Keppel’s Baku Shipyard wins US$378m deal

First major contract gets sealed.

According to CIMB, Keppel’s investment in Baku Shipyard, Azerbaijan, since Sep 13 is yielding fruit with a US$378m contract from BP Exploration.

Here's more:

Although Keppel’s stake in the yard is only 10% (for now), it is an illustration of Keppel’s ‘near customer, near market’ strategy. By having two yards in Azerbaijan - Baku Shipyard and Caspian Shipyard Co, Keppel is ahead of its competitors with no presence in the region and who may miss out on bidding because of the lack ofproximity. Keppel’s order win YTD stands at S$1.9bn, with its order book at S$14.4bn.

What Happened

Keppel’s Baku Shipyard has secured a contract worth US$378m from BP Exploration (Shah Deniz) Ltd, the operator of the Shah Deniz gas field development, to design and build a subsea construction vessel. Delivery of the vessel is scheduled for April 2017. The vessel is the first major contract secured by Baku Shipyard since its inauguration in Sep 2013. 

The yard is jointly developed and owned by Azerbaijan’s state energy company, SOCAR (65%), Azerbaijan Investment Company (25%) and Keppel O&M (10%, with the option to increase to 20%).

What We Think

Captive market. We believe that by having two yards in Azerbaijan - Baku Shipyard (10% stake) and Caspian Shipyard Co (45%), Keppel will be ahead of its competitors in bids for any contracts in the Caspian region requiring local content elements. 

Other Asian yards may miss the opportunities due to the lack of presence and yard proximity. We note that most of the rigs owned by SOCAR or those still operating in the Caspian Sea were built by Russian yards in the1970s-1980s. In the recent 1Q14 results briefing, management mentioned that there have been strong enquiries from the Caspian market and the group is in discussions for more contracts. 

Keppel is currently building a semisub (S$800m) for SOCAR in its 45%-owned Caspian Shipyard Co, which isalso jointly owned with SOCAR.