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Are Oil & Gas Companies Finally Out of Trouble?

It has been five long years since oil prices witnessed a sharp decline from as high as US$100 per barrel to a nadir of around US$20 per barrel. That sudden and unexpected plunge back in 2014 caused hardship to numerous oil and gas companies, all of which had relied on high oil prices for contracts and decent margins. Those with strong balance sheets could withstand the sharp decline in profits and cash flows, while the smaller ones or ones which took on significant amounts of debt went bust.

With oil prices on the rise and oil hitting US$71 per barrel recently, the question now is whether oil and gas companies have seen the worst of the turbulence. Could there be more upheavals to come? Let’s have a closer look at three companies for clues.

Keppel Corporation Limited

Keppel Corporation Limited (SGX: BN4), or Keppel for short, is a conglomerate with major business segments that include offshore and marine, property, infrastructure, and investment. It is one of two major rig builders in the world, the other being Sembcorp Marine Ltd (SGX: S51).

Looking into Keppel’s latest first quarter 2019 (1Q 2019) presentation slides, its offshore and marine division recognised a net profit of S$6 million compared to a net loss of S$23 million a year ago. Also, the division secured new contracts of about S$1 billion from various clients. The net order book increased slightly from S$4.3 billion as at end-December 2018 to S$4.7 billion as at end-March 2019.

Sembcorp Marine Ltd

Sembcorp Marine Ltd, or Sembcorp for short, is a company with business interests in the marine sector. It has three main business segments; 1) Rigs & floaters 2) Repairs & upgrades and 3) Offshore platforms. Sembcorp is much more exposed to the oil and gas industry, unlike Keppel which is a conglomerate with other divisions such as property.

In its Q1 2019 presentation, Sembcorp mentions that the offshore and marine (O&M) sector continues to improve. Global capital expenditure for offshore exploration and production is improving, especially for the offshore production segment. In addition, offshore drilling activities also saw improvement in day rates (i.e. rates charged for services rendered to oil and gas majors) and utilisation levels for some drilling segments.

Boustead Singapore Limited

Boustead Singapore Limited (SGX: F9D), or Boustead for short, was established in 1828 and is one of the oldest companies in Singapore. The group has four key divisions: energy-related engineering, real estate solutions, geo-spatial technology, and healthcare. Boustead’s CEO Mr Wong Fong Fui has always been known to be candid about prospects for each of the group’s divisions, and the commentary on the oil and gas industry which comes with each earnings release sheds valuable light on how the industry is progressing.

For its 3Q FY 2019 (ended 31 December 2018), Boustead mentioned that there is “gradual but volatile improvement” in the outlook of global oil and gas industries. Client enquiries continue to be under more active review compared to a year ago, and the division’s revenue has also climbed 21% year-on-year for the quarter. In its FY 2019 (ended 31 March 2019) earnings, the division returned to full-year revenue and profit growth despite a “challenging environment”.

The Foolish conclusion

From the above commentaries, we can conclude that oil and gas companies are starting to see light at the end of a long, dark tunnel. There are signs that higher oil prices have indeed translated to better prospects, and that oil majors are slowly but surely spending again. However, it will still take a considerable amount of time before things go back to pre-2014 levels, as the structure of the oil and gas industry has also altered (i.e. with shale oil players stepping in).

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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 Royston Yang owns shares in Boustead Singapore Limited. The Motley Fool Singapore has recommended shares of Boustead Singapore Limited.