Rig builders still stuck in the doldrums despite oil price bounce

The downturn could persist for another year.

The recent bounce in oil prices has brought no reprieve for Singapore’s struggling rig builders. A report by Maybank Kim Eng noted that the downturn has not ended as offshore firms continue to be impacted by dwindling orders on back of hefty spending cuts by oil majors.

Large players like Keppel and Sembcorp Marine remain hounded by the Sete Brasil corruption scandal, while mid-caps like PACC Offshore, Pacific Radiance and Nam Cheong are under threat from capex cuts by Petrobras, Pemex, Pertamina and Petronas.

Oil firms also have inhibitions even for opex-related jobs such as subsea inspection, repair and maintenance work, which will affect companies such as Pacific Radiance and Mermaid Maritime.

“Oil’s recent bounce did not trigger an equivalent rebound in stock prices. This suggests the market does not believe in its sustainability as oil production has not been curtailed. The magnitude of the ricochet has also been insufficient to change oil majors’ minds on capex cuts. We believe EPS downgrade cycle has not ended,” noted the report.

In spite of the downturn, offshore firms remained fairly confident of their long-term prospects. The report stated that most firms acknowledged their 2015 weakness but all expressed confidence in an eventual oil-price recovery, with expectations ranging from 6-18 months.

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