Saturday, March 29, 2008

Ezra - US$77.6 Million Charter Contracts, Interview with Lionel Lee in Pulses

It's been awhile since newsflow from Ezra came out, what with the steady stream of announcements and press releases by Swiber. But on March 27, 2008, the company announced that they had clinched charter contracts worth US$77.6 for 7 of their vessels. These consist of new as well as renewal charters and these charters are expected to impact earnings in the current financial year (i.e FY 2008 ending August 31, 2008).

According to a news report update from Energy Current website, the charters will cover 5 AHTS, namely 18,000 bhp Lewek Toucan, 12,240 bhp Lewek Swift, 10,000 bhp Lewek Emerald, 7,200 bhp Lewek Mallard and 5,000 bhp Lewek Ebony. The charters will also cover one AHT, 4,900 bhp Lewek Robin as well as Ezra’s heavy-lift accommodation barge Lewek Chancellor. Lewek Swift and Lewek Emerald are granted extensions on their current charters with Shell in Australia, Lewek Mallard is working for Newfield and Nippon Oil in offshore Malaysia while Lewek Toucan is believed to be contracted to Shell supporting semi-submersible Atwood Falcon.

The award of these contracts again reaffirms the fact that Ezra’s vessel fleet is still very much in demand. Of course, one could argue that it is more likely the case of the daily charter rate which they are getting which determines their revenues and margins. But Mr. Lionel Lee mentioned that there was “no let-up in the enquiries” and that Ezra’s future focus will be more on deepwater support vessels for E&P activities in Malaysia and Australia. There is still currently a worldwide shortage of vessels for younger, medium and large-sized offshore vessels. Ezra is due to take delivery of 11 more vessels from now till FY 2010, and these include Multi-Functional Support Vessels (MFSV), a Floating Production Storage Offloading vessel (FPSO) and a well service and maintenance vessel.

In the recent issue of Pulses, there was an exclusive interview conducted with the Managing Director of Ezra, Mr. Lionel Lee. I have read through the interview and summarized the main points he brought up about growing Ezra’s business to higher levels:-

1) Ezra has mitigated the risks that their vessels become “white elephants” by engaging good shipyards and good equipment. They have worked from the beginning with established names such as Pan-United Marine and Rolls-Royce in order to maintain high quality and ensure their vessels are in strong demand.

2) The company has set a new profit target for the future but he declined to give more details until the company actually managed to hit it. This shows that they have a long-term vision to grow their earnings steadily, which will benefit shareholders.

3) Ezra has focused on merging its assets with its services, so that they can offer the “full suite” instead of just partial service. It is akin to providing the doctor, surgeon as well as hospital in order to treat a patient, in an analogy provided by Mr. Lee. This helps to enhance their competitive edge and boosts their profile as a one-stop solution provider for the oil and gas industry.

4) Mr. Lee feels that deepwater will have stronger growth compared to shallow waters, but that the shallow water market still needs to be served as it accounts for 60-65% of the current reserves. He believes replacement of assets will take place for shallow water, but that “he doesn’t think there will be big growth”.

5) Ezra has a competitive edge in that they invest in people with expertise, which is critical because expertise is difficult to find. They have an R&D office in London with 30 staff and he believes this is what differentiates Ezra from other players.

6) Ezra continues to expand its geographical reach, and Mr. Lee intends to take it even more global, and to hone its expertise further. Steps have been taken to invest in people, such as providing scholarships (Mr. Tan mentioned this to me during AGM FY 2007), training facilities to train crew for technically complex new vessels, as well as a US$10 million annuity plan (announced by Ezra on Jan 15, 2008).

Ezra will release its 1H FY 2008 results some time in the middle of April 2008. I will provide a detailed analysis and assessment of their plans and prospects then.

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