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Friday, 23 December 2011

Has Keppel Corp struck a contract gold mine?

Petrobras cancels rig tenders


Brazilian giant Petrobras said it is cancelling a tender for the contracting of 21 offshore drilling rigs to be built in Brazil.

Luke Johnson 22 December 2011 23:20 GMT

In a brief statement, the state-controlled behemoth said it will “immediately start negotiations” with the two companies that have bid on the projects so far, Ocean Rig do Brasil Ltda and Sete Brasil Participacoes.

The goal is to get better contract conditions, Petrobras said.

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DMG seems to think so, predicting more semisub orders after its current win.


The fearless forecast came as Keppel Corp secured a $809m (S$1.05b) semisub drilling rig from Sete Brasil, bolstering its chances for winning similar contracts.

"We believe there could be more deepwater rigs in the pipeline as Petrobas concludes its rig building program with Sete Brasil and Ocean Rig. Keppel has submitted bids for six semisub units and more contracts could be on the way," said DMG in a release.

DMG estimates that the unannounced Petrobas awards are now more likely to go to Keppel Corp, and that these will be confirmed by 1Q12 at the latest.

Here's more from DMG:

Semisub order from Sete Brasil. Confirming our confidence that Petrobras awards could materialise by 1Q12 (latest), Keppel announced that they have secured a US$809m (S$1.05b) order for a semisub drilling rig from Sete Brazil. The rig is based on Keppel’s DSSTM 38E design and is scheduled to be delivered in 4Q15. We noted that: (1) the price of the semisub rig was 8% higher than its semisub bid to Petrobras in Dec 2010 at US$749m. (2) The contract period of more than four years (award to delivery) is longer than the period required for semisubs built in Singapore at around 40 months. This helps to alleviate some delay risks as the yard in Brazil is less efficient. (3) The order also marks the first full design and build semisub contract for Keppel since August 2008. We maintain our FY11-12F EPS estimates and raise FY13F EPS by +2%, assuming the semisub achieve initial recognition in 2013 and 8% operating margin. We maintain our BUY rating on Keppel with an unchanged TP of S$11.40.

Backlog order book climbed to S$10.7b. This semisub is part of the proposal submitted by Keppel O&M to Sete Brasil in Jul 2011. This contract lifted its YTD 2011 order win to S$9.8b (2010: S$4.6b) and backlog order book to S$10.7b, a level not seen since 2006. We understand that this DSSTM 38E design semisub will be part of the 21 deepwater rigs offered by Sete Brasil to Petrobras. Queiroz Galvao (QGOG), one of Keppel’s partner in the Petrobras bid, has previously taken delivery of two DSSTM 38 design semisubs from Keppel and could be the operator of this unit. Management has not guided on the potential margins for this project and in our earnings model, we have assumed 8% operating margin on this semisub. Bulk of the revenue for this semisub will be recognised in FY14-15 and hence, the impact on our FY13F EPS estimates is marginal (~2%).

We believe there could be more deepwater rigs in the pipeline as Petrobras concludes its rig building program with Sete Brasil and Ocean Rig. Keppel has submitted bids for six semisub units and more contracts could be on the way.






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