Keppel Offshore & Marine, an offshore construction subsidiary of Singapore's Keppel Corp, expects challenging conditions ahead due to the drop in oil prices but says its business diversification into gas and renewables has paid off.
The company has traditionally been called an "offshore rig builder" as this was the Keppel O&M's core business in the heydays before the 2014-16 collapse in oil prices when oil fell from over $100 a barrel to below $30.
However, with offshore drilling rig orders dwindling, the company started to look elsewhere, and now its net order book of S$4.0 billion is made up of more than 70% of renewables and gas-related solutions. This is not to say that Keppel is moving away from drilling rigs, but rather, it is expanding its offering.
In the first quarter of 2020, Keppel O&M registered a net profit of $3 million for the first quarter of 2020.
This is a drop compared to a profit of S$6 million a year ago, due mainly to the share of losses from associated companies which had offset the Division's stronger operating results, it explained on Wednesday.
Revenue for the quarter rose to S$569million, up from S$332 million mainly attributable to higher revenue recognition from ongoing projects, such as Awilco semi-submersible drilling rig, Golar Gimi FLNG, Borr Drilling jack-up rig, and Pasha LNG containership.
During the quarter, Keppel O&M secured S$34m of new orders in 1Q 2020, including fabrication of leg component for an offshore wind turbine installation vessel. Also, the company during the first quarter delivered one jack-up rig, one dual-fuel bunker tanker, and an FPSO modification and upgrade project.
Loh Chin Hua, Keppel CEO said: "We expect the O&M business to face very challenging conditions in the near future. We would also need to keep a close watch on customers and associates who would be affected if there is a prolonged downturn in oil prices. Nevertheless, Keppel O&M is in a stronger position to weather the crisis today, compared to 2015, when the last crisis began. Over the past few years, Keppel O&M has undertaken extensive rightsizing and reduced its overheads," it said.
"Today, it is a leaner, more efficient, and more diversified business, compared to the situation a few years ago, when the offshore rig building business ground to an abrupt halt after years of rapid growth. For 1Q 2020, Keppel O&M made a net profit of S$3 million. At the operating level, the profit was S$28 million, higher than the S$3 million operating profit in 1Q last year; but this was partly offset by losses from associated companies," he said.
Yards operational but down manned
Singapore Prime Minister earlier in April introduced "circuit breaker," a set of measures that includes staying at home, social distancing, only essential work travel, grocery shopping, etc.
Marine & Offshore Engineering companies involved in ship/vessel repair and maintenance and overhaul services have been defined as essential services.
Commenting on Wednesday, Loh Chin Hua, Keppel CEO said: "Our Singapore yards have continued to provide these essential services during the circuit breaker, but with reduced manpower and various precautionary measures in place. Our overseas yards are also operational, except for those in the Philippines, due to the lockdown imposed by the Philippine Government.
"Arising from the lockdowns in various countries and disruptions to international supply chains, several of Keppel O&M’s projects have been delayed. We have served force majeure notices to customers of the affected projects and are working closely with them to mitigate the impact of COVID-19," the CEO said, without providing details on which projects exactly have been delayed.
"As at end-March 2020, our net order book stood at S$4.0 billion. While progress in securing new orders has slowed due to COVID-19 and the fall in oil prices, Keppel O&M continues to have a sizeable order book which will keep our yards occupied for the next two years. We continue to focus on execution, and delivered two newbuild projects and an FPSO modification and upgrade project in 1Q 2020, despite COVID19. Our pivot away from oil has helped Keppel O&M remain resilient, with renewables and gas-related solutions making up the majority of our order book," he said.
"We will continue to actively pursue opportunities in gas and renewables, and also repurpose Keppel O&M’s technology for other floating infrastructure uses. Earlier this month, Keppel O&M signed an MOU with the Energy Market Authority (EMA) to develop sustainable energy solutions. Keppel O&M is also setting up a Floating Living Lab off its Tuas shipyard, which will serve as a platform to testbed and commercialize promising power and technology solutions for the marine sector," he added.
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