Singapore’s Keppel Corporation today reported a SGD 506 million (about $381 million) net loss for FY 2020 after taking impairments of SGD 952 million (about US$761 million) mainly due to the offshore & marine (O&M) business.
In a separate announcement Keppel unveiled plans for a “bold transformation” that aims to transform its Keppel O&M subsidiary into a slimmer, more competitive, company that is well-placed to support the energy transition.
After completing the rigs it currently has under construction, Keppel O&M will exit the offshore rig building business. It will not undertake any new project requiring large upfront capex or without milestone payments. It will also progressively exit low value-added repairs and other activities with low bottom line contribution, and focus on higher value-adding work.
As part of the transformation, Keppel O&M’s business will be restructured into three parts: a Rig Co and a Development Co (Dev Co), which will be transient entities created to hold its approximately SGD 2.9 billion (about US$2.18 billion) worth of completed and uncompleted rig assets; and most importantly, an Operating Co (Op Co), comprising the rest of Keppel O&M, which will be transformed into an asset-light and people-light developer and integrator of offshore energy and infrastructure assets.
With a healthy balance sheet and undistracted by its stranded rig assets, the Op Co has a strong net order book of SGD 3.3 billion (about US$2/48 billion), 82% of which is in renewables and gas solutions. Op Co, says Keppel, will seize opportunities in the energy transition, and is expected to be self-sustaining, financially independent and profitable over time.
Rig Co: Keppel O&M’s completed rigs will be placed under the Rig Co, which will put the completed rigs to work, or sell them if there are suitable opportunities. A dedicated team will be appointed to support its chartering and marketing activities. This will only be a transitional arrangement. As the oil market recovers, utilization and day rates improve, and the rigs generate steady cashflow, the Rig Co will sell the rigs or collaborate with Keppel Capital to seek funding from external investors. A cash flow generating Rig Co can be monetised or spun off in the future. The Rig Co is expected to be self-sustaining and would only require limited initial funding to maintain the rigs.
Dev Co: Uncompleted rigs will come under the Dev Co, which will focus on completing the rigs, while prudently managing cashflow. Priority will be given to completing rigs that have firm contracts with customers. The Dev Co will be wound up, once the rigs have been completed and delivered to customers, or transferred to the Rig Co, where they will be put to work or sold. The Dev Co would require some initial funding from Keppel, after which it is expected to operate independently.
The Rig Co and Dev Co are collectively expected to require about SGD 500 milliob (about US$ 376 million) million in net funding, mainly for the latter to complete the rigs. This will be provided progressively by Keppel Corporation and repaid over time.
Op Co: The Op Co, comprising the rest of Keppel O&M, will progressively transit to a developer and integrator role, focusing on design, engineering and procurement. It will be people-light and asset-light, with fabrication work subcontracted to its eco-system of contractors, including other yards.
SHIPYARD OPERATIONS TO BE STREAMLINED
Keppel O&M’s shipyard operations will be streamlined, including repurposing or divesting part of its global network of yards. At the same time, the Op Co will invest in capability building as it seizes new opportunities.
The Op Co will seek opportunities in floating infrastructure and infrastructure-like projects that can deliver predictable streams of cashflow, including renewables projects such as offshore wind farms and solar farms, gas solutions, production assets and new energy solutions such as hydrogen and tidal energy. It will collaborate with other Keppel business units and harness the synergies of the group to provide diverse solutions for sustainable urbanization, such as offshore and nearshore infrastructure and floating data center parks, and also explore how Keppel O&M’s offshore rig technology can be repurposed for other uses.
The restructuring will commence with immediate effect and is expected to be executed over the next two to three years.