Why Sembcorp Marine's latest deal spurred buzz among analysts

It beat the typical S$205-210m price range.

According to DBS Vickers, Sembcorp Marine’s subsidiary PPL Shipyard has secured a US$220.5m contract from BOT Lease Co., Ltd (“BOTL”) to build a jack-up drilling rig.

The latest contract price represents 5-8% premium over the typical price range of US$205-210m and is a tad higher than the short lead-time (12-15mths) orders secured in 2012 which were priced at US$217-218.5m.

Here's more from DBS Vickers:

Coupled with efficiency gains from using a proprietary design, we expect better than average margins for the unit.

We believe the price increase was driven by the shorter lead time of less than 20 months vs the typical 24 months or more, as well as positive market sentiment.

The rising utilisation rate and day rates for jack ups as well as replacement demand due to an aging fleet also bode well for newbuild demand and prices, particularly the premium and harsh environment jack ups.

BOTL is a leasing company under The Bank of Tokyo-Mitsubishi UFJ, which is in turn under the Mitsubishi UFJ Financial Group.

Japan Drilling Co., Ltd, Japan's sole offshore drilling company listed on the Tokyo Stock Exchange, will be project coordinator and provide the project management team during the rig construction phase.

Such arrangement prompts us to conclude that Japan Drilling may take over and operate the rig upon completion.

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