Booming North Sea, GOM orders to lift Singapore rig builders

Outlook brightening as drillers escalate activities.

According to Barclays Research, increasing drilling activity in the North Sea and Gulf of Mexico (GOM) is poised to boost Singapore rig builders, especially Keppel Corp and Sembcorp Marine, who will be tapped to provide offshore drilling rigs for the expansion-hungry drillers.

Here's more from Barclays Research:

The recent flurry of activity in the Gulf of Mexico (GOM), as well as positive demand trends from the North Sea bodes well for the order outlook for Singapore rig builders. As highlighted by our US colleagues in their recent reports, 'Game on (for the third time) in the GOM' and 'Game On in the North Sea Too', the steadily increasing rig counts, strengthening permit activity and bullish commentary from the offshore drillers should be positive for new rig orders. We reiterate our positive outlook for Singapore yards and we expect them to benefit from the strong demand for offshore drilling rigs. We prefer Keppel Corp (OW/Pos; S$10.90; PT S$13.8) over Sembcorp Marine (EW/Pos; S$4.43; PT: S$5.10) for its more robust margin outlook.

GOM & North Sea key markets for Singapore yards: With more than half of the current offshore drillers (c10 of 19) in the GOM and (c10 of 19 also) in the North Sea previous or current customers of the Singapore yards, an increase in demand for rigs in those regions should bode well for likely repeat orders, particularly with drillers looking to standardize their fleets.

North Sea likely to drive semi-submersible demand: We believe that there could be a c42% increase in the total no. of floaters operating in the North Sea by 2015 (60 from 42 currently). With the North Sea traditionally a key region for absorbing semi-submersible supply, an uptick in demand could potentially incentivize new orders.

Ultra-high-spec jackup orders expected for North Sea: Statoil (EW/Neu) awarded earlier this week a long-term contract to Noble Corp (OW/Pos) for an ultra-high-spec jackup to work on its expansive Mariner Project in the U.K. North Sea. As highlighted previously (Large scale jackup contracts on the horizon), we expect this contract to be a two-horse race between Sembcorp Marine and Daewoo Shipbuilding & Marine Engineering (DSME). Statoil and Maersk Drilling are also expected to require more ultra-high-spec jackups (likely of the Gusto MSC CJ-70 design), which only the Singapore yards have had a track record of building.

Offshore drillers increasingly positive on outlook for GOM: Various offshore drillers including, Pacific Drilling (OW/Pos) and Atwood (OW/Pos), have highlighted in their recent conference calls the strong demand for ultra-deepwater assets in the GOM. We believe that this should likely support the supply of deepwater floaters being delivered over the next 2-3 years and also likely result in further new orders.

Risks: 1) the increasing competitive landscape, particularly the Chinese yards, which continue to offer aggressive discounts on rigs or attractive financing terms; and 2) execution risks, as highlighted by the accident in Dec at Sembcorp Marine.