7 Quick Things Investors Should Learn About Keppel Corporation Limited’s Offshore and Marine Segment

Last week, Keppel Corporation Limited (SGX: BN4) released its fiscal fourth-quarter earnings. The earnings release contained a transcript of an address given by Chief Executive Officer Loh Chin Hua.

In that transcript, I had picked out seven useful things about the company’s offshore and marine (O&M) business.

Keppel Corp organizes its business into four different units: O&M; Infrastructure; Property; and Investments. At the moment, plenty of attention is being paid to the O&M unit as it has suffered multiple setbacks over the past year. The troubled business segment is key for Keppel Corp as it made up over 60% of its 2015 revenue.

With that, here are the seven things I had learned:

  1. In his opening remarks, Loh acknowledged the media reports over the potential bankruptcy of Sete Brasil, one of the big customers of Keppel Corp’s O&M unit. From a previous update, Keppel Corp said that it has not received any payments from Sete Brasil since November 2014. Unfortunately, there still isn’t a final decision for the future plans of Sete Brasil, nor is there a timeline for a decision available.
  2. Keppel Corp has taken steps to mitigate the Sete Brasil situation. Loh said that the first two semi-submersible rigs earmarked for Sete Brasil were in the most advanced stages and have been sent to Keppel Corp’s yard in Brazil. Minimal work has been done for the last two semi-submersible rigs. Keppel Corp has received US$1.3 billion thus far from Sete Brasil and has stopped all work at the end of 2015. Loh also said that a S$230 million provision has been taken in the fourth-quarter’s earnings after assessing the situation. The company’s management believes that the measures are sound and adequate for now, pending further developments.
  3. The near future does not look promising for the oil and gas sector. The mismatch of a global glut in supply and sluggish demand is expected to keep oil prices subdued. Industry reports suggest that Global Exploration and Production (E&P) spending could decline 15% if oil prices remain at current levels. Loh reiterated the management’s belief that low oil prices are not sustainable in the long run.
  4. But, Keppel Corp is hunkering down for a long winter. This may be reflected in its decision to optimise its operations and allow natural attrition of its workforce. Keppel Corp’s O&M unit has reduced its headcount by 17% – or 6,000 workers – while paring down its subcontract workforce by 7,900 workers.
  5. Eight of 15 drilling jack-ups planned for 2015 delivery were delayed into 2016. This includes five rigs for Grupo R and one each for Parden Holdings, FTS Derricks, and Perforadora Central. Keppel Corp is working towards having the delayed project delivered by the early half of this year.
  6. Keppel Corp has a net orderbook of S$9.0 billion at the end of 31 December 2015. This is a decline from the S$12.5 billion recorded at the end of the previous year. Loh noted that non-drilling solutions made up more than a third of the current net orderbook and S$1.8 billion in new orders were secured in 2015. It should be noted though that the company’s orderbook is the lowest it has been since 2012. For a historical view of the compnay’s orderbook, click here.
  7. Keppel Corp will not be resting on its laurels. It plans to deliver 25 newbuild and conversion projects in 2016. The firm also acquired the LETOURNEAU rig designs and aftermarket business to broaden its suite of design solutions and aftermarket sales and services.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.