How Chinese shipbuilders eclipsed Singapore rivals in the jackup space

Speculative orders skewed jackup market share.

According to Maybank Kim Eng, the Chinese shipbuilders are perceived to be eroding Singapore rig builders’ dominance in the jackup space after eclipsing the latter to secure 48% of global jackup orders as at Nov 2013.

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In our view, this was skewed by speculative orders (at least 20 units), which might not have existed were it not for the lax financing terms offered by Chinese shipyards (1%/99% or 5%/95%) that attracted asset players/speculators.

Timely delivery and quality are still important for Tier-1 drillers. The key advantages that Singapore and Korean yards wield over the low-cost Chinese yards are (1) timeliness of delivery (important when charter rates are on the rise), and (2) quality (important with increasing technical complexity and stringent safety levels).

Tier-1 drillers with financing power would be less willing to compromise on these two key attributes for cost savings of USD20-30m per rig, which they could easily make back from high charter rates.

To them, the repercussions (fines and opportunity costs) from an accident due to the deployment of a less worthy rig would be much greater.

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