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Despite the fact that it posted a rise in first-quarter net profit, Singapore’s Keppel Corporation, the world’s largest offshore rig builder, has cautioned that the offshore oil rig business continues to operate in very challenging conditions.
“Despite the increased optimism in the market following the rebound in oil prices, the offshore business continues to face very challenging conditions. This is due to, among other factors, the oversupply of rigs and support vessels. It will take some time before the industry fully recovers,” the corporation said in its Q1 results release.
Keppel Corporation’s net profit rose by 23 percent annually to US$186.4 million (260 million Singapore dollars), but its offshore and marine division barely managed to break even, due to significantly reduced volume of work.
“While the Division continued to make a profit at the gross operating level, it was insufficient to cover our fixed costs,” Keppel said.
In order to keep the offshore division fit, the rig builder said that it had mothballed two overseas yards in January and was in the process of closing three supporting yards in Singapore. In addition, Keppel is divesting its shipyard in the Netherlands, Keppel Verolme. In the first quarter alone, Keppel reduced its global direct workforce by 1,250 staff via “natural attrition, early termination of contracts and retrenchments”. Since the beginning of 2015, the total workforce numbers have been slashed by 49 percent, or by nearly 18,000 staff.
According to DBS, looking ahead, one of the main risks for Keppel is competition from Chinese and Korean peers that can impact the Singaporean group’s order intake and profit margins. Another risk is the possibility that oil prices will remain low¬¬—in this case, deliveries of newbuilds and conversions already under construction could be further delayed as oil majors and asset owners slash spending.
Keppel’s property business, which accounts for up to 70 percent of the group’s profits, is expected to remain strong and provide some cushion for the struggling offshore and marine business, DBS reckons.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.