(Dow Jones Newswires), April 23, 2009
Sensing a turnaround in the world's two largest oil-rig builders, Singapore's Keppel Corp. and Sembcorp Marine, investors have piled into their shares. The question is whether they've set themselves up for a fall.
The great hope is Brazil's national oil company, Petrobras, which is dangling orders for $17 billion of new rigs to drill in its Santos Basin find. The potential for this -- or more likely a portion of it -- to change Keppel and Sembcorp's faltering fortunes is significant.
Petrobras has said it is seeking up to seven rigs at around $600 million each over the next three months and 28 over five years.
Macquarie Research expects Keppel to win only about $730 million in new business in 2009, excluding any Petrobras contracts, so a few rigs for Brazil would transform its order book. In the meantime, Keppel's shares have jumped 36% year to date, with Sembcorp's up 29%.
Competition will be tough and Chinese firms, in particular, may carry an advantage.
China Development Bank is talking to Petrobras about a $10 billion credit line, in a deal that could be finalized as early as next month when Brazil's president visits Beijing. This could presage more partnerships between the two in the oil and gas sector.
Moreover, Brazil's government will be keen to keep Petrobras's spending at home, to bolster its own stumbling economy. Petrobras's chief financial officer sounded that note in Singapore last week, saying the company would like the rigs built in Brazil. Not great news for the Singapore firms, which until now have conducted only final assembly in Brazilian yards.
All isn't lost if the orders fail to materialize in any great volume. Both firms are part of diversified conglomerates, which should show flat to modestly lower profits in the first quarter. But with Macquarie reckoning that crude needs to rise above $60 a barrel before oil companies generally revisit exploration, investors betting solely on a windfall from Brazil could be in for a letdown.
Copyright (c) 2009 Dow Jones & Company, Inc.
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