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Kreuz Holdings Poised To Ride On Subsea Opportunities

Contributed by Shares Investment

By Gerald Teo   

Kreuz Holdings Poised To Ride On Subsea Opportunities

Kreuz Holdings (Kreuz), which specializes in subsea services, provides subsea construction and installation solutions to the offshore oil and gas industry for the development and upgrading of oil fields.

Looking at its history, Kreuz was first established as a subsea services division of Swiber Group. The initial public offering (IPO) gave Kreuz a separate identity from its parent company to pursue its growth strategies and opened doors for funds from the market to spur its expansion plans.

Its close business relationship with Swiber Group has given Kreuz a broader access to the offshore construction industry through the potential subsea services projects with the former’s customers. Post-IPO, Swiber Holdings remains a major shareholder with a 63.2% stake in Kreuz as at 18 Mar-11.

Enhancing its competitive advantage, Kreuz is expanding its range of subsea services through the acquisitions of new operating assets such as diving systems, enhanced remotely operated vehicles, and anchor-handling tugs. Meanwhile, it seeks to maintain a balance between long term inspection, repair and maintenance work and short to medium term construction and installation activities.

Its recent 1Q11 result registered a remarkable 292.2% increase in revenue to US$26.1 million from the previous year, revealing a sign of the booming oil and gas industry. During the same period, Kreuz saw its bottom line jumped ten-fold to US$5.7 million. This was supported by an 11.8% improvement in its gross profit margin contributed by projects with higher margins.

Bright Industry Outlook

With plans to break into new market in the Middle East, the company reiterates its focus on markets (e.g. India and Malaysia) where it has established good local knowledge and experience, as well as in Brunei where the inspection, repair and maintenance works are highly demanded.

Kreuz is upbeat on the outlook of the industry, given that global oil and gas companies are expected to take on new projects and increase their capital expenditures moving forward. This can be seen by the notable increase in oil and gas exploration activities across the globe, largely spurred by the rising oil prices which have been hovering around US$100.

The upward trend of the industry is further affirmed by the forecast made by the International Monetary Fund which estimated that the cumulative oil revenue for members of the Organization of Petroleum Exporting Countries will exceed US$1 trillion this year.

On A Winning Streak

Since its listing a year ago in Jul-10, Kreuz has enjoyed numerous contract wins that continue to pump up its order book.

Within a short span of four months after its listing, Kreuz was awarded with two subsea jobs worth a total of approximately US$13.8 million. The first contract win was a US$7.6 million subsea installation contract awarded by an offshore construction company located in the Middle East. Shortly after, the company secured a second job worth US$6.2 million from an offshore construction company based in South Asia to provide subsea transportation and installation works.

In May-11, Kreuz secured contract wins for various subsea works to be performed in Indonesia and Thailand. The jobs are worth a total of approximately US$44 million, of which US$32 million are from the Swiber Group, while the remaining comes from a third-party customer. Just less than one month ago, the company announced a total contract win of US$24.8 million for projects to be carried out within Asia.

Despite the string of good news, the business of Kreuz is largely dependable on the performance of its controlling company Swiber Group as well as its relation with its customers.

Nonetheless, the outlook of the oil and gas industry remains promising and together with Kreuz’s experience and its entry in the rising emerging economies, it is well-positioned to undertake a wider range of subsea projects.

Riding on the above buoyant factors coupled with large untapped oil and gas reserves in regions such as Asia and the Middle East, the company appears poised to take on the demand of subsea services and ride on the future opportunities in the industry.