COSCO Shipyard is likely to win more market share in the jack-up rig newbuilding market as Keppel FELS, the rig building arm of Singapore-listed Keppel Corp, struggles to find slots for 2013 and early 2014 delivery.
Keppel’s Singapore-listed rival Sembcorp Marine is also likely to get new orders as demand for high specification jack-ups shows no sign of slackening.
JP Morgan analyst Ajay Mirchandani said in a note that two major US-listed rig owners, Diamond Offshore and Noble Corp, highlighted in recent quarterly earnings calls that additions to their respective jack-up fleets via newbuilds were likely.
Noble, which has two existing rig options with SembCorp, said that “within the global jack-up fleet, the delta between the lowest spec and highest spec is getting wider (than has ever been in the past)”.
While this is good news for the Singapore pair, which have historically dominated the jack-up market, the commitments in their existing order books, totalling $4.3bn for SembCorp and $7.5bn for Keppel, could offer a window of opportunity for COSCO to expand its market share in the segment.
According to Citigroup analyst Horng Han Low, COSCO’s offshore business is at a turning point, with its first drillship under construction and a realistic chance of more jack-up orders.
“Despite Cosco’s challenges, the transformation from a ship to a rig builder can be faster than expected,” he said in a note to clients Tuesday.
COSCO won its first jack-up order in 2007 but the next real sign of progress came in May when it won a $356m order for two jack-up rigs for 2013 and 2014 delivery from Singapore-listed operator KS Energy.
COSCO has a cost advantage over the Singapore yards which may offset any lingering worries over execution.
He said COSCO had around 40 ex-Keppel FELS employees working on its rig team and that while projects there may take more managing than at the Singapore yards, the cost could be 10% lower for a similar rig.
Singapore-listed Chinese yard Yangzijiang Shipbuilding is also aiming to join the rig market but has received no orders as yet.
The new entrants reflect a bullish long-term outlook for offshore oil & gas exploration and production investment, given sustained high oil prices.
Published : July 28, 2011