A renewed emphasis on reducing operating costs for oilfields while maximising production is expected to lift the outlook for oil services firms later this year.
Low oil prices, which have been a fixture for more than two years, had slowed spending from oil majors and eased demand to offshore support vessels.
Abu Dhabi-based Gulf Marine Services (GMS) said it anticipated clients returning their focus on production targets.
“We anticipate that most, if not all, of the work lost due to cancellations or the non-renewal of contracts in 2016 will be retendered this year,” said Duncan Anderson, the chief executive of GMS.
The company, which provides offshore vessels for the oil, gas and renewables sectors, reported a 60.8 per cent drop in profit to US$29.4 million last year compared with $75m in 2015. Revenue fell 22 per cent to $179.4m, with utilisation decreasing to 70 per cent from 98 per cent the previous year.
The waning demand was shown in the company’s backlog, which fell by more than half to $209.2m.
“We expected our fleet utilisation and charter rates for [2016] to be affected by the low oil price environment, reflecting some clients’ focus on cost savings rather than production,” said Mr Anderson.
However, business is expected to pick up this year as a result of a revival of markets such as Saudi Arabia.
“We react to the clients’ needs, and we’re seeing an increase in tender activity compared to previous years,” he said.
“The tender activity in Saudi Arabia is the best it’s ever been.”
Saudi Arabia is looking for jackup rigs for brownfield projects or oil assets that are already in production and require maintenance.
“It’s all about getting more oil and making wells more efficient,” said Mr Anderson.
However, he said the UAE market remains depressed as a result of the reorganisation in the national oil company, Adnoc, which has delayed tenders. “Though we know that tenders from the UAE will happen, we don’t have the same amount of optimism as we do for Saudi Arabia,” he said.
The UAE’s Topaz Energy swung to a loss of $2.4m last year as pressure increased in the Mena region, resulting in an overall fleet utilisation of 60 per cent. Revenue dropped more than 21 per cent to $282.1m.
“Our 2016 results are reflective of the prolonged downturn in the energy sector, which is a consequence of an unpredictable oil price and minimal capital expenditure spending by oil companies, which is now at a 10-year low,” said Rene Kofod-Olsen, the chief executive of Topaz.
The company said vessels were changing hands at “highly distressed levels” routinely involving sellers that are facing bankruptcy.
“We expect 2017 also to be challenging, although we anticipate some recovery in the second half of the year in our markets,” said Mr Kofod-Olsen.
lgraves@thenational.ae
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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