Topaz Energy and Marine profit hit by fall in offshore demand

The slowing of oil drilling activity has a domino effect on oil services companies.

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Topaz Energy and Marine swung to a loss in the third quarter as a result of a weak market and increased competition for offshore vessels.

The UAE oil services company reported a net loss of US$5 million in the three months to September, compared with the $9m profit in the year-earlier period.

“As the offshore support vessels sector challenges continue relentlessly, market recovery remains unpredictable,” said Rene Kofod-Olsen, the chief executive of Topaz.

Revenue for the quarter fell by 32.6 per cent to $66.6m from $98.8m, owing to increased market pressure on rates and vessel contracts in the Middle East and Africa. The company said that for the first nine months, vessel utilisation rate for the Mena region fell below 60 per cent compared with the average of 85 per cent in previous years.

Earnings before interest, tax, depreciation and amortisation (ebitda) for the three months dropped by nearly 30 per cent to $34.4m from $48.7m.

While the cyclical oil industry has seen booms and busts, this is the first time in two decades that the price of Brent crude, the international benchmark, has been consistently low. Prices have been ranging between $40 and $50 for over two years, hurting the industry as a whole with a specific focus on the more expensive deepwater drilling.

The slowing of oil drilling activity has a domino effect on oil services companies, such as ­Topaz, that provide offshore support vessels.

The consultancy McKinsey & Company said oil drilling activity could resume levels from two summers ago in the next five years if the price of crude oil recovers to $60 to $70 per barrel. But even if the price rebounds, spending in upstream markets will remain 20 per cent below 2014 levels.

Capital expenditures in global oil production hit an all-time high of $520 billion before the oil price crash. Since then, spending has declined by more than 60 per cent to an estimated $200bn this year, the consultancy said.

Topaz has been hit with charter rates falling sharply despite the oil price recently levelling off in the $45 to $50-per-barrel range. “Recent production cut initiatives between Opec members is the only positive development,” Mr Kofod-Olsen said.

The oil cartel has been signalling production quotas but there has been uncertainty over the willingness of players such as Russia and Iraq to agree. The group will meet in Vienna at the end of the month to finalise a plan.

Mr Kofod-Olsen said, “While we remain hopeful that the level of activity may gradually increase throughout next year, we remain prudent and conservative in managing cash flows, operations and costs to ensure our sustainability and competitiveness in this difficult environment.”

Topaz is a subsidiary of Muscat-listed Renaissance Services. Renaissance shares closed 0.4 per cent higher at 221 Omani baisa [1,000 baisa = 1 Omani rial].

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