Singapore’s rigbuilding and repair yards will continue to be challenged by a listless offshore and marine market this year, though a glimmer of optimism and pockets of opportunities have surfaced
The global offshore oil and gas industry is not out of the woods yet, leaving major rigbuilding yards still reeling from the impact of a lack of newbuilding orders and a slash in earnings. Singapore’s Keppel Corp, known for its leading role in global rigbuilding, saw its full-year results bogged down by its weak offshore and marine business division.
Keppel Corp’s offshore and marine division incurred a full year loss of S$835M (US$638M) compared with the profit of S$29M for 2016. The loss was a combination of a one-off financial penalty, lower revenue, an additional S$81M provision for losses on the Sete Brasil rig contracts, an impairment of S$54M made to other assets and a lower share of associated companies’ profits.
In 2017, the offshore and marine division secured new contracts of approximately S$1.2Bn mainly for LNG-related vessels, the conversion of FPSO units and newbuild dredgers. The handful of new contracts is already crucial because they contributed to stabilising Keppel’s finances. Keppel Offshore & Marine (Keppel O&M) landed a contract worth S$120M to build two dredgers for Jan De Nul. It also won a S$103M deal to build two LNG carriers for Stolt-Nielsen Gas.
Keppel AmFELS, a subsidiary of Keppel O&M, secured a contract worth more than US$400M from Pasha Hawaii to construct two LNG-fuelled container ships.
Keppel Shipyard, another subsidiary of Keppel O&M, clinched an FPSO conversion contract from SBM Offshore. The shipyard also won a deal worth S$85M for the conversion, repair and modification of vessels for both new and existing clients.
Keppel Corp chief executive Loh Chin Hua commented “In the past year, amid a challenging environment, Keppel delivered on projects, entered new markets, seized new opportunities, and established vehicles and engines for growth.”
In January this year, Keppel FELS delivered a jack-up rig to Borr Drilling, the first of five under a bumper contract sealed in March 2017. The contract for building the five rigs was originally with Transocean before it was novated to Borr Drilling.
The delivery dates of the five KFELS Super Class B jack-up rigs were originally between 2016 and 2017, but they had been deferred by Transocean to 2020. The first three rigs will now be delivered between 2017 and 2018, while the remaining two rigs will be delivered in 2020. Keppel FELS said this will enable it to improve cash flow and minimise the risks of the projects.
All the rigs are KFELS Super B Class designed to operate in 400 feet water depth and drill to 35,000 feet. With a two-million-pound drilling system and a maximum combined cantilever load of 3,700 kips, the KFELS Super B Class is equipped with tremendous horsepower during drilling operations. In addition, each rig will be installed with offline stand building features in its drilling system package, which allows drilling and the preparation of drill pipes to take place at the same time. The rig is capable of drilling at a 75-feet outreach, allowing for coverage of a larger well pattern.
The rig acquisition spree by Borr Drilling included its October 2017 purchase of another nine jack-up rigs from Sembmarine’s PPL Shipyard, Keppel’s Singapore rival in rigbuilding. The nine jack-up rigs will be delivered in phases to Borr Drilling until the first quarter of 2019.
“There is growing optimism in the offshore and marine industry, following the recovery of oil prices on the back of extended supply cuts by OPEC and other oil producers. The increase in offshore rig transactions has also helped to improve the outlook,” Mr Loh said.
“But the rig market continues to be plagued by a supply overhang, and both utilisation and day rates remain low. While FIDs have doubled in 2017 compared with 2016, and are expected to gather momentum as oil companies restart their oil exploration and exploitation programmes, it may be some time yet before they translate to orders for new drilling units,” he said.
Nonetheless, Keppel continues to see “opportunities in the demand for production assets, LNG solutions and specialised vessels,” Mr Loh added.
Results hit by one-off financial penalty
Singapore-listed Keppel Corp reported a net loss of S$495M in the fourth quarter of 2017 as against the net profit of S$143M in the same period of 2016. The net loss mainly arose from a one-off penalty and related costs as well as the weaker operating results of its offshore and marine division.
For the full year 2017, Keppel Corp registered a profit of S$217M, down by 72% from the S$784M profit for 2016.
Last year Keppel O&M reached a global resolution with law-enforcement authorities in the US, Brazil and Singapore, bringing closure to investigations into corrupt payments made by a former agent of Keppel O&M in Brazil. The global resolution relates to improper payments that were made to Brazilian Government officials between 2001 and 2014 in relation to Keppel O&M’s various projects with Petrobras and Sete Brasil.
Keppel O&M has agreed to pay fines totaling US$422M to the three jurisdictions. The financial penalty is accounted as an extraordinary item and its impact is one-off.
Mr Loh said: “The global resolution reached by Keppel O&M over past misdeeds in Brazil brings an end to what has been a painful chapter for Keppel – one that we have recognised and dealt firmly with. This is not Keppel. We are not just about results, but also how they are obtained.
“The past practices uncovered at Keppel O&M do not reflect how the Keppel Group conducts business today. Keppel does not just care about results, we care deeply about how our results are achieved. We have zero tolerance for corruption.”
Mr Loh added that effective compliance controls are now embedded across all the group’s businesses, supported by rigorous anti-corruption training and compliance.