Annual contract wins could shrink by over half from peak levels.
Singapore yards had prospered on the rig contracting boom in the last cycle. Prospects remain post the oil bust, but the outlook is less prosperous, cautioned UOBKayHian.
According to the research house, a shift to production contracts will float earnings, though it expects annual contract wins to shrink by >50% from peak levels.
"In the near term, we expect a gradual rather than sudden recovery in contract awards," it said.
Here's more from UOBKayHian:
Oversupplied rig fleet presents poor prospects of future contracts. The global rig fleet remains oversupplied. Excluding Iran’s order for five jackup rates, almost no orders were placed in 2016.
Low contract wins should persist for years. The previous cycle saw a dearth of rig orders for close to a decade.
Production orders not likely to make up for the drop in rig orders. Our analysis of floating production contracts for award over 2017-19 points to only US$4.3b p.a. in orders available for award globally.
These make up a fraction of the rig orders that Keppel and Sembcorp Marine historically secured per year over 2011-14.
While production orders will help replenish the shipyards’ diminishing orderbook, it will not make up for the drop in rig orders. High earnings of the previous cycle will be a thing of the past for a protracted period.
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