Battle of the builders: Sembcorp Marine struggles where Keppel surges

Industry experience may be the key difference.

As operators defer deliveries in an attempt to stay afloat in the current downturn, rig builders have had to grapple with the fallout.

A report by UOB notes that so far in the year, Singapore yards suffered through 11 deferrals and one cancellation—Marco Polo Marine’s break-up with Sembcorp Marine benchmarks Singapore’s first contract cancellation in the current downturn. Unfortunately for Sembcorp Marine, this may not be the only cancellation it will have to face.

In the rig boom of 2012-14, Sembcorp Marine enjoyed a great many order intakes from industry neophytes. This could now be spelling trouble for the company, as UOB asserts that five of the company’s remaining six jack-up rigs are at risk of cancellation. Only Hercules Offshore has secured funding for its rig, leaving two rigs for Perisai and three rigs for Oro Negro with no contracts to back them.

Oro Negro’s three rigs are particularly vulnerable due to the company’s current cash-strapped situation. Further, Marco Polo’s termination might finally push Oro Negro and Perisai into the same course of action.

Meanwhile, Keppel is faring the downturn better. So far, it has only had to grapple with five delivery referrals from Transocean, two from Grupo R, and one from Parden Holdings. 

UOB posits that Parden Holdings aside, there is a minimal risk of cancellation given the other clients’ established history in offshore drilling.

The disparity may in part be explained by the two companies’ experience in the industry. Keppel is a veteran in rig building, while Sembcorp Marine had just diversified into rig building. Sembcorp Marine was first a shipyard, then a ship-repair yard. Despite low capability for earnings, it was a low risk endeavour. Its current heavy-engineering business is inherently higher risk.

“Two key risks in the sector are: a) protracted low oil prices, and b) another sharp fall in oil prices. Both would significantly impede future capex spending, which needs to rise in order to return activity levels to pre-crash levels,” UOB concluded.