By Low Pei Han
Thu, 11 Mar 2010, 08:51:24 SGT

Petrobras has delayed its tender for 28 rigs. The latest deadline for the first package has been pushed to May 18, 2010, compared to March 18, 2010 previously. Given the huge dollar value of the first package, the delay is understandable. It seems that certain technical details still have to be ironed out by potential bidders even after clarification by Petrobras. Hence the delay is not surprising to industry players in Brazil. Ever since Sembcorp Marine said it was building a new yard in Brazil, it has seemed to be in a better position than Keppel to win the first package given its greenfield yard that is double the size of Keppel’s. Despite the rig tender delay, fundamentals of local rig builders remain intact. Companies with established track records and good relationships with potential customers are better positioned to secure jobs in an environment with fewer orders. We maintain our BUY ratings on Keppel Corp [FV: S$9.93] and Sembcorp Marine [FV: S$4.58].

Rig tender delay. According to Upstream , Petrobras has delayed its tender for 28 rigs. The deadline for the first package is now May 18, 2010, compared to March 18, 2010 previously. Given the huge dollar value of the first package (about US$3.5b), the delay is understandable. It seems that certain technical details still have to be ironed out by potential bidders even after clarification by Petrobras. Hence the delay is not surprising to industry players.

More yard space at Sembcorp Marine in Brazil. Ever since Sembcorp Marine said it was building a new yard in Brazil, it has seemed to be in a better position than Keppel to win the first package given its greenfield yard with little work now compared to Keppel’s current busy yard. We understand that some projects should be completed by the end of this year, which will free up Keppel’s yard resources. However do note that Keppel’s JV (FloaTEC) was awarded the P-61 TLWP project recently, and it will be constructed in the BrasFELS yard. Finally, Sembcorp Marine’s new yard (82.5ha) will also be double the size of Keppel’s existing BrasFELS yard (40ha).

Willing and able to invest. In line with our earlier reports, resources have been, and are still being poured into niche areas of the future with increasing concerns over declining oil reserves and efficiency. A Bloomberg article highlighted that oil companies are investing in assets that previously were not worth their time or money. This is after oil-rich nations reduced their access to reserves, coupled with a rising rate of exploration failures. Hence we continue to favour companies that are willing and able to invest in technology for the future, such as Keppel Corp.

Built to thrive. Singapore’s local rig builders have turned in sterling FY09 results. The pat on the back should partly be attributed to productivity gains resulting in better margins. Definitely, repeat orders of rigs contributed to this but one should not discount efforts to achieve higher efficiency.

Maintain BUY. Despite the rig tender delay, fundamentals of local rig builders remain intact. Companies with established track records and good relationships with potential customers are better positioned to secure jobs in an environment with fewer orders. Hence there is basis for optimism, though it is good to keep in mind possible political changes with Brazil’s upcoming elections in October. We maintain our BUY ratings on Keppel Corp [FV: S$9.93] and Sembcorp Marine [FV: S$4.58].