Yangzijiang's US$170m jack-up drilling rig deal is no surprise

Analysts have seen it coming.

According to OCBC, Yangzijiang Shipbuilding (YZJ) recently announced that it has clinched its first offshore order worth US$170m for a jack-up drilling rig.

Here's more from OCBC:

Its 78%-owned Jiangsu Yangzijiang Offshore Engineering Co had entered into a contract with a subsidiary of Mena Offshore Investments, a Malaysian-domiciled fund managed by Offshore Logistics Asia Pacific (OLAP).

The unit will be of Letourneau Super 116E design (delivery 2Q15), and the contract includes an option for one more identical unit.

For the sake of comparison, Keppel Corporation had secured an order to build a unit of the same design in Apr this year for delivery in 1Q14 with a price tag of US$205m, (20% higher than YZJ’s).

This contract does not come as a surprise – YZJ’s management had mentioned as early as Mar this year that there were plans to build two jack-up rigs in the Taicang yard, estimated at US$150-200m per unit.

Upstream also reported in a 29 Nov 2012 article that Yangzijiang Offshore Engineering was set to build a jack-up rig for Qatar Investment Corporation (QIC) at its Taicang yard, and that QIC was in talks with rig operators for possible rig charter contracts.

QIC has a stake in YZJ Offshore Engineering Pte Ltd.

The greatly reduced new order flow for bulk carriers and containerships that Chinese yards such as YZJ have been reliant on have forced them to seek new grounds.

Time will be needed for significant earnings contribution from YZJ’s offshore division, and we still expect 2H13 and 1H14 to be the most difficult period for the group, based on its order book (US$3.6b as at end Sep 2012) and delivery schedules.

Nevertheless, building offshore capabilities is a step in the right direction.