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Sembmarine sees first half profit dives 69%

Singapore’s Sembcorp Marine saw its first half profit chopped on lower contributions from rigbuilding projects, and maintained that provisions made last year for the stalled Sete Brasil contracts remained sufficient.

Net profit for the six months ended 30 June 2016 was recorded at SGD66.28m ($49.12m), a plunge of 69.2% from SGD215.11m in the same period of 2015.

Revenue for the first half also fell by 27.3% year-on-year to SGD1.83bn due mainly to lower revenue recognition from rigbuilding projects resulting from customers’ delivery deferment requests.

The sluggish offshore oil and gas market has led to delivery delays for several rigs in Sembmarine’s orderbook. But the biggest headache for Sembmarine is its multi-billion dollar deal with Sete Brasil to build seven drillships.

Sembmarine announced that its net orderbook to-date stood at around SGD9.2bn. Excluding the Sete Brasil drillships, its net orderbook will stand at SGD6bn.

“The group had in the last financial year made provisions of SGD329m for the Sete Brasil contracts. We believe that the provisions remain sufficient under the present circumstances,” said Wong Weng Sun, president and ceo of Sembmarine.

Compatriot Keppel Offshore & Marine, however, has removed its Sete Brasil contracts from its net orderbook, reducing the value to SGD4.3bn from SGD8.3bn.

Sembmarine said there has been no significant development since Sete Brasil’s filing for judicial restructuring on 29 April this year, and the group has commenced arbitration proceedings against various subsidiaries of Sete Brasil to preserve its interests under its contracts.

Other project delays included three jack-up rigs for Oro Negro and one jack-up for Perisai. There is also the standstill agreement with North Atlantic Drilling for the delivery of a semi-submersible rig extended to 2 September.

Sembmarine is also involved in arbitration proceedings with Singapore-based Marco Polo Marine on the latter’s failure to make partial payment in relation to an alleged faulty jack-up rig.

Wong pointed out that the group has made provisions of SGD280m in the last financial year in case of prolonged deferment or possible cancellation of these rigs.

“The majority of our current SGD9.2bn orderbook is with progress payment terms. Less than 20% of our orderbook is for drilling rigs which are on back-ended payment terms. As such, the need for fresh working capital to fulfil such orders in the next years will continue to decrease,” Wong explained.

“Looking ahead, we expect conditions in the offshore oil and gas sector to remain challenging in the short to medium term,” he said.

“Day rates and utilisation for drilling rigs have fallen drastically, resulting from sweeping capex cuts in offshore oil and gas exploration. Understandably, with fewer drilling contracts and surplus of rigs, some drillers continue to be unable to take delivery of their new build rigs,” Wong noted.

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