UMW Oil & Gas in talks to secure long term contract for ‘Naga 5’. Maybank optimistic

Malaysia’s UMW Oil & Gas is set to receive its Naga 5 jack-up rig one month ahead of schedule, Maybank Research said.

According to a report by Maybank Research, the rig, being built in Singapore’s Keppel yard is expected to be delivered in May, ahead of its first assignment will Nido Petroleum Philippines Pty Ltd. The rig will begin its 6-week drilling program at the Baragatan prospect, offshore the Philippines in June.

The UMW Naga 5 will be capable of operating in water depths of up to four hundred feet (approximately 120 metres) and to drill to a total depth of thirty thousand feet (approximately 9,100 metres) subsea.

Maybank said that the Malaysian drilling contractor was in talks with potential clients to secure a long-term charter for Naga 5 after the contract with Nido expires. Apart from Naga 5, UMWOG is reportedly in line to take delivery of Naga 6 in September this year, Naga 7 in December and Naga 8 in September 2015.

Maybank added: “While there’s some skepticism over issues such as the built quality and timely delivery of its Naga 6 & 7 JUs, which are built in China, such concern will be allayed once it secures charters. Given the inherent demand for new, premium JUs, we are confident of these JUs being chartered. The investment returns for a JU is compelling, with ROEs >30%, based on DCR of USD160k, 70:30 debt-to-equity. Our forecasts are unchanged.”

Growth stock

“We continue to view UMWOG as a growth stock (49% 3-year net profit CAGR) with sound financial and operating acumen to capitalize on the prospects of JUs in SEA over a five year horizon. It is the only Malaysia entity that has the track record and in-house crew competencies in the drilling space. We opine that new JU orders beyond Naga 8 will likely be done from 2015 as UMWOG balances growth with balance sheet disciplines, unless a new unit is available with a contract in hand,” Maybank concluded.