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Ezion Capitalises On Liftboat Niche To Emerge As Dominant Offshore Support Services Provider

Contributed by Shares Investment

By Clement Kan

Following a corporate restucturing in March 2007 and the decision to foray into offshore marine logistics and support services, Ezion Holdings Limited (Ezion) was exposed to many opportunities in the global offshore oil and gas industry. Since then, the company had embarked on this phase of growth in stupendous fashion.

For the period FY07 to FY10, the company saw its revenue and net profit grew at a remarkable compound annual growth rate of 123.7% and 134.7% respectively. The release of its quarterly results on 12 May saw no deviation from its profitability run as its performance surpassed general consensus.

For 1Q11, Ezion’s revenue gained 17.7% year-on-year to US$21.5 million while its net profit increased more than 300% to a record US$22.5 million. Much of the impetus came from a net gain of US$11.1 million from the sale of a liftboat and an improvement in gross profit margin of 15.3% points to 56.5%. Contributing to the better performance also were the chartering of its multi-purpose self-propelled jack-up rigs (liftboats) as well as the deployment of vessels to its joint venture firm in Australia in support of the Gorgon gas field.

Building On Strong Foundation

For the past few years after the corporate restructuring, Ezion had been undertaking fund raising exercises through private placements and issuance of preference shares. “Along with the shareholders’ understanding, we were able to plough back the bulk of our profit, allowing us to tap on internal sources to take advantage of the market opportunities. These activities served as a solid foundation for Ezion to ensure operating momentum, particularly pertinent in this capital-intensive line of business,” remarked Chew Thiam Keng, CEO of Ezion, during an interview with Shares Investment (Singapore).

Lauded as the owner of a fleet of the world’s largest liftboats, Ezion was one of the first to promote its usage in Asia and Middle East to oil majors and the company’s first unit of liftboat is currently supporting ExxonMobil. These liftboats perform, among other things, maintenance services and upgrading of offshore production platforms.

Ezion has to-date announced seven contracts pertaining to such charters, inclusive of the latest project in Alaska.

Currently, Ezion has two units deployed separately in West Africa and Middle East. For the remaining four units which are under construction and refurbishment, two will enter into service within the current financial year while the other two in 1Q12.

Complementing the above-mentioned segment is the company’s second stream of revenue derived from the provision of offshore logistics support services. Ezion facilitates the transportation, handling and storage of equipment in and out of the field and is looking to establish marine supply bases in Australia.

To further add value to its services as well as strengthen its logistic support capabilities, the company had inked a joint venture agreement for the ownership of a vessel meant for the shipment of high value cargo from America to Australia and Papua New Guinea over a six year period.

Keeping Up With Growth

In a bid to maintain its growth momentum, Ezion recently entered a joint venture (JV) agreement with Buccaneer Energy, an upstream oil and gas company based in Houston, for the joint ownership of a jack-up rig with the Alaska Industrial Development and Export Authority.

Under the deal, Ezion will have a 50%-stake in the JV firm, Kenai Offshore Ventures LLC (KOV), in which the company will invest US$2.5 million from internal sources. The work, valued at US$109.5 million, will see KOV provide support for the offshore oil and gas activities in Cook Inlet, Alaska for five years.

“We are the first Asian company to clinch such a job in Alaska, which is actually the largest state in America not only in terms of land mass, but resources as well,” commented Chew.

With this deal, Ezion is looking to capitalise on the region’s relatively untouched state waters as its latest contract could act as a catalyst for more such projects to come the company’s way in the future.

Moreover, the outlook for the oil and gas industry looks very promising. According to the International Energy Agency, for at least the next 25 years, natural gas is set to play a central role in satisfying the world’s energy needs. Presumably, Australia, where Ezion has a stronghold in, will benefit greatly from this. Going forward, global oil demand could reach an estimated 93.4 million barrels a day in 2015. This translates into a greater need for offshore logistics support services.

As highlighted by Chew, demand is gradually piling up in view of the existing aged platforms in the regions of South East Asia, Middle East and West Africa as well as the limited number of liftboats servicing these platforms, with help from the elevated oil price.

With 1Q11 bottom line already making up 54.1% that of FY10, Ezion seems to be on track to scale greater heights. Backed by strong operating cash flow to fund its liftboat expansion, the company also has the highest operating return on asset of 8.3% for FY10, compared to its peers’ average of 4%, based on a report by CIMB. The research house maintained its ‘Outperform’ rating on the stock, with an upgraded target price of $1.16.