Keppel O&M's 1Q 2016 Net Profit Falls 53% to $70.7M, Revenue Down 58%

Singapore-listed Keppel Corp. Ltd.'s Keppel Offshore & Marine Ltd. (Keppel O&M) posted a 53 percent fall in net profit to $70.7 million (SGD 95 million) in first quarter 2016 (1Q 2016), down from $151 million (SGD 203 million) a year ago, with the decline attributed largely to lower operating results arising from lower revenue and higher net interest expense, partly offset by higher share of associated companies' profits, according to financial results released by the company Monday.

Keppel O&M's 1Q 2016 revenue fell 58 percent to $608.7 million (SGD 818 million), compared to $1.4 billion (SGD 1.927 billion) in the previous year, with the dip in turnover arising mainly from a lower volume of work, deferment of some projects and the suspension of Brazil's Sete Brasil Participacoes SA's contracts.

The company noted that the situation in Brazil, one of Keppel O&M’s key markets, remains mired in economic and political challenges. More importantly, its client Sete Brasil's shareholders have not reach a decision on the company's future.

"Keppel has stopped construction on Sete Brasil’s rigs since end-2015 and we will not resume construction until payment recommences," Keppel CEO Loh Chin Hua said in the press release.

Meanwhile, Keppel FELS delivered two jackups -- CANTARELL I (400' ILC) and CANTARELL II (400' ILC) -- to Grupo R, both of which have secured charters from Mexico's national oil company Pemex. Keppel O&M also delivered Halul (300' ILC) to Gulf Drilling International during the quarter as well as a liftboat and a Transformer platform.

Two newbuilds will leave Singapore soon for the Ichthys field off Western Australia following naming ceremonies held at Keppel's yards recently. They include the accommodation semisub "Floatel Triumph", which has been chartered by Japan's Inpex Corp. and McDermott International's subsidiary Hydro Marine Services-owned deepwater derrick lay vessel "DLV 2000".

Keppel revealed that the industry downturn has led clients to defer delivery of their newbuild projects, including Transocean and Ensco. Clearwater and BOT Lease Co. have also deferred deliveries of two jackups to 2017, while delivery of two semisubs have been are deferred from next year to 2019/2020. "The contracts are still valid, and we are working towards delivering them based on the new schedules agreed upon with our customers," Loh added.

During the quarter, Keppel FELS Brasil clinched a $141.4 million (SGD 190 million) contract from Japan's MODEC Offshore Production Systems (Singapore) for a floating production storage and offloading (FPSO) module fabrication and integration project, with the vessel scheduled to arrive at the shipyard in 1Q 2017 for the integration phase.

Meantime, Keppel continues to pursue opportunities in the non-drilling market, especially in further honing its capabilities in the liquefied natural gas (LNG) business across the value chain. The firm has jointly secured with the BG Group, now a part of Shell, the license to supply LNG bunker to vessels in the Port of Singapore. This latest development will enable Keppel to capture pull through work for LNG-fuelled newbuilds, repairs and conversions.

To cope with the industry downturn, Keppel is "rightsizing the organization so that we can remain profitable even with a lower top line," Loh said.

Since the start of 2016, Keppel O&M has trimmed its global workforce by 9.4 percent or around 2,800, comprising 2,300 at its overseas yard and 500 in Singapore. The company is continuing with the optimization of resources across its yards, after cutting overheads by 10 percent in 2015 compared to 2014. In this first quarter, Keppel O&M trimmed overheads by another 28 percent from a year ago.

Chee Yew has covered the upstream and downstream sectors of the oil and gas industry in Asia for more than 15 years. Email Chee Yew at cheeyew.cheang@rigzone.com

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