Keppel Plans to Exit Rig Construction and Repair Businesses
Citing the transition in the energy business away from oil towards renewable projects, Singapore’s Keppel Corporation announced plans to exit the offshore rig building business. Once one of the leaders in offshore oil rigs, the financially troubled Keppel Offshore & Marine unit will transition into a role as a developer and integrator in the new segments of the energy industry winding down its construction and repair operations.
“The share of renewables and new energy solutions in the global energy mix has been growing rapidly, driven by environmental concerns as well as technological advancements and the declining cost of renewables,” said Loh Chin Hua, CEO of Keppel Corporation and Chairman of Keppel O&M. “To seize opportunities in this fast-changing environment, we are making bold and decisive moves to transform Keppel O&M to ensure that it remains relevant and competitive, and fully aligned to Keppel’s Vision 2030.”
The company noted that it is also continuing to explore “inorganic options for the O&M business, but there is no assurance that any transaction will materialize. We believe that our organic restructuring of Keppel O&M will not only enhance its competitiveness but also its attractiveness if we were to undertake any inorganic action.”
Under the restructuring plan, Keppel O&M will exit the offshore rig building business, after completing the existing rigs under construction. Keppel O&M will also no longer undertake new projects requiring large upfront capex or without milestone payments. It will also progressively exit the low value-adding repair business and other activities with a low bottom-line contribution.
The execution of the transformation plan calls for splitting the existing Keppel O&M business into three units. The goal is to create an ongoing operating company that will not be weighted down by its stranded rig assets and the low value-adding businesses. The new Keppel O&M operating company will be focusing on design, engineering, and procurement seeking opportunities in floating infrastructure and infrastructure-like projects. Reflecting the new opportunities in energy, they will focus on renewables projects such as offshore wind farms and solar farms, gas solutions, production assets, and new energy solutions such as hydrogen and tidal energy.
Near-term, Keppel expects that natural gas will become a transitional fuel, projected to overtake oil as the world’s largest energy source. In addition to the emerging opportunities in renewable energy, the new operation will also explore solutions for sustainable urbanization, such as offshore and nearshore infrastructure and floating data center parks. They will also explore how Keppel O&M’s offshore rig technology can be repurposed for other uses.
As part of the transition away from the construction business, the existing yards will be streamlined, including repurposing or divesting part of the global network. Fabrication work in the future may be subcontracted to other yards.
The current orders for rigs will be transferred into a separate business with a focus on completing customer’s firm contracts for rigs. Once the rigs have been delivered this business unit will be wound down.
The existing rigs as well as some of those currently in construction will be transferred to a company focused solely on the rigs working to find them short-term employment under charter or to sell the rigs. Keppel expects as the oil market recovers, utilization and day rates improve, that the rigs will generate steady cashflow making them more attractive to buyers. The rigs will be sold or the business unit would be monetized or spun off in the future.
The restructuring will commence immediately and is expected to be executed over the next two to three years. Reflecting its new focus, Keppel O&M will carry out a rebranding exercise and refine its vision and purpose.
The restructuring is expected to significantly enhance the competitiveness and relevance of Keppel O&M in the longer run but is not expected to have any material impact on the net tangible assets per share or earnings per share of the company for the current financial year.