Stepping out in a new market helps lift Gulf Marine Services (GMS) - up 4.3% to 135.6p as one of its large class of self-propelled self-elevating support vessels (SESVs) is contracted for decommissioning work. The vessel, which has been supporting well service and maintenance work in the Southern North Sea for an international oil company (ConocoPhillips (COP:NYSE)) since the third quarter of 2012.
The group rents out a fleet of SESVs to energy companies to provide the stable workplace required to maintain offshore oil and gas platforms and wind turbines. The business is proving resilient despite the collapse in oil prices – with utilisation rates of around 95% - as it is principally exposed to operating expenditure rather than capital expenditure budgets and the rates for its vessels are still much lower than the drilling rigs which would otherwise be used to do the same work.
After a late 2014 collapse the shares have recovered strongly and the shares are up 35.6% year-to-date. The ability to take on decommissioning projects should ensure the company can perform well through the industry cycle. As of the latest update a $400 million new build programme, which will increase the fleet size by two-thirds during the period 2014 to 2016, continues to progress well and is on schedule and on budget.
This expansion programme is putting some strain on the balance sheet though with net debt at the end of the first quarter of $355.1 million.
Barclays reiterates its overweight stance and 220p price target and says today’s news is significant for three reasons. ‘Firstly, it marks the company's entry into the decommissioning market, a work-stream that is in its infancy for the UK and wider oil industry; secondly, it is the third back-to-back contract in the region supporting the company's entry into the market in 2012, and; thirdly, the contract is in-line with price assumptions previously given, highlighting the robust nature of GMS's offering.’