Swiber Holdings: More opportunities in the pipeline

By Low Pei Han
Mon, 14 Jun 2010, 09:19:51 SGT

Saudi Aramco is set to invite bids for at least US$1b of offshore fabrication work related to its Wasit gas programme. It is possible that Swiber may participate in the bidding, considering it is also looking at opportunities in the Middle East and has a JV partner in Rawabi Holding, a Saudi Arabian company that may increase its bidding chances. India’s ONGC has also re-opened the EPIC tender for its US$1.3b B-193 cluster fields’ development, providing more opportunities for contractors. Demand for field development work in Asia and the Middle East remains strong, although competition during the bidding process is fierce as well. Swiber has already gained a strong foothold in Malaysia, Brunei and India. Should it replicate its success in the Middle East, its prospects should be even brighter, assuming good cost control. With a stronger order book and a bright outlook for offshore field development, we maintain our BUY rating and S$1.38 fair value estimate. Risks include disruptions due to unexpected events, leading to cost overruns and lost revenue.

Huge opportunity in the Middle East. According to Upstream, Saudi Aramco is set to invite bids for at least US$1b of offshore fabrication work related to its Wasit gas programme. Bids are due to be submitted probably as early as September, with contract awards targeted for Mar 2011 . There is a possibility that Swiber may participate in the bidding, considering that it is also looking at opportunities in the Middle East and has a JV partner in Rawabi Holding, a Saudi Arabian company that may increase its bidding chances. Given the huge workscope which could see as many as 13 wellhead platforms and hundreds of kilometers of pipelines, Sembcorp Marine’s SMOE may also emerge as a bidder.

More work available from ONGC. Meanwhile, Upstream also reported that India’s ONGC has re-opened the tender on the EPIC (engineering, procurement, installation and commissioning) contract for its delayed US$1.3b B-193 cluster fields’ development after Ramunia Holdings failed to provide a bank guarantee . Swiber has already announced five contract wins YTD, and though the customer names have not been disclosed, it is likely that many belong to the same customer, India’s Oil and Natural Gas Corporation (ONGC), according to news reports. Though there is high concentration risk, the possibility of a credit default should be low given that ONGC is a state-owned company. India is also keen to develop its resources and intensify its search for energy assets to fuel its growing economy.

On the right track for expansion. Demand for field development work in Asia and the Middle East remains strong, although competition during the bidding process is fierce as well. Swiber has already gained a strong foothold in places such as Malaysia, Brunei and India. Should it replicate its success in the Middle East, the group’s prospects should be even brighter, assuming there is good cost control. This is because Swiber focused on the SE Asian market in the past and most of its work (e.g. installation work) previously could only be done in 2Q and 3Q of the year given weather patterns. Now work can also be done in other quarters of the year with different monsoon patterns in the new markets. Hence with a stronger order book and a bright outlook for offshore field development, we maintain our BUY rating and S$1.38 fair value estimate. Risks include disruptions due to unexpected events, leading to cost overruns and lost revenue.

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