Viking Offshore and Marine

Viking Offshore and Marine: has entered into a purchase and lease-back of a land drill rig and related equipment from a Chinese vendor for US$15.3m.

Under the lease-back arrangement, the land rig would be chartered to a nominated Chinese land rig specialist, for a term of 48 months, starting from 1 Sep '15. The value of the bareboat charter, which includes a put option, is US$31m. Viking is expected to recognise charter income from this rig in 2H15.

The 1,500-bhp land rig would then be be sub-leased to a major South Asian energy operator for deployment on a North African oilfield concession, jointly owned by the operator and the local energy authority.

This is the second land rig charter for Viking. The group had undertaken a similar deal for its first rig with the same charterer in Sep '14 to accelerate drilling activities after a positive assessment of hydrocarbon potential in the locality.

While the move is expected to raise earnings for Viking, the group would require additional funding for the deal, judging by its cash pile of $9.5m (US$7m) as at Mar '15. Assuming full debt funding, gearing is expected to rise from 22.2% to 43%.

This would translate to an increased finance costs for the group, with interest fees already accounting for 12% of gross profit in its latest quarter.

As a background, Viking embarked on an asset ownership strategy two years back to raise its recurring revenue stream, beyond providing solutions in heating, ventilation, air-conditioning and refrigeration systems for the marine and offshore industries.

The strategy prompted a move to acquire 30%-stakes in two jack-up rig assets, which are expected to be completed in 4Q15. However, with no charters secured at this point, Viking's timing cannot be any more unfortunate amid the oversupplied market.

At the current price, Viking is valued at a trailing 6.5x P/E and 0.53x P/B.