Source: The Malta Business Observer, Jan 31 2019

Medserv plans to put out feelers out for other oil producers in the area which may be interested in its services, according to CEO Karl Bartolo.

Malta-based company Medserv will be providing nearshore logistics support to Staatsolie Maatschappij Suriname, a fully-integrated oil company, with the Republic of Suriname as its single shareholder, in a shore-base contract valued at $30.6 million (€26.9 million), for the next 15 months.

It’s a golden opportunity for the company, allowing it to make its first foray into South America, and put feelers out for other oil producers in the area which may be interested in its services.

“We operate dedicated bases in Malta, Cyprus, Egypt, United Arab Emirates (UAE), Oman and Iraq, and have a representative office in Libya, but South America is a new geographical market for us,” Medserv CEO Karl Bartolo told this newspaper. “Suriname has a population of just over half a million people, and less than 7 per cent of its territory is developed – the rest is forest. It is not a major oil producer as yet. They lift between 16,000 and 17,000 barrels a day.”

Medserv, which provides shore-based logistics services and supply chain management for oil country tubular goods (OCTG) to various international and national oil companies (IOCs and NOCs), will be managing the project in Suriname, through a dedicated Medserv team. “The industry is still in its infancy there, and as a result experience and industry ‘know-how’ are still limited,” Mr Bartolo explained. “If this 10-well offshore drilling campaign results in a significant discovery, that would be a great leap, considering the economic size of the country.”

While Suriname already has all the infrastructure in place, Mr Bartolo said that the client engaged Medserv to provide the company with the experience and established proven quality systems that it is known for in the market. Not only does the company hope that oil companies which are already in Suriname, such as Tullow and Apache, will be paying attention to Medserv’s work with Staatsolie Maatschappij, but also that neighbouring countries which have made significant oil discoveries, such as Guyana, will sit up and take notice of the services that the firm has to offer.

“Suriname has given us a good head start to this year and will stabilise our earnings, but it’s not yet a long-term contract, so we’ll see what happens after that. In the meantime, the team will be using it as a showcase to attract other oil and gas projects in South America – particularly neighbouring countries. Meanwhile, Mexico liberalised its market last year, which is something that is also of interest to us.”

Mr Bartolo mentioned how the regional expansion already experienced in the East Mediterranean may be replicated in South America, citing Cyprus as an example. “We started out with one oil major. Nowadays, we have contracts with the majority of the IOCs which have offshore projects in Cyprus. Furthermore, it catapulted us into Egypt and presented other prospects in the region.”
Discussing how the company has managed to make inroads in so many different markets, Mr Bartolo said that a company that is trying to establish itself internationally will find it much more difficult to do so if the market it is trying to penetrate is already mature. “As I said, in markets like Suriname and Cyprus, the industry is young, and expertise and experience are still being cultivated. Egypt on the other hand is a mature market; however, we were brought in to support and help refine their quality management processes and service. We brought an improvement in health and safety, service delivery, and response time. There must be an opportunity of some kind – an opportunity to add value.”

Another key to ensuring the success of an international project is to not think short-term, Mr Bartolo added. “You can’t just plan to make a quick return. You have to make sure you provide in-country value. The fact that we’ll be using local staff will have a multiplier effect on the local economy, generate in-country value and help us gain long-term acceptance.”

Last year, Medserv’s Directors Anthony Diacono and Anthony Duncan, the company’s major shareholders, announced that they were looking to sell their 65.5 per cent shareholding, with investors signalling their interest in acquiring it. “The process is still ongoing,” Mr Bartolo stated. “Anthony and Tony are of a certain age now, and it would be a good progression for Medserv to find a strategic partner that can help further its growth, now that it has become a truly international company with lots of opportunities on the horizon. It’s been a tough two years – many companies like us have gone bust. But our stakeholders and shareholders continued to support the company, and our team was very robust and resilient to those forces.”

“What also helped, in our case, is that Medserv placed itself in easy oil countries and where oil and gas are of strategic importance for those countries’ economies. If our business was dependent on countries where cost of extraction is high, the projects would have possibly been abandoned and we would have had to shut down.

During the recent downturn we did slow down, but the volume we generated gave us enough breathing room to continue through this tough period. Now that the market is turning, and with the recent contracts that we’ve secured, we’re hoping to see more opportunities.”

Looking ahead, Medserv expects further expansion in Egypt and Lebanon, which Mr Bartolo said would be classified as ‘natural growth’. “The outlook for the Mediterranean and the Middle Eastern nations is positive as more projects become active,” he added. “We’ve continued securing new contracts, and extending existing ones, and we’ve worked on a restructuring plan to put into action this year in Iraq. This will be effective by March.” Other incoming projects for Medserv include work in Uganda, and the company also sees significant potential in supply chain management for mill-to-well projects.

Mr Bartolo said that both earnings and revenue had increased between 2017 and 2018, and the improvement was expected to continue in 2019. “There’s a very promising growth period ahead, not just for this period, but at least for another three years. I can’t imagine a much better outlook than we have for the current year.”

Times of Malta – 28th March – Maritime and Logistics Supplement

How is the oil services industry weathering the current downturn?

 

This has been one of the most brutal downturns in my memory. Indeed, global investment into new upstream projects has plummeted by nearly 50 per cent since 2014 due to belt-tightening amid the oil price slump. Estimates put the number of job losses globally at 440,000 across the industry over the past three years. This is a massive reduction in the numbers employed and has had a significant effect on the structure of the oil services sector across the globe.

Many companies were unable to weather this downturn. Closures and bankruptcies have become an all-to-frequent feature of the industry. Consolidation of resources through mergers is also happening as companies fight to survive and share out a significantly reduced pool of work.

The recent extension to the agreement between OPEC, Russia and other non-OPEC producers to extend oil production restraints through to the end of 2018 has allowed oil prices to stabilise in the range US$65 to US$75 per barrel. With the newfound stability, the oil companies can plan to bring back developments and exploration projects that had been shelved. Having reset their costs through the downcycle, the oil majors are already turning the page on a string of dismal earnings. Cash flows have recovered sufficiently for many to cover their revised capital spending plans and dividends to fit their cash cycles.

One of the principal sources of logistics activity for Medserv is the drilling of wells offshore. There are encouraging signs that the many rigs that are currently stacked awaiting work is reducing. This is for two main reasons – the slow upturn in drilling activity and the aggressive removal and scrapping of older rigs from the fleet. The downturn has forced many rig-owners to review their fleets. Companies have many new rigs stacked to choose from. There is very little realistic chance for older rigs to find work in the short to medium term.

How is Medserv weathering the downturn?

 

Medserv has not been insulated from these issues within the industry. Our clients have sought savage price reductions and our margins have been trimmed to deliver this without compromising the safe delivery and quality of our services. Drilling has been postponed in Cyprus and Portugal. Renegotiation of oil supply contracts in Iraq has prevented the planned development of the south oil fields by the international oil companies. This has a knock-on effect on the quantities of pipe to be shipped, inspected and repaired by Medserv.

The geographic diversification and the acquisition of the METS business has proved to be an excellent move by Medserv. This has moved the company from the reliance on one base, Malta, and new blue chip clients, leading to a better-balanced portfolio of bases, services and clients.

We continued to invest in our management and talented people. We have developed our management systems to internationally recognised standards, and have designed new service packages for both our logistics business and our OCTG business. The benefits can be seen in the rapid deployment of a new base in Limassol, Cyprus, using our base in a box concept in 2017. For our OCTG business we have set up a new base and storage facility in Duqm, Oman and now offer rig-ready pipe to Shell/PDO on behalf of Sumitomo. This takes Medserv into land-based logistics in a big way.

What kind of diversification have you embarked upon?

 

Medserv has a strategy of looking for work in areas of proven oil and gas reserves, and where the cost of extraction is relatively low. In this lower for longer price regime, there is very little appetite for wildcat exploration activity in new parts of the world. Medserv has concentrated their activities on the Med basin and the Middle East.

Our recent win of a major OCTG storage and logistics contract in Oman, Egypt and the return of ENI to Cyprus support the success of this strategy. The Egypt contract has the potential to develop into a major logistics opportunity encompassing both onshore and offshore activities. Indeed, our investment in base facilities, brand-new equipment and people in Egypt demonstrates that Medserv has the vision, confidence and financial muscle despite the prevailing political climate. Further opportunities are under active pursuit in Abu Dhabi, East and West Africa.

The general consolidation of oil services within the industry has also yielded the possibility for Medserv to offer an increased range of services as part of the one-stop service model. From Malta we can offer fabric maintenance services, including shot blasting and painting, corrosion protection, and an increasing range of general engineering services to compliment our existing portfolio of services.

How do political scenarios affect your efforts?

 

Medserv has not been shy in going into difficult locations. We continue to support the offshore Libyan oil and gas industry. With a resolution in the current political situation in Libya, we are well-placed to benefit from any upturn in oil activities, particularly for the provision of maintenance and repair services.

The recent gunboat diplomacy offshore Cyprus has not helped our clients as they pursue some interesting new opportunities there. Once politicians hammer out a workable solution, we are confident that activities will return.

The renegotiated oil contracts in southern Iraq will alleviate the stagnation in the area and herald a return to higher levels of activity for our OCTG business there.

What is your outlook for the future?

 

Medserv is in good shape to emerge from this downturn with increased sales and a broader range of services and clients across the Mediterranean, Middle East and beyond. Our pipeline of opportunities remains strong and diversified. It has a good mix of traditional opportunities for logistics services in new geographies, and for the possibilities of cross-selling logistics and OCTG services in our home markets and in new markets.

Oilfield service firms and workers have experienced a hard time during the industry downturn, that’s for sure. Medserv has embraced the recovery of the oil services industry and through the lessons learnt, Medserv has developed a sustainable operating structure for this new reality.

Through our continued commitment to investment in our people and operations, the coming years will see substantial revenue growth for Medserv as the industry recovers and Medserv delivers the already-contracted services for drilling projects and workover programs. We are already seeing growth in OCTG pipe handling volumes managed across the Middle East. Our strategy of securing new geographic markets is bearing fruit by supporting a growing number of offshore and onshore projects in the eastern Mediterranean, Middle East and Africa. With the increased confidence in the industry, we are experiencing increasing numbers of tendering opportunities for our core competencies, two of which are expected to be adjudicated in the coming months.

We are already seeing the results in our first quarter 2018 performance with a stronger performance than in 2017.