Keppel Corp. reported a 45% decline in its profits in 1H 2016, as the Singaporean shipbuilder announced a reduction in its workforce by more than 5000.
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Image from Keppel. |
In the first six months of the year, Keppel booked a profit of nearly US$307 million (S$416 million), a 45% drop compared to 1H 2015's $558 million (S$757 million), which the company said was due to weaker results from its Keppel Offshore & Marine (Keppel O&M) business unit.
CEO Loh Chin Hua said given the oversupply in the rig market and falling day rates, Keppel does not expect demand for drilling rigs to return soon.
“Our traditional customers, the offshore drillers, need time to repair their balance sheets,” he said. “Meanwhile, oil majors continue to conserve cash for dividends and potential mergers and acquisitions, rather than spend on exploration and production. The industry's capex cycle will take time to stabilize and recover, and we must be prepared for not only a long winter, but a harsh one."
in 1H, Keppel O&M secured new contracts worth more than $339 million (S$460 million), which included four floating production storage and offloading (FPSO) projects, a pipelay vessel and three dredgers.
The firm also completed the acquisition of Cameron International’s offshore rig business for $100 million, comprising of the LeTournea jackup rig designs; plus commenced the operations of Keppel LeTourneau in May, with offices in the US, UAE and Singapore.
Adding the LeTourneau designs to its own offerings, Keppel will have more than 26 designs for jackup covering almost every requirement in the market, plus have the flexibility to customize and build the LeTourneau jackup rigs from its yards.
Despite a weak medium-term outlook for the oil and gas sector, Loh said the group believes the liquefied natural gas (LNG) market has significant potential given the trend towards the adoption of cleaner fuel technology.
Be leveraging experience and expertise in servicing vessels, including gas carriers, Keppel O&M established a 50:50 joint venture (JV) with Shell Eastern Petroleum this year, to supply LNG bunkering operations in the Singapore port. The JV company is expected to start supplying LNG as a fuel for ships in 2017.
In May, Keppel O&M announced that it entered into an agreement with Russian oil major, Rosneft, and Norwegian drilling equipment firm MHWirth, to set up a Singapore incorporated joint venture company (JVCO).
Loh said the JVCO will establish a center in the Russian Federation for the design and engineering of mobile offshore drilling units for shallow waters to cater to needs of the region.
“Both the JV and the Design and Engineering Centre will, in the conduct of their activities, adhere to the prevailing international sanctions imposed on the Russian offshore oil and gas sector,” he said.
In 1H 2016, Keppel O&M delivered a number of major projects, including two KFELS B Class rigs to Grupo R and one drilling rig to Gulf Drilling International.
Last week, Keppel AmFELS delivered a fifth jackup to Perforadora Central. The rig will be chartered by Mexican national oil company Pemex, for work offshore Mexico.
Earlier, in June, Keppel AmFELS also handed over to another customer a harsh environment enhanced mobility land rig, 41 days ahead of schedule.
Apart from rigs, Keppel O&M also delivered a liftboat and a high-specification deepwater derrick lay vessel built to its own proprietary design, amongst other projects.
“Other key projects to be delivered by our yards this year include another jackup, two semisubmersible and five FPSO/FSU conversions,” Loh said. “We have received requests to defer the delivery of three jackups for Grupo R and one jackup for Parden Holdings to next year."
“The contracts remain valid. We will be compensated for the delays and are working towards delivering them based on the new schedules agreed upon with our customers” he added.
Reducing its workforce
In 1H 2016, Keppel O&M reduced its direct staff strength in Singapore and overseas by 4900 headcount, representing about 16% of its staff. The company's subcontract headcount in Singapore was also further reduced by another 670.
“Since we started rightsizing our operations a year and half ago, we have reduced our global direct workforce to date by a total of about 11,000, and about 8600 of our subcontract workforce in Singapore,” Loh said.
“Apart from reducing variable costs, we have also worked at cutting our overheads which have come down by 20% compared to the first half of 2015. These efforts have allowed our gross operating margins to remain at 12.8% for 2Q 2016 and 13.2% for 1H 2016 respectively," Loh added. “Our cost-cutting and rightsizing efforts will continue.”
To stay ahead of the curve, Keppel plans to seek opportunities in other market segments which have been less affected by the downturn.
This includes floating production solutions such as tension leg platforms, production semisubmersible, LNG-related solutions and services, and non-oil and gas projects.
Read more:
Keppel delivers jackup to Mexico's Central Panuco
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