Singapore Offshore E&C Duo Discuss Merger

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Singapore's Sembcorp Marine and Keppel Corp. plan to merge their offshore engineering and construction activities to strengthen their hand as they shift away from oil and gas and pursue opportunities created by the energy transition. Offshore engineering companies -- which build drilling rigs, production platforms and specialized vessels for the oil and gas industry -- have struggled since the oil price collapse of 2014-16 and the Covid-19 pandemic only made things worse. Rivals in other Asian countries have already made similar consolidation moves, while Sembcorp Marine was spun off from parent company Sembcorp last year and Keppel was already planning to exit the rig-building business (IOD Aug.12'20). Plans call for Keppel O&M (Offshore & Marine) to merge with Sembcorp Marine. The resulting company would manage an order book with a value of almost S$7 billion (US$5.2 billion), made up of a combination of renewable energy and oil and gas projects. Asian Rivals Have Already Tied the Knot Keppel Corp. CEO Loh Chin Hua said talks between the two companies have been under way for several months and that they expect to reach a definitive agreement by the fourth quarter of this year. Shareholder and regulatory approvals would still be needed, so it would "probably be well into 2022" before the deal closed, he said during a briefing for reporters and analysts. The proposed merger would transform the Asia-Pacific region’s offshore engineering and construction landscape, but such a consolidation had in fact been widely expected. "It did not make sense to have two Singapore companies duking it out for offshore marine projects," said Adrian Loh of brokerage UOB Kay Hian. "The new entity will be better placed to compete with overseas competitors." Rystad Energy analyst Lin Lin Goh concurred, saying a merger would give them a "fighting chance against lower-cost Chinese yards and high-technology Korean yards." South Korean shipbuilding firms Daewoo and Hyundai are currently merging, while China State Shipbuilding Corp. and China Shipbuilding Industry Corp. merged in 2019 to form China Shipbuilding Group (IOD Oct.28'19). Offshore Wind, Carbon Capture, Hydrogen Fuel Cells The merged company will continue most of the legacy business of Sembcorp Marine and Keppel O&M, such as building floating production, storage and offloading (FPSO) vessels. However, it will increasingly focus on renewable energy and energy transition projects that Sembcorp Marine and Keppel O&M have already been pursuing independently of each other. Gas will also remain part of the game plan. Sembcorp Marine's current order book of S$1.89 billion (US$1.4 billion) includes work on five offshore wind farms and construction of three battery-powered passenger ferries, while almost three-quarters of Keppel O&M's new orders in the last quarter were offshore wind and gas projects. Sembcorp Marine has also been looking at entering the market for equipment to inject carbon dioxide into depleted oil fields as carbon capture and storage gains traction around the world, including Southeast Asia, where projects are in the works in Malaysia and Indonesia (IOD Jan.20'21). It is also working with Royal Dutch Shell and Penguin International to test the use of hydrogen fuel cells in ships (IOD Apr.21'21). Marc Roussot, Singapore

Offshore Oil and Gas, Carbon Capture (CCS), Hydrogen, Energy Storage, Corporate Strategy
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