New orders won’t rebound until 2018.
Transocean’s decision to delay the delivery of five jackup rigs which are under construction by Keppel illustrates a deeper malaise ailing Singapore’s largest rig builders.
A report by Maybank Kim Eng said that Transocean’s decision simply means that it does not need any new rigs until 2020, which implies that a meaningful near-term recovery is nowhere in sight for the shipbuilders.
“Given that jackup rigs need two years to construct, this may imply that the rigbuilding industry may not see a meaningful recovery in rig orders until 2018. In a way, a deferment for an extended period is not much different from cancelling the contract and making a fresh order again much later,” Maybank Kim Eng said.
Maybank Kim Eng also noted that the recent oil price bounce is not enough to change the fundamental problem of oversupply in the rig market, which is exacerbated by fragile drilling demand.
“Unless oil price can rally rapidly pass the USD60/bbl level on a sustained basis, the rig market will have to grapple with an oversupplied situation over the next two years,” Maybank Kim Eng said.
“Without a return in new orders, rigbuilders are unlikely to deliver meaningful EPS growth but would instead face downward pressure from more deferments or even cancellations. Therefore, we are of the view that any stock price bounce that rides purely on the notion that an oil price rebound should drive a valuation re-rating may not be sustained if EPS subsequently disappoints,” the report added.
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