Why the MMA Offshore Ltd share price was crunched today

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MMA Offshore Ltd (ASX: MRM) saw its share price crash today, dropping 17.5% and losing much of the 56% gain it has seen since the start of this year after hitting 20 cents a share.

The offshore oil and gas fleet services company reported today that the market remains under significant pressure due to low oil prices and ‘substantially reduced demand for services across all sectors of the market’.

For the 2016 financial year (FY16) MMA says it expects to report earnings before interest, tax, depreciation and amortisation (EBITDA) slightly lower than previously stated guidance of $75 to $85 million, after incurring redundancy costs of ~$3.5 million and provisions against outstanding debtor balances of approximately $7 million.

That could see full year EBITDA drop to $64.5 million, representing a 14% fall below its previous guidance. What should be even more concerning for shareholders is that MMA reported EBITDA of $66.3 million for the first half of FY16 – indicating the company is going to make a big loss in the second half of FY16 at both an EBITDA and net profit level.

Fellow offshore oil and gas services company Neptune Marine Services Ltd (ASX: NMS) recently reported a net loss after tax of $7.1 million for the 12 months ending March 2016, including a $6.6 million write-down on the group’s assets. As a result, Neptune also saw its share price hammered down.

Unfortunately, conditions aren’t likely to improve anytime soon.

While the oil price appears to have stabilised at around US$50 a barrel, at those prices many companies are unlikely to be able to secure funding for offshore drilling. MMA noted that there is a lag between a recovery in oil prices and an increase in demand for the company’s services. MMA says FY2017 will ‘continue to be characterised by low demand and low charter rates’, but expects to see some improvement in the market in FY2018.

Foolish takeaway

Tough times are likely to continue for shareholders in companies like MMA Offshore and Neptune for some time.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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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