Here’s why the cancellation fiasco paints a bigger picture than just SembMarine vs. Marco Polo

The downturn is taking its toll on rig builders.

Investors were tuned in when news of Marco Polo’s contract cancellation with Sembcorp Marine broke out, marking the first Singapore rig building contract cancellation in the current downturn.

Since the announcement by Marco Polo, the two companies have since traded blows, refuting each other’s statements and airing out conflicting views.

However, analysts from UOB Kay Hian seem to think that the two firms are just the first of multiple victims by the prolonged downturn.

“The downturn in the drilling rig market has been financially challenging for rig operators who have faced contract cancellations from oil majors and national oil companies, and weak job prospects,” UOB Kay Hian said.

According to UOB Kay Hian, rig operators had also initially tried to bandage the damage by deferring rig deliveries, but as push came to shove, owners are now reviewing the economic viability of their newbuild orders with stretched balance sheets in mind.

“Ytd, South Korean yards have seen eight delivery deferrals, and two order cancellations. Singapore yards have seen 11 delivery deferrals ytd and one cancellation,” UOB Kay Hian added.

Meanwhile, consequences are brimming for SembMarine.

“Now that one jack-up rig cancellation has come to pass, SMM might face a potential wave of similar cancellations. Of the remaining six rigs, five are at risk,” UOB Kay Hian said.