Making Sense of the Ezion Share Suspension: 4 Key Things to Know
On Monday morning around 7:00 am, Ezion (SGX: 5ME) released its 2017 second quarter earnings. Less than 40 minutes later, the company issued a request for its shares to be suspended from trading. As of the time of writing, the suspension remains.
As a brief background, Ezion is an oil and gas support services provider. The company is an owner of a fleet of offshore assets that include multi-purpose self-propelled jack-up rigs and heavy-haul vessels. It also provides services such as well-servicing and maintenance, among others.
To explain the rationale behind the suspension, Ezion’s chairman, Dr Wai Kai Yuen, issued a letter to shareholders at 8:00 am on the same day. There are important takeaways from the letter.
1. The lingering effect of low oil prices – click here
2. Reality bites – click here
3. Cutting cost
The first two parts talked about the dire situation that Ezion finds itself in, and how the lower oil prices are expected to persist over the next 12 months. In its latest earnings announcement, Ezion outlined its focus:
“The Group intends to continue to work hard to maintain its focus on reviewing all capital expenditure to conserve cash-flow as well as embarking on further cost rationalization within the entire organization to reduce costs to a more prudent level without affecting the safe operations of its fleet.”
In 2016, Ezion managed to get its free cash-flow into positive territory. But in the latest quarter, free cash-flow fell back into negative figures.
For the quarter, cash flow from operations came in at negative US$2.3 million with capital expenditures at US$13.6 million. Ezion also paid out US$16.2 million in advanced payments. In all, the oil and gas services provider generated negative free cash flow of US$32.1 million for the reporting quarter. As of 30 June 2017, Ezion had US$93.5 million in cash and equivalents and US$1.45 billion in debt.
As it stands, Ezion has a heavy net debt position and might be facing difficulty in funding what it plans to do.
4. Opportunity in the midst of crisis
Despite the dark clouds, there could be opportunities in the midst. Ezion explained:
“It is without doubt that there is demand for Self-Propelled Service Rigs (“Liftboats”) services in Asia, Middle East and West Africa for production related activities in the offshore oil and gas industry as well as strong potential to support the growing offshore windfarm industry.”
In the shareholders’ letter, Dr Wai wrote:
“We are nonetheless confident that with the Group’s efforts and focus as explained in paragraph 3 of section 10 of the Financial Statements, Ezion will become the industry leader in Self Propelled Service Rigs when the market eventually recovers.”
Ezion said that it is the biggest lifeboat operator in Asia, and asserts that it runs the most advanced fleet of lifeboats. However, its division will need to be reorganised:
“Notwithstanding the focus on these Service Rigs, Ezion is exploring various options to reorganize its offshore logistics vessels division, which comprises mainly towing tugs and barges, to enhance its currently low utilization rate in a very competitive space.”
When it comes down to the crunch, Ezion needs to incur additional capital expenditure to upgrade its fleet for the future that it sees. Dr Wai said that the present operating environment has presented challenges to Ezion’s cash-flow and added that it is in discussion with its principal lender for financing options. He added that shares have been temporarily suspended, pending a resolution with its stakeholders.