Yangzijiang's arm inks US$170m rig building deal

Plus a letter of intent with SSP Offshore.

According to DBS, Yangzijiang's 78% owned subsidiary - Jiangsu Yangzijiang Offshore Engineering Co., Ltd (“JYOEC”), has secured a turnkey contract for a self-elevating jack up drilling rig worth US$170m, with an option for an identical unit.

Here's more from DBS:

Scheduled for delivery by 2Q15, the rig will be built based on the Letourneau Super 116E Class design. It is capable of drilling down to 30,000 feet and operating in 350 feet of water, with accommodation for 120 persons.

Price seems reasonable and is in line with similar orders by other Chinese yards e.g. Cosco. It represents a discount of 20% to Singapore rigbuilders. Gross margin is expected to be around 10% assuming smooth execution.

Customer - Explorer I Limited, wholly-owned by Mena Offshore Investments Limited (which we understand to be Qatar investors) is managed by Offshore Logistics (Asia Pacific) Pte. Ltd (one of the largest surface to subsea oil and gas equipment suppliers to the Asian market).

Yangzijiang has also signed a LOI with Toronto listed design house - SSP Offshore, to commence detailed design and construction engineering for the construction of the first FPSO unit.

We understand Yangzijiang will establish a long term relationship with SSP in an effort to promote the new FPSO design. Yangzijiang may spend a few million USD initially to build and showcase the new design.

A significant offshore milestone. While both orders are not from typical operators and have yet to secure back-to-back charter contracts, it is, nevertheless, a significant breakthrough for a new player like Yangzijiang to secure jack up and FPSO orders.

Moving offshore is an inevitable move in enhancing its product mix and combatting the shipbuilding downturn. We have factored the jack up orders into our FY13 order win assumption of US$2bn.