again in the next few quarters to see if the recovery in the oil and gas sector has been steady.

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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 Sudhan P doesn’t own shares in any companies mentioned.