Rig builder Lamprell flags further staff cuts, could mothball some of

Out-going ceo Jim Moffat has urged the group to diversify away from an over reliance on jack-up rig construction as its main revenue source given the sector’s gloomy outlook, pin-pointing offshore project work in the Middle East and North Sea as a key target for his successor Christopher McDonald.  

Moffat, who steps aside 1 October after three and half years at the helm but will remain involved in a part-time consultancy role.

The revelations came as Lamprell announced a $4.4m loss for the first half of 2016 as its settlement for the delayed delivery of a jackup rig to London-based global drilling services giant Ensco wiped $35m off its net profit.  Lamprell has already reduced its “top heavy” executive management from eight to five, Moffat’s planned exit included, and is currently operating with a workforce of approximately 8000, down from 9300 in the first quarter of the year.  

The cuts are expected to realise annualised savings of $5m but Moffat admitted “we could see further reductions by the end of 2016” given that all major projects in Lamprell’s order backlog are scheduled for delivery by Q2 next year.   

The construction of a major pipe fabrication workshop at its Hamriyah yard in Sharjah is already on ice as the low oil price environment meant “the near term challenges are substantial”.  

“We need to hunker down and trim overheads further,” Moffat said. “We need to look at all variable costs, things like electricity charges, R&M, everything we can control…we could even look at mothballing yards and we have flexibility to bring down staff numbers.”  

Save for the loss on the Ensco 140 Super 116E (Enhanced) Class mobile offshore drilling unit, due to faulty jack up mechanism equipment provided by third party supplier Cameron LeTourneau, Lamprell said its underlying H1 performance was in line with investor expectations.

H1 revenue of $451.3m was up 22% from the corresponding period in 2015 due to the phasing of construction activity at Hamriyah and its Jebel Ali yard in Dubai. Its net cash position, $151.5m as of 30 June – having dropped by over half from $316.3m a year earlier - is expected to strengthen as a number of rigs are delivered in the coming months and final installments are received.   

Lamprell has reiterated full year revenue for 2016 is expected to be “slightly below current market expectations and profit significantly impacted” and has forecast FY2017 revenue in the “range of $400-500m depending on the outcome of a number of submitted bids”.

As of June 30, 2016, Lamprell had a backlog of $297.1m, a rapid 60% decrease from the $739.7m it had on its orderbooks as of 31 December 2015 as project delays and cancellations continue to batter the offshore sector.

While conceding “winning new awards in the current environment has proven challenging”, Lamprell still has high hopes for a bid pipeline standing at around $3.9bn – down from $5.4bn at the end of 2015.  The order backlog has swung away from jack-up rig new building where Lamprell had been “very successful” to offshore projects, particularly in the “very tough and competitive” Middle East market and for North Sea projects where Lamprell’s low labour costs gave it an edge over European yards.

Lamprell has 10 jack-up rigs in storage for clients underscoring the difficulties being faced by the sector. The cold and warm stacking was paying “hundreds as opposed to thousands of dollars a day” but where Lamprell hopes to cash in is when those rigs require remedial repairs before being put back into work.   

Lamprell’s Hamriyah yard in Sharjah reached record activity levels during H1 with seven rigs in build concurrently as work secured in the past three years reached its climax.

Its Jebel Ali yard was close to full capacity with the construction of 33 modules for Petrofac for installation offshore Abu Dhabi. The 12 remaining modules of the Petrofac contract are due for delivery by the end of 2016.

It also has smaller operations in Saudi and Iraq which shape as potential mothball targets unless there is a rapid market turnaround.  

Lamprell reiterated that it remained committed to recovering all remedial costs and “full compensation” from Cameron LeTourneau arising from the technical issue on the Ensco 140 rig.  

The six other rigs it is currently building all needed the same remedial work but were on target for delivery within the next eight months.

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Rig builder Lamprell flags further staff cuts, could mothball some of its yards