Kencana Begins Construction on First Drilling Rig

Kencana Petroleum Berhad’s wholly owned subsidiary Kencana HL Sdn Bhd commenced construction of a drilling rig to be named KM-1 (Kencana Mermaid 1).

This will be the first time a complete tender assisted drilling rig is fabricated and operated by a Malaysian company.

The design and engineering of the rig is being developed in house, in accordance to the requirements of the American Bureau of Shipping. The American Bureau of Shipping is internationally known for verification of standards for the design, construction and operational maintenance of marine-related facilities.

"This major step towards moving up the oil and gas value chain is made possible through the hard work of everyone at Kencana Petroleum coupled with the strong alliance with our partners in Mermaid Maritime Public Company Limited," said Kencana Petroleum's Executive Chairman, Dato' Mokhzani Mahathir at the first steel cutting ceremony, commemorating the commencement of fabrication of KM-1.

Construction of the tender rig, complete with a derrick equipment set, is expected to be completed by October 2009. A total of 1.4 million man hours will be spent in fabricating this Mermaid Drilling (Singapore) Pte Ltd is a subsidiary of Mermaid Maritime Public Company Limited, a company based in Thailand. The Mermaid Maritime Group has been principally involved in the provision of drilling and sub-sea engineering services for the oil and gas industry for the last 25 years.

In October last year Kencana announced its alliance with Mermaid to venture into the drilling business. Under the agreed structure Kencana Mermaid Drilling Sdn Bhd will act as the operator and license holder for tender rig KM-1, whilst the ownership of the rig will rest with Mermaid Kencana Rig 1 Pte Ltd.

At the same time, the fabrication of KM-1 was awarded to Kencana’s subsidiary Kencana HL Sdn Bhd. The contract is worth USD136 million.

In addition to KM-1, Mermaid has the option to award construction contracts to Kencana HL, to design, construct and build three more drilling rigs.

Touching on the highly competitive fabrication industry, Mokhzani in his speech, noted that the business of fabrication involves much more than "cut and weld" activities.

He said a huge amount of time and strategy is also invested in project and yard management.

Citing Kencana's recent acquisition of the adjoining Torsco yard as an example, he noted that the acquisition was made in preparation for the fabrication of this tender rig and any other large future contracts which may be in the offing.

With the acquisition, total yard size has increased to 142 acres and it is currently operating at 70% production capacity, making it one of the largest fabrication yards in the country. Kencana's book order currently stands at RM1.4 billion.

At the event Mokhzani also announced that the Kencana Petroleum Berhad’s wholly owned subsidiary Kencana Mermaid Drilling Sdn Bhd has recently received a license from Petronas to provide drilling services as owner and operator of tender rigs.

The award of this license is a huge milestone for both Kencana and Mermaid Maritime Public Listed Company, allowing both parties their maiden venture into the business of chartering of tender rigs and drilling for oil and gas in Malaysian waters.

Kencana is hoping to secure a long term contract as owner and operator, and is still in midst of discussion with relevant parties.