Rotary Engineering

[karlmarx]

Hi weiyitan84,

I thought the last 10 years to be a somewhat good reflection of the industry cycle. It wasn't a 10 year downturn.

The only time the oil industry put their foot down on capex in past 10 years was after 2014. While there was a crash in oil prices in 2009, the quick recovery did not affect the planned capex from the oil majors. In fact, the continued rise and sustained high oil price encouraged speculative asset building from even small names like locally-listed Marco Polo Marine.

The boom years of oil asset building were from 2005 to 2013, when Rotary had $1.1b on its orderbooks. Some may say it was the biggest boom in 20 years. It is hard to imagine another boom like that in the near term. Eventually, the oil industry will find its footing and capex will resume. But how much of the capex budget will return, and when?

[weiyitan84]

Hi weiyitan84,

I thought the last 10 years to be a somewhat good reflection of the industry cycle. It wasn't a 10 year downturn.

The only time the oil industry put their foot down on capex in past 10 years was after 2014. While there was a crash in oil prices in 2009, the quick recovery did not affect the planned capex from the oil majors. In fact, the continued rise and sustained high oil price encouraged speculative asset building from even small names like locally-listed Marco Polo Marine.

The boom years of oil asset building were from 2005 to 2013, when Rotary had $1.1b on its orderbooks. Some may say it was the biggest boom in 20 years. It is hard to imagine another boom like that in the near term. Eventually, the oil industry will find its footing and capex will resume. But how much of the capex budget will return, and when?

Hi Karl,

Agreed, I dont think we will see oil prices in the US$100+ anymore. Am looking at a recovery to US$60-80 range. 

What I am getting at is over the past 10 years, the energy sector capex has been curbed due to the low energy prices resulted in the following:

1) Cut back on E&P capex (i.e. securing future supply fields)

2) Focus on low hanging fruits. i.e. producing at low cost production sites with breakeven of less than US$50 per barrel (Using oil price as a benchmark)

3) Maxing out production at these sites (Usually mature fields). For onshore oil fields the typical lifespan is about 15 to 30 years (Not talking about shale oil here)


A mixture of the above factors plus others will likely result in near to midterm declines in oil supply. As once all the low cost producing sites are fully depleted, the next tier of higher cost producing sites will need to be engaged. 

In essence, it is just a matter of time when energy prices will rise and with the higher energy prices, the higher cost production sites become viable --> more capex --> more work for O&G services companies

So the question is on the timing of the recovery. And to clarify recovery i dont mean oil prices at 100+ and above. I'm betting more on the range of US$60 to US$80 per barrel range where the next tier of higher production sites can be viable.

The key point is the Rotary current order book I believe is reflecting just the start of the recovery. On what basis? Based on:

1) Signs of stockpiles declining

2) Aging profile of existing oil & gas fields + very little new E&P capex --> supply crunch coming

3) Timing of the Rotary delisting offer by Chia seems to indicate that he knows that there is good news on the horizon (My own deduction la) --> Rotary is worth much more than his S$0.46 price offer

[karlmarx]

I acknowledge that there may be a higher demand for the services of Rotary in the future, due to the reasons you have listed. And certainly this may generate greater returns for the shareholders.

Question is how much more FCF, profit, or dividend do you expect Rotary to generate in the coming years? Will the next 10 years be more than the last 10 years? If yes, then offer price is not good. If not, then offer price is good. I do not know enough to make a stand.

Another point to consider is that Rotary is after all, a small fish in a very large industry. The industry may boom, but good contracts may not be award to Rotary, or Rotary may falter in its execution.

[choya]

To understand Rotary story, one need to dig deeper to find out the reason behind the numbers:
http://www.sharesinv.com/articles/2014/0...und-story/

To summarize on Rotary recent challenges:
1. Cost overrun in SATORP - painful tuition fees on doing business in Middle East. Since early 2000 many already aware of the challenges of doing business there yet Rotary still makes the error.
2. Macro factor - Oil prices

My main beef with Rotary is how much the CEO pays himself and his brother. Compare that with Keppel and Sembawang which are much bigger and complex companies.

*vested*

[choya]

Received the Exit Offer booklet today. But there is no proxy form or envelope? Wondering if that is via separate mail or they inadvertently omitted them?

[Temperament]

Received a reminder letter dated 16 January 2018.

Till now Offeror has not acquired 90% of the Offer shares, so can not exercise rights of compulsory acquisition.

And yet the Company can be delisted because on Jan 10's EGM have approved The Delisting Resolution.

If we MOM & POP investors hold on to unquoted shares in the Company as an unlisted company, what disadvantages will we face?

[weijian]

Hi temperament,
Rather than the listing rules, it will be the company act that governs the interests of the "mum and pop " folks.

I believe we have discussed about this in details in previous threads. U might want to do a search.

[Temperament]

Ha. Ha.

Getting lazier as getting older.

One article i found in 2017 latest thinking or idea is by http://www.straitstimes.com/business/rai...delistings.

So i may have to take a risk lol by holding to delisted company.

Or surrender to sell the share lol.

[Temperament]

https://www.lexology.com/library/detail....b86165c08d

Is this article applicable to Singapore?

[Temperament]

And at VB itself.

https://www.valuebuddies.com/thread-4646.html