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Keppel Looks to Mexico and China

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January 26, 2015

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Keppel Looks to Mexico and China

Keppel Corp 16x9

Keppel Corporation CEO Loh Chin Hua admitted the offshore industry has been spooked by the drastic fall in oil prices when announcing the Singapore-based offshore construction group’s 2014 financial year results.

Keppel posted a 2014 profit of S$1.885 million ($1.4 million), up two percent from 2013 despite the unsettling market where global exploration and production spending is expected to drop by 9 percent in 2015 to about $619 billion.

“We are seeing a nervous start to the year with threats of slower growth and deflation from worries on how much lower the oil price will go and how long before it recovers and stabilizes.”

Over this year and the next, as many as 119 jackups and 53 deepwater rigs will enter the market. A significant number of these have yet to be chartered, Loh said. “Day rates have also taken a beating. Current day rates for ultradeep and deepwater rigs have dropped around 34 percent from a year ago, while high specification jackups have been more resilient, decreasing by about 15 percent since January 2014.”

However, he is positive about his group’s growth in Mexico. “In the coming months, our team will be working hard to finalize Keppel’s partnerships with Pemex and Titan Petrochemicals Group that will further entrench our “Near Market, Near Customer” strategy. Our joint venture with Pemex to develop a yard in Altamira is well-timed with the opening up of the Mexico’s oil and gas sector, which will see growth in demand for offshore solutions for years to come.”

A 30-year management services agreement to operate the Titan Quanzhou Shipyard in China’s Fujian Province will enable the group to enter the market there whilst still maintaining control of its proprietary solutions.

Loh believes that current low oil prices will lead to an acceleration in the replacement cycle for aging rigs. Presently, over 50 percent of jackups and semis are 25 years old and above. Between 2011 and 2014, 48 rigs were scrapped compared to just 42 over the period from 2000 to 2010.

“Older rigs have been able to stay busy and earn good day rates until now because of a lack of newbuilds to meet demand. But the days are numbered for many old rigs. New rigs, which are more efficient and productive, are accepting lower day rates to stay active today. Even at lower day rates, new rigs with enhanced capabilities give better returns, and this is forcing old rigs to go idle.

“Major drillers such as Transocean and Diamond have begun scrapping their old rigs. And there will be more. This scrapping will be very healthy for the offshore drilling business as capacity is being taken out from the market gradually, making headroom for day rates to rise again.”

Keppel has a strong order book with orders stretching to 2019.

Late last year, group subsidiary Keppel FELS was conferred the title of “Largest manufacturer of offshore rigs – current” by Guinness World Records for delivering 21 offshore rigs in 2013.

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