Keppel more likely to win drilling contracts from Azerbaijan NOC

Find out how much is the potential boost to order book of Keppel.

Upstream reported that State Oil Company of Azerbaijan Republic (Socar) has plans to order up to two semisubmersibles for drilling in the Caspian Sea region. The construction is expected to take place at a yard close to Baku in Azerbaijan.

To support the rig construction, Socar is understood to be pooling drilling commitments from other oil and gas companies operating in the region to form a multi-year charter (understood to be up to 5 years). So far, besides Socar, Total and BP are understood to be the other 2 interested oil and gas operators.

Socar has shortlisted 2 rig designs from Keppel FELS and Friede & Goldman for the proposed semisubmersible. The unit will be designed to drill down to 1000m (~3,300 feet) water depths.

Given KEP’s track record in the region, however, DBS Vickers Securities analyst Janice Chua notes that it has been identified as a front-runner for these potential contracts. “As a recap, KEP haspreviously delivered the Maersk Explorer semisubmersible from its subsidiary Caspian Shipyard Company (CSC) yard in August 2003,” she said.

The contracts are seen to generate a potential US$0.6-1.2bn boost to orderbook of Keppel. “We believe each semisubmersible unit could be worth at least US$600m per unit, depending on the technical specifications, implying potential total contract value of at least US$1.2bn (S1.5bn). Our FY12 order wins assumption for KEP is S$6bn,” said Ms. Chua.

Looking forward, Ms. Chua however cautioned that dearth of semisub orders over 2009-2011 is not sustainable but expect an uptick in demand on highly aged fleet. “We believe the semisubmersible market could see a revival of orders. We note that the existing semisub fleet remains highly aged fleet (61% of existing fleet >25 years old), while there has been a dearth of new orders over 2009-2011 (a total of 12 units ordered over this period or 4 units/year, vs. 2005-08 average of 14.25 units/year), with only 17 units left in the orderbook globally (~8% of fleet),” she said.

According to IHS Petrodata, the global semisub fleet utilisation rate currently stands at a healthy 88%.

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