Kim Heng’s order flows in 2H14 to slow even further

As oil prices take another tumble.

Kim Heng expected a stronger period in 2H14 due to delays in arrivals of drilling rigs and offshore support vessels from customers in 2Q, but oil prices have taken another tumble, and order flows are likely to slow even further.

According to a report by OCBC Investment Research, given the industry slowdown, work flow may not be as forthcoming as expected earlier. Oil prices have taken another tumble since then, and Brent is now trading at a five-year low of about $68/bbl.

In an earlier report, OCBC highlighted that management believes that more rigs may be coming to Singapore to be warm or cold stacked; according to a 1 Dec 2014 report by Reuters, Kim Heng mentioned that it has received enquiries to stack dozens of rigs over the past few weeks. Rigs in warm stack maintain basic operations and crew as owners monitor the market situation for signs of recovery. If more rigs start getting cold-stacked, that would mean owners expect the downturn to be a prolonged period of time.

Here's more from OCBC:

Looking ahead, oil prices are likely to remain subdued for at least the first half of next year. Meanwhile, risks are tilted more to the downside as any further oil price volatility would affect the rate at which projects are being awarded, compounded by the renewed  focus by international oil companies on shorter term shareholders’ returns.

The ongoing requirement for rig maintenance and repair means that Kim Heng’s business is less cyclical than the newbuild business, which may be more affected during a downturn.