Keppel, Sembcorp seen to snatch up to US$3.6b rig deals in 2014

Tenders for jack-up rigs underway.

According to CIMB, High utilisation and day rates will continue to boost jack-up rigs orders.

CIMB said that Keppel and Sembmarine can snatch up to US$3.6bn worth of contracts in 2014 as PEMEX and Transocean are launching tenders for 10 units of jack-up rigs each, for delivery in 2017-20.

Here's more:

Keppel (KEP) may have the upper hand as PEMEX and Transocean are existing customers.

Sembmarine (SMM) will benefit from its experience with Mexican owners such as Oro Negro (likely to be chartered to PEMEX) and the jack-ups it built for Global SantaFe (before Transocean acquired it). KEP is our top pick for its lower execution risks in Brazil. 

What Happened
PEMEX will start the tendering process for 10 jack-up rigs in Dec-13. Delivery for the first unit will be in 28 months, with each subsequent unit to be delivered at an interval of three months. The orders can go to two yards, with one building six and the other four. (Source: ODS-Petrodata).

Transocean is also expected to receive bids for up to 10 high-specification jack-ups by end-Oct and has approached yards in Singapore, Korea and China, with speedy delivery (27 months) as a key criterion (Source: Upstream).

What We Think
Global average jack-up day rates have risen 10% yoy to about US$123k/day and utilisation rate is above 80%. We believe this may encourage more jack-up orders from speculators and drillers.

We think KEP can win US$2.2bn worth of jack-ups from the PEMEX/Transocean tenders, assuming it snatches six jack-upsfrom PEMEX and five from Transocean, given its long history with both the companies.

Including the operators’ units, KEP has built/is building five jack-ups for PEMEX and seven units for Transocean. SMM can win up to US$1.4bn (four from PEMEX and three from Transocean).

SMM delivered three jack-ups in 2006-09 that were chartered to PEMEX in addition to the six units it is building for Oro Negro, likely to be deployed by PEMEX in 2014-15.

It also has a relationship with Transocean, via the two jack-ups it built for Global Santa Fe (acquired by Transocean in 2007). We assume that Dalian shipyard in China can win two jack-ups from Transocean due to its track record with Seadrill.

What You Should Do
Stay invested. We see upside to order wins in 2014, boosted by jack-up rigs on top of the semi-subs, drillships and FPSOs.