Offshore woes continue to plague Keppel Corp

New orders are few and far between.

Keppel Corporation continues to be troubled by its struggling offshore and marine segment, despite posting a 6% year-on-year net profit growth in the first quarter of the year.

Keppel Offshore & Marine secured $500m worth of contracts in the first three months of 2015. This is a far cry from $5.5b worth of contracts clinched for the entirety of FY14.

“Across the board, not a single drilling rig order has been placed since the start of this year, and rig inquiries have also not been converted into any new contracts...we cannot be certain how long it will take for oil prices to stabilise and for E&P spending to recover,” stated Keppel Corp CEO Loh Chin Hua in an address.

Although eight rigs have already been deferred due to customers’ requests, Loh reiterated that Keppel has been disciplined about taking on well-defined contracts to ensure that the group is adequately compensated for the risks that it will assume.

Barclays analysts Clement Chen and Rex Feng noted that Keppel’s operating margin for the offshore & marine segment stood at 12% in Q1, the lowest level since the second quarter of 2009.

“We expect investors to be concerned about any delays or cancellation risks to the O&M order book, particularly with the ongoing uncertainty around Sete Brasil in Brazil,” they wrote.

Meanwhile, OCBC analyst Low Pei Han stated that while the Sete Brasil situation remains fluid, the scandal stands a chance of being resolved in Keppel's favour.

“A favoured solution would be to reduce the 29-rig construction project to just 13 units, focusing on the two most experienced and financially strong yards, Keppel and SMM. We think this is likely to be the most favoured solution, but refrain from being too optimistic before the final announcement by Sete Brasil, who also has to resume its milestone payments,” Low noted.

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