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Sembmarine returns to profit in 2016, in talks to resell rigs

Singapore's Sembcorp Marine has returned to profit in 2016 amid a severely depressed offshore market, and has engaged in talks with potential customers to resell some completed rigs that had their deliveries delayed.

Net profit for the year was recorded at SGD78.78m ($55.55m), erasing the loss of SGD289.67m in 2015. The losses of 2015 were due in large to Sembmarine providing for $609m in impairment and provisions for rigs, including $329m for Sete Brasil drillship projects and $280m for other rigs.

Revenue for 2016, on the other hand, fell by 28.6% year-on-year to SGD3.54bn due primarily to lower recognition for rig building projects resulting from customers' delivery deferment requests and lower repair businesses.

Wong Weng Sun, president and ceo of Sembmarine, maintained that the provisions made in 2015 for rigs remained “adequate under the current circumstances.”

The recession of the offshore oil and gas market has resulted in a global phenomenon of rig owners seeking deferments on taking over newly-built rigs from shipyards, and Sembmarine is not spared.

Malaysia's insolvent Perisai Petroleum has not taken delivery of its two rigs from Sembmarine, and Mexico's Oro Negro also deferred taking over three rigs.

Wong said Sembmarine has taken the necessary steps to protect its interests in the completed rigs and reselling the rigs to other buyers is an option. “We are negotiating with potential customers with regards to the delayed rigs,” Wong said, without specifying which rigs in particular or how far the talks have progressed.

Sembmarine also recently allowed for North Atlantic Drilling to further delay taking delivery of its semi-submersible rig until 6 July 2017, and Sembmarine has begun to market the rig for a charter contract or for sale.

Sembmarine was also embroiled in a legal row with compatriot Marco Polo Marine over a rig construction, with the latter obtaining a stay of court proceedings in April 2016, after Sembmarine's subsidiary PPL Shipyard commenced legal action to demand for payments.

But the biggest headache for Sembmarine has been the uncertainty surrounding the fate of the seven drillships ordered by Sete Brasil, which has filed for bankruptcy protection. The drillships took up SGD3.1bn of Sembmarine's net orderbook of SGD7.8bn as at end-2016.

The challenging business environment had already led to Sembmarine axing about 8,000 jobs between 2015 to 30 September 2016. Wong updated that further rightsizing of the workforce saw job losses of below 1,000 “towards the tail-end of 2016”, without going into specifics.

“Together with the optimisation of our manpower headcount, we have, since 2015, taken measures to reduce operating costs by implementing salary freeze and adjustments to the variable remuneration components for management staff. These measures continued to be in place in 2016,” Wong said.

While the rig building business has continued to stay depressed, Wong pointed out that with the improvement in oil prices, enquiries for non-drilling solutions have gained momentum.

“We have made progress in the development of our near-shore gas infrastructure solutions using our Gravifloat technologies,” Wong said, adding that the group is hopeful of clinching its first order for Gravifloat this year. The Gravifloat is designed to operate re-deployable, modularised LNG and LPG terminals for installation in shallow waters, and is believed to be more cost effective compared with FSRU and land terminals.

The group has also developed its proprietary Semb-Eco Ballast Water Treatment System to complement its services and solutions for its repairs and upgrades business, in line with the IMO regulation on Ballast Water Management Convention set to enter into force in September 2017.

“Despite the challenging outlook and intense competition, we believe that growth prospects for the offshore and marine industry remain positive in the medium to long term,” Wong commented.

“However, with increasing enquiries for non-drilling solutions, we foresee an earlier recovery in demand for fixed platforms, FPSO and FSO conversions and newbuilds in the next few years. Rising global demand for gas also augurs well for our broad-based LNG solutions and capabilities.

“We believe these are the key segments that will offer opportunities in 2017,” he said.

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