Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on March 28, 2022 - April 3, 2022

DELEUM Bhd is one of the few local upstream oil and gas (O&G)-linked companies that have consistently been paying dividends. But it was in the spotlight for a different reason in 2020, when it uncovered and took the necessary steps to address a corruption scheme involving its 60%-owned Deleum Primera Sdn Bhd.

Now two years later, Deleum is moving on from the episode and wants to refocus on the growth opportunities in its O&G ventures, says its new group CEO Ramanrao Abdullah.

“For a nearly 40-year-old company that prides itself on high integrity and service quality, Primera was a black mark,” says Ramanrao in his first exclusive interview with The Edge. “But today, we are starting on a clean slate. Primera is a rehabilitated company.”

Describing the episode as a collusion of cover-ups, Ramanrao, who joined Deleum in July 2021, says the group has put in the necessary internal controls, and centralised key functions to ensure the incident does not repeat itself. “People have to understand that complying with ethical standards is [a requirement for] a licence to do business,” he comments on the way forward.

Deleum continues to work closely with the authorities on the case and Ramanrao says his early focus since joining the group has been to make sure the new organisational culture is embraced by the group’s employees, who number more than 700.

The issue first came up in early 2020 after Deleum initiated a forensic investigation on Primera upon noticing certain irregularities — which brought to surface corrupt practices at the latter to maintain its contract with Petronas Carigali Sdn Bhd.

At the time, Primera was three years into its five-year contract for maintenance, construction and modification (MCM) that was secured from Petronas Carigali in 2017.

Following the discovery, Deleum had to pay a RM1 million compound to the Malaysian Anti-Corruption Commission (MACC), while Primera’s licence to bid for new projects was suspended by Petroliam Nasional Bhd (Petronas) in March 2021.

Deleum subsequently initiated a RM19.88 million civil suit against four Primera executives — two of them being Primera shareholders with a 13.3% stake each — as well as two executives of Petronas Carigali and three Primera subcontractors.

The suit is ongoing. The two former execs — then Primera CEO Mazrin Ramli and senior general manager Khairulazmin Mohamad Karudin — are no longer directors but remain as shareholders, company filings show.

Petronas has been “very supportive” ever since the issue was first flagged by Deleum, Ramanrao says. If things go as planned, Primera will apply for its licence in the coming months, he continues.

“We have to demonstrate to the regulators that we have cleaned up [the company] completely,” says Ramanrao. Deleum is also addressing payment issues in relation to the whole fiasco, he adds.

Stepping out, growing in niche areas

With Primera being sorted out, Ramanrao’s appointment should augur well for Deleum. The 58-year-old is an industry veteran whose last role was as the Asia-Pacific vice-president of global oilfield services giant Halliburton Co, where he served for over two decades.

“My passion is in growing companies,” Ramanrao says when commenting on his new role, adding that the position gives him a chance to serve the Malaysian industry more meaningfully.

Nine months into the job, Ramanrao sees the need to run a tighter ship and address loss-making operations to improve overall returns, as well as to revisit the group’s regional expansion, which was put on the backburner when the O&G sector was doing well in Malaysia.

In a nutshell, Deleum operates the power and machinery (P&M) business through a joint venture. It is also involved in providing oilfield services (OS) and integrated corrosion solutions (ICS).

In FY2021, Deleum booked a net profit of RM17.07 million, up 129.75% from RM7.43 million in FY2020, although revenue fell 4.95% to RM558.37 million. But the two years were the weakest for the group in terms of profitability since its listing in 2007.

For FY2021, the ICS segment’s share of profit narrowed to RM3.26 million from RM4.1 million previously while revenue shrank to RM62.6 million (11% of total revenue of RM558.37 million) from RM109.4 million.

The OS segment narrowed its losses to RM14.44 million on revenue of RM104.19 million (19%).

The P&M business remains the largest contributor, with segment profit of RM42.3 million and revenue of RM391.01 million (70%) in FY2021. This compares with a profit contribution of RM47.4 million on revenue of RM368.1 million the year before.

While the bread-and-butter P&M operations have maintained steady returns, margin erosion could happen as competition heats up, says Ramanrao. As such, it will be necessary to improve the two other segments from the low base.

“Inefficiencies within the group are going to stop,” he declares. “We also do not want to repeat the situation in [the 2010s] where we became so dependent on one country.”

Notably, the ICS business turned around in 4QFY2021, owing to higher level of activities in Indonesia. “We have dabbled in Indonesia, Thailand, Brunei and the Middle East markets in the past … Now we are again looking outside actively,” he adds.

To tackle the increasingly competitive well-intervention space, Deleum has plans to ramp up its niche chemical solutions business, where it has an in-house research and development (R&D) facility providing formulas “that had proven to bring value” to customers in the past, says Ramanrao.

For the long run, Deleum is exploring new product lines — a process Ramanrao is familiar with, having helped grow Halliburton in Malaysia by bringing in all 13 of its product lines from just one, while ensuring profitability across the board.

“There are a lot of brownfields, mature assets, in this part of the world (Southeast Asia). Margins can be much lower but there are still technologies to introduce,” he opines.

Looking at Asean and particularly Malaysia, which houses sizeable proven gas reserves, and comparing that with Asia-Pacific’s much higher energy and natural gas consumption, he sees the region experiencing higher upstream activities if O&G stay at a healthy level. Emissions-related technologies could also be explored, he adds.

The O&G service company of choice

Overall, Ramanrao takes over a relatively healthy company from former group managing director Nan Yusri Nan Rahimy, who took up early retirement in 2021 after 11 years of service.

Deleum has been in a net cash position in the last six years — a rare attribute in the local upstream O&G space. At end-FY2021, its cash and bank balances stood at RM192.71 million against total borrowings of RM30.32 million.

Ramanrao believes the group can be exposed to “a little bit more” risk in its expansion journey, but says it will prioritise opportunities that are already generating revenue and will go in with strong partners while keeping a close watch on costs.

It is worth noting that on a full-year basis, Deleum, which has a 50% payout policy, has always been profitable since listing in 2007, even in the pandemic year of FY2020 when it impaired RM30.34 million worth of assets, and in FY2021 when it impaired RM4.92 million for doubtful debts, largely for the OS segment.

At its share price close of 64 sen at the time of writing, the group had a dividend yield of 3.44% relative to the dividend payout of 2.2 sen per share in FY2021. Comparatively, its five-year dividend average stood at 3.07 sen per share. Its 12-month trailing price-earnings ratio stood at 15.05 times.

Year to date, Deleum’s share price had risen 14 sen or 28% to 64 sen last Thursday, valuing it at RM256.99 million.

Ramanrao has a big vision of putting Deleum on the path towards becoming the premier local O&G services company of choice that “does things right the first time”. It will be interesting to see if the new chieftain can emulate his past successes and lift Deleum to new heights.

“You achieve that by focusing on the people, on the processes. I am a strong believer in a performing organisation.

“It will be a long journey … But we have the right ingredients. If our service quality is great, the unit cost may be higher but the overall costs will be cheaper, and the clients will come to us. If we want to become a premier company, we have to deliver,” he says.

 

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