SembMar

Kim Eng on 6 Feb 2012


Sembcorp Marine (SMM SP) – Announces much-anticipated US$793m drillship contract
Previous day closing price: $4.85
Recommendation – Under Review
Target price – $4.95 (Under Review)


Sembcorp Marine (SMM) has announced that its Brazilian shipyard has secured a contract worth approximately US$792.5m from a subsidiary of Sete Brasil for the design and construction of a drillship. The contract had been reported by several industry newspapers in the past two weeks, and this announcement is the confirmation of this. The delivery is scheduled for no later than 2Q15. The ultra-deepwater drillship will be among a series of drillships to be built in Brazil to cater to the recent oil and gas discoveries in the offshore giant pre-salt fields.


We have previously indicated that Sete was poised to become a major factor in the handling of contracts for Petrobras. To recap, Sete Brasil was established in May last year with the mandate to build deepwater rigs for Petrobras’s offshore exploration requirements. Its main stakeholders are Brazilian banks and pension funds, which also allows it to access financing. Petrobras itself has a less than 10% stake. Sete in one fell swoop takes the financial burden off Petrobras, as well as provides political cover.


Keppel Corp was the first beneficiary of Sete’s mandate, with the clinching of a US$809m semisubmersible newbuild contract in December. We pointed out that this was indicative of more to come for the Singapore yards. With Sete reportedly on the cusp of awarding a slew of new contracts and that Petrobras may be looking for up to 36 new rigs, the value of these alone could be collectively worth more than US$25b. We therefore fully expect both Keppel and SMM to be huge beneficiaries of this development, hence our Buy calls on both counters. However, the timing of future contract awards remains uncertain. Keppel has been the laggard in the current rally on the rig builders.


Technical specifications of the drillship: According to SMM, the Jurong Espadon drillship represents the next generation of high-specification drillships with advanced capabilities for operational efficiency and ultra-deepwater operations worldwide. The drillship will be equipped with state-of-the-art drilling facilities, a larger deck area with a 40m-wide main deck, efficient deck arrangement and a large moon pool for enhanced drilling operations as well as DP-3 (Dynamic Positioning class 3) capabilities, superior motion features and Azimuth thrusters for improved operability. It is capable of operating at a water depth of 10,000ft and drilling to depths of 40,000ft, with accommodation facilities for a crew of 180 personnel.