Here’s why the MMA Offshore Ltd share price got smashed today

Shareholders of MMA Offshore Ltd (ASX: MRM) have unfortunately not had a great start to the week. Its share price dropped down by over 13% in early trade following the release of a market update this morning.

The offshore oil and gas fleet services company’s update revealed the suspension of a key contract in South East Asia for two of its vessels due to issues with its client’s drilling campaign. Whilst management plans to mitigate the impact of this suspension by seeking alternative deployment for the vessels, it has acknowledged that the rates and utilisation for these vessels are expected to be significantly lower than original expectations.

Furthermore MMA Offshore revealed that it is now expecting a significant rate reduction on a three vessel contract with a client in the Middle East, judging by contract negotiations that are currenty underway.

The combined impact of these two developments is expected to reduce FY 2017 earnings before interest, tax, depreciation, and amortisation (EBITDA) by approximately $10 million.

This is the second time in two months that the company has released a market update which sent the share price tumbling. In June its share price dropped 30% after it advised that it was going to miss its previous FY 2016 EBITDA guidance of between $75 million and $85 million.

With its share price now down by around 40% in the last three months, some investors may be contemplating buying the dip. But I would resist doing so personally as at this point in time I feel it lacks a catalyst to take its share price higher.

For as long as oil prices remain at their low levels I feel both MMA Offshore and Neptune Marine Services Ltd (ASX: NMS) are likely to continue to struggle as demand for their services drops. For this reason I would avoid both these two companies and focus on other areas of the market instead.

Finally, instead of investing your hard earned money in MMA Offshore I would suggest reading about how this man turned a $10K investment into over $8 million. It's definitely worth a read if you get chance today.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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