Keppel’s profit hurt by offshore rig division

Offshore rig builder Keppel saw its fourth quarter 2015 net profit down 44% to S$405 million, compared to 4Q 2014’s S$726 million. For the full year net profit fell 19% to S$1,525 million, compared to 2014’s S$1,885 million.

Keppel’s Offshore & Marine business’ profit was S$481 million for the full year., down 54% from S$1,040 a year ago. For the quarter O&M business recorded a net loss of $61 million.

The company’s result was affected by low oil prices, lower volume of work, the drillers deferring rig deliveries, and especially Keppel’s Brazilian client Sete not paying instalments for six under construction rigs.

Sete Brasil has been mulling over bankruptcy protection, but Keppel said it had not heard from the driller officially. Bloomberg today reported that the Sete Board meeting over the restructuring of the company has been postponed, with no date provided.

“We had taken steps to mitigate our exposure by slowing the construction of Sete’s rigs after payments from our customer ceased over a year ago,”  Loh Chin Hua, Keppel Chief Executive Officer said.

The CEO said that of six Sete rigs, only the first two semis, which are also in the most advanced stages, have been sent to the Keppel yard in Brazil. Meanwhile, minimal work had been done on the last two semis.

Singapore’s Keppel, which had already received about US$1.3 billion from Sete, prior to Sete putting a halt to payments, is now awaiting further clarity on the situation.

In the meantime, Keppel made a provision of about S$230 million for Sete projects in 4Q 2015, “after assessing our construction progress, payment status and amounts due to our vendors amongst other areas.”

Keppel, which had entered by Guinness World Records for delivering 21 offshore rigs to its customers in 2013, didn’t quite come near that number In 2015.

“We had kick started 2015 with expected deliveries of 15 drilling jack-ups; eight of these have since been pushed into 2016….The delays are not extensive, the contracts are still valid, and we are working towards delivering several of them in the early half of this year,” CEO said.

Also, the company’s CEO has cited industry reports that suggest that global exploration and production (E&P) spending could decline by 15% or more in 2016 should oil prices remain at current levels.

He added: “However, oil companies are kicking the can down the road and at some point, they would have to spend to replenish reserves. The low oil prices we see today are not sustainable in the long run. How soon the new equilibrium will be reached remains to be seen. We have to plan for a longer winter.”

Offshore Energy Today

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