Keppel's cashflow to finally improve with new rig deal

Borr Drilling will pay a downpayment of US$275m.

Keppel Corp has entered into a heads of agreement (HOA) with Norway-based Borr Drilling, which will acquire five of Transocean’s jack-up rigs that are currently being built by Keppel.

According to RHB, the current price of each rig is US$216m, compared to the original price of US$219m paid by Transocean in 2013. Borr Drilling will also pay a downpayment of US$275m to Keppel.

Recall that Transocean ordered the five jack-up rigs from Keppel in 2013 to be delivered in various stages from 1Q16 to 2H17. However, the slowdown of the jack-up rigs market forced Transocean to defer the delivery of the new rigs until 2020.

Here’s more from RHB:

Under the new arrangement, Keppel will deliver three rigs to Borr Drilling between 2017 and 2018, whilst the other two rigs are to be delivered in 2020.

According to Upstream, Borr Drilling will acquire the entire jack-up fleet of Transocean, which consisted of 10 current rigs and the five new rigs which are under construction at Keppel.

We believe the new arrangement with Borr Drilling should allow Keppel to breathe a sigh of relief, finally getting some visibility on the deferred jack-up rigs.

The agreement would also enable Keppel to improve its cashflow and minimise the risk of further impairments to its balance sheet.

Keppel’s O&M orderbook stands at S$3.7b. It is shifting the focus of its offshore & marine division to LNG- and gas-related technologies, specialised vessels, repurposing offshore technology, and repairs and conversions.

We expect Keppel to secure S$800m worth of new contracts in FY17, higher wins than our expectation would provide further earnings upside potential.