Sembcorp Marine order has a galvanizing effect: CIMB

The $568-million deal with Seadrill will likely spur a buying bonanza among other drillers.

Seadrill is seen as a market leader and trend setter, and their new request for a semi-sub drilling rig for the North Atlantic Drilling subsdiary will likely trigger similar purchases from competitors, which will ultimately benefit Sembcorp Marine and other Singapore semi-sub builders.

Here's more from CIMB:

Return of semi-sub drilling rigs. After a lull of more than two years, the semi-sub drilling rig trend could be revived as Seadrill led the market by placing a US$568m order with SembMarine. We believe all it takes is for one or two drillers to start placing orders before the rest follow suit.

Maintain Outperform and target price, still based on 18x CY13 P/E. No change to our EPS estimates and non-Petrobras order assumption of S$2bn for 2012. Stronger-than-expected order wins and margins could be key catalysts.

What Happened? SMM announced this morning that it has secured a US$568m semi-sub drilling rig order from North Atlantic Drilling, a subsidiary of Seadrill. Delivery is scheduled for no later than the first quarter of 2015. The new rig will be built based on the Moss Maritime CS60 design – an enhancement of the Moss Maritime CS50E MKII harsh-environment ultra-deepwater semi-submersible rigs West Pegasus and West Leo, which were delivered by Jurong Shipyard to Seadrill in Mar-11 and Jan-12, respectively.

What We Think. The order drought of semi-sub drilling rigs since 2009 has left only 12 units due for delivery in 2012-14 vs. a total of 110 jack-up rigs and drillships. ODS Petrodata expects a global shortage of semi-subs from Jun 2012 onwards as demand outstrips supply, especially in Southeast Asia, West Africa and the Gulf of Mexico. Seadrill, being the market leader (one of the early birds
which started the jack-up rig rush in end-2010), could set a new trend for semi-subs this round. The rig value is lower than those awarded during the peak in 2008 of about US$640m (F&G design), mainly due to cheaper equipment cost. However, we expect prices to climb as more orders come in.