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Keppel O&M further reduces workforce, sees prolonged tough times for rig business

Keppel O&M further reduces workforce, sees prolonged tough times for rig business
Singapore’s Keppel Offshore & Marine (Keppel O&M) is continuing with its belt tightening exercises as workforce is further reduced, little or no new rigbuilding jobs are anticipated, and uncertainty looms over the rig contracts from Sete Brasil.

In its first quarter results briefing held on Monday, Keppel O&M announced that is has further trimmed its overheads by another 28% compared to the same period of 2015. Since the start of 2016, the global workforce for Keppel O&M has been further reduced by 9.4% or about 2,800 headcount, of which 2,300 are from overseas yards, while 500 are from those in Singapore. Compared to 2014, Keppel O&M had cut its overheads by 10%.

The collapse of oil prices has sent the global oil and gas market into a recession as utilisation and charter rates for rigs and offshore vessels plunged due to significantly reduced offshore activities, impacting companies like Keppel O&M.

“Due to the low oil prices, we think that the (oil and gas market) outlook for 2016 will obviously not be very good,” said Chow Yew Yuen, ceo of Keppel O&M. Chow, however, pointed out that Keppel O&M has three businesses, and the ship repair and FLNG conversion and specialised shipbuilding segments are still doing well, but the rigbuilding division has been facing challenges.

With the widely anticipated prolonged downturn in the global rigbuilding market, the company is not expecting to land as much new rigbuilding contracts as it would like to for this year, Chow said, without going into specific numbers.

The suspended rigbuilding contracts for Sete Brasil remains a touchy issue for the group Keppel Corp after it took a SGD230m ($169.7m) provision in the fourth quarter of 2015 on the $4.9bn rig orders, after assessing the construction progress, payments received, receivables from Sete Brasil and payables to vendors, among others.

Chow mentioned that Keppel is “currently in discussion with the customer” regarding the contracts. Chan Hon Chew, group cfo of Keppel Corp, added that no further provisions are being made at the moment for the contracts.

Loh Chin Hua, ceo of Keppel Corp, said: “Brazil, which has traditionally been one of Keppel O&M’s key markets, continues to be mired in economic and political challenges, as well as the Lava Jato corruption scandal.

“Shareholders of Sete Brasil have yet to reach a decision on the future of the company. As I announced at the start of the year, Keppel has stopped construction on Sete Brasil’s rigs since end-2015 and we will not resume construction until payment recommences,” he affirmed.

Keppel O&M had stopped work on its six semi-submersible rig newbuildings for the Brazilian rig contractor, which teeters on bankruptcy.

The challenging times have led to Transocean and Ensco deferring their projects at Keppel O&M. Deliveries of two other jack-ups, for Clearwater and BOT Lease Co, have also been deferred to 2017, while deliveries of two semi-submersibles are delayed from 2017 to 2019/2020. Loh stressed that these contracts are still valid, and efforts are being made to deliver the offshore units based on the newly agreed schedules.

“We do not need to make provisions for any of these contracts currently. However, we are monitoring the situation carefully and are focused on executing our projects well,” Loh said.

In the first quarter ended 31 March 2016, Keppel O&M posted a net profit of SGD94.99m, down 53.2% from SGD202.93m in the same period of last year. Revenue also slipped by 57.6% year-on-year to SGD817.99m.