OSV Sector in Malaysia - State of Play

and the Way Forward

Capt. Hj. Tasripin Hj. Masotee F.IK

President

Malaysia Offshore Support Vessels Owners'

Association (OSV Malaysia)

Executive Director

Saujana Marine Sdn Bhd

Market Outlook of Global OSV Sector

INTRODUCTION

The global OSV market will witness growth over the next five

years as key performance indicators such as offshore Capex,

the number of wells to be drilled, and the number of new

platform installations scheduled, are all set to increase

incrementally through to 2013 before peaking in 2014.

Within South East Asia, the two countries with the greatest

forecast investment in their offshore O&G industry, in terms of

platforms and subsea, are expected to be Malaysia and

Indonesia. These two countries are developing both their

shallow water plays, whilst also moving towards the deep

waters” [Source: ISL].

Market Outlook of Global OSV Sector

Current OSV fleet may not be sufficient in meeting demand due to

charterers’ increasingly demanding requirements, and the push

for younger and “greener” vessels by regulators.

There are nearly 400 Anchor Handling Tug Supply (AHTS), and

Platform Supply Vessels (PSV) in South East Asia. Further 500‐800

other OSVs including Construction Support Vessels (CSVs), Dive

Support Vessels (DSVs), Tugs, and Crew boats.

It represents approximately 20% of the global OSV fleet of about

2000-2500 vessels . Majority of the OSV fleet in South East Asia

are smaller in size.

Approximately 12% of the OSV fleet in South East Asia have past

their economic useful life (older than 30 years) and approximately

21% of the fleet lies between 20‐30 years (useful but

non‐competitive) [Source:M3M PL]

Market Outlook of Global OSV Sector

Market Outlook of OSV Sector In

Malaysia

Cabotage laws prioritising local OSV service providers.

OSV market has witnessed a stable period over the last

few years due to the financially strong IOCs and NOCs in

Malaysia. [Source: ISL]

Whilst charter rates became depressed in other global

regions, the rates in the Malaysian market remained

comparatively buoyant. [Source: ISL]

5 active operators account for 42 per cent of all project

value over the next five years, comprising Petronas

Carigali, PTTEP, Exxon Mobil, Chevron and ExxonMobil. [Source: AmResearch]

Market Outlook of OSV Sector In Malaysia

One of the key drivers for the Malaysian OSV market continues

to be PETRONAS, and its plans to develop hydrocarbons

offshore.

Recent deals such as the Berantai Oil Field Project which totals

US$800million and the world’s biggest offshore Enhanced Oil

Recovery (EOR) project between Petronas Carigali and Shell

Malaysia, totalling US$12billion over 30 years; are big

opportunities for OSV members

PETRONAS' expenditure plans at this stage are two pronged;

the development of deep water reserves, which will require deep

water capable PSVs, and also the re-development of fields which

are experiencing declining production.

Market Outlook of OSV Sector In Malaysia

Additional drilling will require greater support from AHTS.

We believe that the O&G industry in the country will

continue to provide opportunities within the OSV market

[Source: ISL].

OSV Owners Main Challenges That Impact On

Their Own Turf

(1) The Company/Corporate Tax

Offshore Support Vessels is not defined as Malaysian Ship

under Malaysian Income Tax Act 1967 Sec. 54 A, hence it

is not tax exempted.

"Malaysian ship" means a sea-going ship registered as such

under the Merchant Shipping Ordinance 1952 [Ord. 70 of 1952]

other than a ferry, barge, tug-boat, supply vessel, crew boat,

lighter, dredger, fishing boat or other similar vessel.

(2) Personal Income Tax

Crew serving on board "Malaysian ship" as defined in the Act

are exempted from Tax Income and it is not applicable to crew

serving on board OSV.

The Main Challenges That Impact OSV Owners On Their Own Turf

(3) Bank Borrowings

Due to high cost of fund, cost of finance with local

banking institutions is much more higher than the offshore

foreign banking institutions.

(4) Access to Ship Funding is tough (Speaking in layman terms)

For new kid on the block – No contract No talk

For players with marginal but hopeful records – Have

collaterals Can Talk

For players with good track records - Bankable project

Can talk

Finally for No record - No problem Bro, I buy you “Teh-

Tarik”. You talk I listen.

The Main Challenges That Impact OSV Owners On Their Own Turf

So What Are The Issues Bereft The OSV

Owners?

TAX INCENTIVES IN SHIPPING INDUSTRY BY COUNTRIES

- Non-exempted shipping income is taxed at a rate of 25%.

- Tax exemptions are given to Malaysian ship owners

- A Malaysian ship is defined for tax purposes as a sea-going vessel registered as such under the Malaysian Merchant Shipping Ordinance.

- Corporate tax at 17%

- Two main tax incentives for the shipping industry

i. To promote Singapore registry by granting tax exemption to an owner or operator of Singapore-registered ships on income derived from the operating or chartering such ships in international waters.

ii. To encourage the control and management of foreign flagged ships from Singapore by Singapore resident companies which own or operate foreign flagged ships under the Approved International Shipping Enterprise (AIS) incentive.

- The standard tax rate is 16.5%.

- For Hong Kong-flagged vessels, income related to cargo uploaded in Hong Kong and navigated to international waters is exempt from Hong Kong corporate income tax.

- For a taxpayer resident in any territory outside Hong Kong but carrying on a shipping business in Hong Kong, it will be tax exempted in Hong Kong if there is a reciprocal tax treatment in that country for a Hong Kong taxpayer.

(1) Tax Incentives

Malaysian Income Tax Act 1967 Sec.54A steadfast on the

definition of "Malaysian ship" under the Merchant Shipping

Ordinance 1952 [Ord. 70 of 1952]. – Understandable (SOP)

and no question about it, Sir!

Our counterparts in shipping companies enjoyed 100% tax

exempt for years. The Government announcement of 70% tax

for budget year 2012, was now put on hold for 2 years.

While for OSV owners including their crew, they get NONE of

the above till to date and for how long more they have to wait

before MSO 1952 will be reformed.

(2) Source of Finance for Fleet Expansion

The Government announcement that NOCs will invest in

the upstream activities and is expected to grow

exponentially over the next 5 years. Being on own turf,

OSV Owners were without doubt euphoric and inspired

by the announcement cause they see an opportunity to

expand their fleet. But they are in the bind, yes bro.

Question: The banking sector knows that the cost of

fund is high in Malaysia and with current scenario, would

they able to offer easy and “cheap” financing

comparatively with their foreign competitors.

Note: “Cheap” means competitive interest rate with

higher margin of finance and longer repayment period.

(3) Competitiveness

While I was in China, I came across a signage and it reads :

“AN ENTERPRISE BELIEVABLE IN PRICE AND MEASURE”

OSV owners are not asking for subsidy or hand outs. They want a

fair level playing field and tools so that they become competitive

and market driven.

It is for “rough neck” type businessman (not macho type) and not

for the light hearted but serious and dedicated businessman with

a vision for sustainability, likeable and yet humble.

Question : Can the legislators, relevant authorities and financial

institutions review their stringent regime and adopt more

industrial friendly approach for the future growth and

sustainability of Oil and Gas players.

Why OSV Malaysia?

The Malaysia OSV (Offshore Support Vessels) Owners Association,

or "OSV Malaysia" in short was established on 16th June 2011 and

has successfully held its maiden Annual General Meeting on 22nd

September 2011.

Offshore support vessels are ships and various types of marine

vessels, designed and built to cater to the needs of the Oil and Gas

upstream industry, at sea. The Association forms a crucial part of

Malaysia's Oil and Gas industry, especially in the exploration and

production sectors.

PRIMARY OBJECTIVES :

• To provide a collective platform to express common industry

concerns for members’ interest and welfare

• To facilitate in promoting research and development in the

Malaysianization of technical support and services

• Training and human resources development for OSV industry

The Association represents the ordinary members of Malaysian ship

owners, who own and operate OSVs in providing services in the

maritime logistic, accommodation and maintenance facilities. It

encourages other sectors, such as the financial institutions, maritime

training institutions, shipyards, marine insurance and vessel

classification society, which are engaged in or associated with the Oil

and Gas industry, to become its associated members.

Elected Committee Members

President Capt Hj. Tasripin Hj Masotee F.IK

Executive Director, Saujana Marine Sdn Bhd

Vice President Dato’ Capt Ismail Kamin

Executive Chairman, JRI Resources Sdn Bhd

Hon. Secretary Encik Sidqi Ahmad Said

Managing Director, Sykt. Borcos Shipping S B

Hon. Treasurer Encik Johany Jaafar

Managing Director, Efogen Sdn Bhd

Company Name Type of OffShore Support Vessel (OSV) Total of OSV

AHT/AHTS AW Boat AW Barge SSV GPV LCT FCB SFCB Standby ML UV TB DB WTS

Saujana Marine Sdn Bhd 2 2

OMNI Group Sdn Bhd 14 14

Jasa Merin (M) Sdn Bhd 13 3 16

Sapuracrest Petroleum Berhad 0

Sribima (M) Shipping Sdn Bhd 1 3 3 3 10

JRI Resources Sdn Bhd 4 4

Syarikat Borcos Shipping Sdn Bhd 9 2 9 6 2 4 2 1 35

Efogen Sdn Bhd 3 3

Bumi Armada Navigation Sdn Bhd 14 5 3 3 25

Powertium Marine Sdn Bhd 4 4

Tanjung Kapal Services Sdn Bhd 9 4 1 1 1 16

Dinastia Jati Sdn Bhd 3 3

DESB Marine Services Sdn Bhd 5 2 7

Gagasan Carriers Sdn Bhd 8 8

Intra Oil Services Berhad 8 2 4 14

Nam Cheong Dockyard Sdn Bhd 1 9 2 12

76 12 6 16 3 7 20 9 6 5 8 3 1 173

Associate Members – Total 4:

1. Muhibbah Marine Engineering Sdn Bhd

2. Global Maritime Ventures Berhad

3. American Bureau of Shipping

4. Lloyd’s Register of Shipping (M) Bhd

Ordinary Members – Total 16

Total Membership Strength as at 2 June 2011 = 20

Total Fleet’s Strength = 173 (Average age = 4.5 years old)

Next 5 years Members Fleet Expansion Plan = About 80 vessels

Total combined group revenue is worth more than RM15billion and a

combined group assets worth more than RM 10billion.

About 12,000 employed marine crews serving on all our offshore

vessels nationwide. There are about 49 Malaysian registered

companies (including Labuan registered) that own and operate

Offshore Support Vessels.

There is a demand for more than 200 vessels in the next five years in

Malaysia.

I understand that all our members fleet of 173 units are fully employed.

I believe others big players (non members) such as Alam Maritim and

Scomi Marine to name a few have their fair share with current surging

market demand.

THANK YOU.