Keppel Corp: staying cool in the face of a force majeure

Clients and analysts are not worried despite the company's announcement that the delivery of its first rig for Discovery Offshore will be delayed for eight weeks.

The company's “strong record” in early deliveries will offset the impact of the announced delay in rig delivery for Discovery Offshore, CIMB noted.

On May 4, Discovery Offshore received notice from KepCorp that there would be a delay in the delivery of hightensile steel from Japan. KepCorp estimated that the delivery date for the first rig will be delayed by eight weeks, from April 7 2013 to June 7 of the same year.

No change to the delivery date, however, was announced for the second rig due in 4Q13.

In March, KepCorp has issued notices to its jack-up rig customers that the Japanese earthquake could lead to a force majeure situation for rigs under construction, potentially delaying deliveries.

The company is also in discussions with Asia Offshore/ Mermaid Maritime on the delivery schedule for two rigs under construction, although no changes have been announced so far.

In a statement, CIMB Research said it is “not surprised” by the delays and had even expected in the aftermath of the disaster in Japan.

KepCorp sources hightensile steel for the legs of jack-up rigs from its Japanese steel mill, Regency Steel, in Kitakyushu, Fukuoka.

According to the analyst, steel production has since been resumed but the delays are caused by port congestion and shipping logistics.

“We see the force majeure notices as precautionary action and normal in the industry given the tragedy. We are not overly concerned as any potential delays in steel supplies are likely to be compensated by KepCorp’s strong record in early deliveries,” CIMBR said.

Any delays may just push back revenue recognition by one quarter, at the most with minimal earnings impact, the research firm added.