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Drilling muds manufacturer - Medserv Energy
Medserv Issues Interim Report for first half of 2020
28/08/2020

The financial performance of the Group for the first half of 2020 was marked with the disruption brought about by the COVID-19 pandemic which caused a number of offshore exploration projects planned for the year to be delayed to next year. As a result, the Group’s Integrated Logistics Support Services (ILSS) segment, particularly the operations in Malta and Cyprus were significantly impacted consequent to travel bans and closure of ports imposed by Governments. On the other hand, the impact on the performance of the Oil Country Tubular Goods (OCTG) segment, which is driven by onshore drilling activity in the Middle East, was minimal as the National Oil Companies in this region continue with their commitment to the approved projects as well as to increase their production capabilities.

In response to this situation, the Group reports that it has immediately taken action to adapt its cost base through lower operating costs and is continuing to take appropriate actions to conserve liquidity and mitigate losses. The Company remains confident that the current year forecast Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) published on 15 July 2020 will be achieved.

The Directors state that although the oil industry is going through a challenging period, an upside exists for those companies that will survive this challenge. Oil prices are expected to recover as oil demand rebounds on the back of anticipated global economic recovery.

The recovery is expected to be gradual. Various energy research firms are predicting the global oil demand to return to normal levels by end of year 2021, with oil prices rising from the average of $44 a barrel this year to an average of $50 per barrel in 2021. Looking further ahead, various forecasts predict oil prices to improve further within the next five years. 

Further to the announcement issued in March this year regarding a long-term agreement with Air Liquide to install and operate a compressed gases filling plant at the Malta base to provide diving and welding gases to the offshore industry in Mediterranean, the Company also reports that the required approvals have been received and the facility is currently in the process of being installed with the aim to commission the plant by fourth quarter of year 2020.

The Company still enjoys a strong business pipeline across its core markets, being North Africa, Eastern Mediterranean and the Middle East. As travel restrictions are lifted, the long-term energy projects for which the Group is already contracted will resume. The cost of commercialising these projects is relatively low as the investment in the required infrastructure has already been made by the International Oil Companies (IOCs). Furthermore, such projects are located close to the market or are needed for national consumption. The subsidiary in Malta will also be acting as the logistics base for the development of two new structures in the offshore Libyan gas field.

Additionally, the Company is awaiting adjudication of several tenders including ILSS services to an IOC operating offshore Egypt and Supply Chain Management for OCTG contracts in the United Arab Emirates.

The Company’s projections indicate that the project offshore exploratory drilling and development in the Company’s operating markets will resume in the second quarter of next year, paving the way for the Company to return to the pre-COVID-19 trading levels.

 

 

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