Keppel Seeks New Non-Rig Orders for Brazil Yards as competition from China pushes down rig prices

Keppel Seeks New Non-Rig Orders for Brazil Yards: Southeast Asia

Keppel Corp. (KEP), the world’s largest oil-rig maker, wants to set aside capacity to build offshore production and support vessels in Brazil as competition from China pushes down rig prices.

Keppel wants to expand its business of building offshore production and support vessels in the country, Chief Executive Officer Choo Chiau Beng said in an interview on July 19. The Singapore company, which is building a second yard in Brazil, also plans to offer more repair and conversion work.“We’re not interested to take a lot more work than the six semis from Petrobras because we do not want to overload our shipyard,” Choo said, referring to an order to build semi-submersible rigs for state-owned Petroleo Brasileiro SA. “We want to leave some capacity for our other customers” who need floating production, storage and offloading platforms, or FPSOs, and for oil-rig repairs, he said.

Demand for offshore drilling and production units is expected to increase as Brazil competes for investments at a time when producers are using new technologies to extract crude from shale beds across the U.S. and explorers are expanding activity off the coast of Africa. South America’s largest economy targets to double its crude production by 2020.

“The next big story there will be FPSOs because ultimately after you drill and discover oil, you’ll need FPSOs to produce it,” Vincent Fernando, the head of Asean research at Religare in Singapore, said in a phone interview on July 19. “They are looking at all the different ways they can tap the energy value chain, they don’t only need to build rigs.”

Ramping Up

Keppel signed a $4.1 billion order in August to build five semi-submersible rigs for Sete Brasil Participacoes SA, an affiliate of Petrobras. The state oil producer, which is developing the largest oil discovery in the Americas in three decades off the country’s coast, is spending $236.5 billion as part of its five-year investment plan.

Choo said the company is in the process of ramping up production at its Brazilian yard specializing in offshore support vessels. Keppel had orders amounting to S$13.1 billion ($10 billion) as of June, with deliveries stretching into 2019.

Shares of Keppel fell 1.4 percent to S$10.75 in Singapore trading on July 19. The stock was the worst performer on the 30-member Straits Times Index after it reported second-quarter net income fell 33 percent to S$346.8 million.

‘Crazy Terms’

While Keppel is facing competition from yards in China for offshore projects, Choo expects customers to lay more emphasis on having products delivered on time. Clients had been asking Keppel to complete rigs that the Chinese yards were unable to finish, he said.

“Chinese yards were desperate because they ran out of conventional ships to build,” Choo said. “They were offering crazy terms to attract customers.”

China, the world’s biggest shipbuilding nation, may see a third of its yards shut down in about five years amid a global vessel glut, according to the China Association of National Shipbuilding Industry. That has prompted yards to expand into building offshore projects.

Choo, 65, will retire at the end of this year and Chief Financial Officer Loh Chin Hua will take over from January.

To contact the reporters on this story: Kenneth Foo in Singapore at kfoo23@bloomberg.net; Kyunghee Park in Singapore at kpark3@bloomberg.net