Why analysts are excited about Sembcorp's breakthrough drillship orders

2 drillships are worth US$1.1b.

According to CIMB, SMM has secured two drillships worth US$1.1bn plus options to build another three units from Transocean (RIG US, Not Rated). The drillships are based on SMM's proprietary Jurong Espadon II design.

They are equipped with a single blowout preventer of 15,000 psi, are DP-3 capable and can operate at 12,000ft water depth and drill to depths of 40,000ft, with accommodation for 220 personnel.

Here's more from CIMB:

The first unit is scheduled for delivery in 2Q17 and the second in 1Q18. Transocean currently owns and operates six drilling rigs built by SMM – three jack-ups and three semi-subs.

We are excited about SMM's breakthrough drillship orders for international drillers. We feel that investors have been biased against Singapore yards in the sense that they have been overly worried about the competition which Singapore yards face from Chinese yards but have not thought about the prospect that Singapore yards could also be a similar competitive threat to the North Asian yards.

We note that the unit cost of US$540m only includes partial owners' equipment, meaning that Transocean will have to supply other equipment parts.

Also, project management is not included in the yard cost of US$540m. If we were to include all-in costs, we estimate that the price of the unit would be US$620m, which is similar to the US$600m unit price for the latest drillships that Seadrill ordered from Daewoo and Samsung in mid-2013.

As drillship is a relatively new product for SMM, we project initial margins of 10% for these two units as some tuition fees would inevitably have to be paid.

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