Why Singapore yards are very attractive for Mexican market

SMM, Keppel secured 6 orders each.

According to Nomura, rising rig demand in Mexico is driven as much by 1) PEMEX’s push to arrest declining oil and gas production as by 2) an ageing Mexican rig fleet that needs modernisation. 

PEMEX reported oil production of 2.51 mmbd for May 2013, its lowest level since September 2011. Besides Pemex’s plans to increase exploration, the government is also moving to open up the sector to foreign participation.

Here's more from Nomura:

As per an Upstream Online article dated 18 June 2013 (Pena Nieto: Pemex monopoly 'to end this year'), Enrique Pena Nieto, the Mexican president has expressed confidence that Congress will end Pemex’s state monopoly in Mexican oil and gas sector in 2013 and foreign companies will be able to participate in exploration, development and production of hydrocarbon reserves.

Additionally, based on data from ODS Petrodata, out of the 35 rigs currently drilling in Mexico, only nine are 5 years or younger i.e. ~25% of total drilling fleet. Given improving exploration and development prospects in the region, we continue to believe that JU demand in Mexico will remain solid.

Singapore-based offshore yards have secured a total of 12 JU newbuild orders since December 2012 of which both SMM and Keppel have secured six orders each.

Drillers in Mexico have exhibited a pattern of building same design rigs. While Grupo R have ordered four rigs based on Keppel’s KFELS B class design, all of Oro Negro’s orders have been of Pacific Class 400 design.

This re-affirms our thesis that drillers prefers having multiple rigs of same design as this results in lower operating and maintenance costs and improved efficiencies.

In our view, Singapore yards securing 12 newbuild orders from Mexico, has given them a head start in capturing the Mexican market over the Chinese yards.