CIMB: Keppel, Sembarine Could Win $3.6bn in Jack-Up Rig Orders in 2014

CIMB Research has announced that high utilisation and day rates will continue to boost jack-up rigs orders. Keppel and Sembmarine can snatch up to US$3.6bn worth of contracts in 2014 as PEMEX and Transocean are launching tenders for 10 units of jack-up rigs each, for delivery in 2017-20.

Keppel (KEP) may have the upper hand as PEMEX and Transocean are existing customers, CIMB said. Sembmarine (SMM) will benefit from its experience with Mexican owners such as Oro Negro (likely to be chartered to PEMEX) and the jack-ups it built for Global SantaFe (before Transocean acquired it). “KEP is our top pick for its lower execution risks in Brazil. Maintain Overweight on the sector, with more orders as catalysts,” CIMB said in a report.

See CIMB’s report below:

What Happened

PEMEX will start the tendering process for 10 jack-up rigs in Dec-13. Delivery for the first unit will be in 28 months, with each subsequent unit to be delivered at an interval of three months. The orders can go to two yards, with one building six and the other four.

Transocean is also expected to receive bids for up to 10 high-specification jack-ups by end-Oct and has approached yards in Singapore, Korea and China, with speedy delivery (27 months) as a key criterion.

What We Think
Global average jack-up day rates have risen 10% yoy to about US$123k/day and utilisation rate is above 80%. We believe this may encourage more jack-up orders from speculators and drillers. We think KEP can win
US$2.2bn worth of jack-ups from the PEMEX/Transocean tenders, assuming it snatches six jack-ups from PEMEX and five from Transocean, given its long history with both the companies. Including the operators’ units, KEP has built/is building five jack-ups for PEMEX and seven units for Transocean. SMM can win up to US$1.4bn (four from PEMEX and three from Transocean). SMM delivered three jack-ups in 2006-09 that were chartered to
PEMEX in addition to the six units it is building for Oro Negro, likely to be deployed by PEMEX in 2014-15. It also has a relationship with Transocean, via the two jack-ups it built for Global Santa Fe (acquired by
Transocean in 2007). We assume that Dalian shipyard in China can win two jack-ups from Transocean due to its track record with Seadrill. What

You Should Do

Stay invested. We see upside to order wins in 2014, boosted by jack-up rigs on top of the semi-subs, drillships and FPSOs.

Speculators/ Small layers are still ordering
YTD, 52 jack-up rigs have been ordered, a record high since 1980. Out of the 52 units, asset speculators and new entrants accounted for at least 19 units, with more Asian players entering the market. Refer to our sector report “From Casino to Rigs” dated 15 Jun 13, where we noted a shift of wealth from Europe to Asia.

Over the past three months, speculators/new entrants have continued to order more jack-up rigs, backed by funding availability, attractive financing from China as well as the high utilisation/day rates in the industry. The latest speculative order came from Clearwater for two KFELS B-Class jack-ups worth US$440m to be built by Keppel. In Aug, ESSM, a Singapore-based private company, ordered two CJ46 jack-ups from Shanghai Waigaoqiao.
In July, Singapore-listed KS Drilling (KST SP, Not-rated) placed an order for a new-build jack-up rig (JU2000-E design) worth less than US$250m with Zhenhua Heavy Industries, to be built at the PT Citra Tubindo yard in  Batam, Indonesia. Falcon Energy (FALE SP, Not-rated) also placed an order for four GustoMSC CJ50 jack-ups with China Shipbuilding Industry Company (CSIC) at US$218m/rig, to be built at Shanhaiguan Shipbuilding  Industry shipyard. This, after Falcon Energy sold two of its CJ46 jack-ups (being built by China Merchants Heavy Industries) to COSL.”

[mappress]
Source: CIMB, October 03, 2013