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Keppel Corporation Limited Makes Its Move to Go Beyond the Oil Market

Keppel Corporation Limited  (SGX: BN4) has felt the brunt of prolonged low oil prices.  The graph below shows how oil prices have fallen since mid-2014.

2017-03-13 Oil price graph
Source: NASDAQ

Due to low oil prices, Keppel Corporation’s Offshore and Marine segment saw its revenue in 2016 fall by more than half from $6.3 billion in 2015 to $2.9 billion. The Offshore and Marine segment was responsible for the bulk of Keppel Corporation’s 34% decline in total revenue during the year.

Dire straits

Furthermore, Keppel Corporation does not expect a recovery for the Offshore and Marine segment anytime soon. The company’s chief executive officer, Loh Chin Hua, said the following in his opening remarks for the 2016 fourth quarter earnings briefing:

“While spending by oil majors is expected to increase, we do not envisage a quick recovery for the offshore business, which continues to be under pressure from weak utilisation of the existing operating fleet, coupled with a supply overhang of newbuilds. We are thus prepared for the challenging conditions in the offshore business to remain for some time.”

Even though oil prices have recovered from their lows in early 2016, Loh is not optimistic about a recovery in orders. With that in mind, Keppel Corporation’s Offshore and Marine segment has been rightsizing itself and is looking for new avenues of business.

Rightsizing for its future

The rightsizing of the Offshore and Marine segment is done with growth in mind. Loh explained:

“In terms of outlook, of course we are happy that oil prices are starting to pick up. But we are also quite realistic. It may take some time before it flows down and the market is also overbuilt.

But we are not stopping there, from my presentation as well as earlier presentations during the last few quarters, you can see that we are also looking for other new markets – gas for instance. We are also looking at non-drilling, going into production and new markets like dredgers and repurposing our technology.

This is really key to us. It is not just a question of rightsizing but also looking for new markets and new revenue streams.”

Beyond that, Loh also said:

“Keppel is also well positioned to address growing requirements across the LNG [liquefied natural gas] value chain. In addition, we are exploring ways to repurpose the technology that we developed in the offshore industry for other uses.”

Keppel Corporation is casting its eyes beyond the oil-related market onto new areas such as LNG. Time will tell if the conglomerate is able to reduce its dependency on the oil market.

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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 writer Chin Hui Leong doesn't own shares in any company mentioned.