Will Singapore's rig builders ever recover?

Three catalysts could boost their prospects.

The ongoing oil rout has taken the wind out of Singapore rig builders' sails. Despite the prevailing downturn, analysts highlight that three catalysts could finally manage to pull these companies out of doldrums.

The first catalyst would be the mass retirement of of old rigs. DBS notes that half of the current global rig fleet is greater than 30 years old and would gradually be retired soon.

"Rig owners are retiring older rigs and making plans to cold stack others in an effort to reduce costs in the current market climate. In general, most future rig attrition can be identified from the existing fleet of coldstacked rigs, although in some instances a rig owner may opt to retire a rig immediately after contract completion. The pace of old rig attribution plays a critical role in restoring supply/demand equilibrium as the recent rig building boom in 2012-2014 was fuelled by replacement demand," said the report.

Another prospective catalyst would be extensive order cancellations at Chinese yards. These yards have benefitted most from the latest rig building boom, raising their market share to a third of global orderbook of drilling rigs, from less than 10% previously.

"We believe there will be massive rescheduling at Chinese yards and eventually some cancellations. This will help to mitigate the supply pressure in the near term. The best scenarios will be cancellations of projects that have yet to start, which will ‘remove’ supply completely," the report noted.

The third and most obvious catalyst would be a sharp recovery in oil prices, which will re-ignite investments in the deepwater and ultra-deepwater spaces.

"As a result, it might raise demand for newbuild rigs especially drillships and harsh-environment jackups, and benefit Korean and Singapore rigbuilders. However, we do not think order win momentum could head towards the 2012-2013 levels,” DBS noted.