Surprisingly dismal Q3 earnings point to choppier seas for offshore players

Experts are more bearish now.

The third quarter proved to be extremely disappointing for listed offshore and marine players. With many companies reporting subpar results, analysts are convinced that the worst is yet to come for the battered sector.

According to a report by Maybank Kim Eng, risks are piling up for offshore players after credit problems began to surface while hopes of a year-end oil-price recovery vanished.

Rig builders and offshore support vessel (OSV) makers are under threat of order cancellations from cash-strapped clients, Maybank Kim Eng warned.

"We have become more bearish after 3Q results. More delivery deferrals and provisioning by yards suggest
clients’ unwillingness or inability to pay due to cash flow issues," said the report.

Even the companies themselves are recognising that the sector's prospects are dimming.

"For example, we note that weak companies are seeking to amend bond covenants, and some are diversifying away from the oil & gas sector, implying low confidence for a recovery in 2016," Maybank Kim Eng noted.

The report said that there is no visibility for an upturn at the moment, and more spending cuts by oil majors are expected in 2016.

"Even if oil prices rise to USD60-70/bbl, oil companies would have to mend their deteriorated balance sheets before resuming spending. [The] Industry also needs to work off excess capacity first,” Maybank Kim Eng noted.