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Keppel has started an offshore market review as part of its global strategy and roadmap amid the sector downturn in late September 2020
Keppel announced yesterday (28/01) that, amid the global energy transition and major disruptions facing the oil industry, the company will undertake a bold transformation of the offshore and marine businesses of its wholly owned subsidiary, Keppel Offshore & Marine, to better align it to the company's Vision 2030.
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According to the statement, Keppel Offshore & Marine will seize opportunities as a developer and integrator of offshore energy and infrastructure assets and exit the offshore platform construction business.
The company will be restructured into three parts, separating the construction and ownership of drilling rig assets from its core operations.
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The review aims to make the Keppel Offshore & Marinand more competitive to support the energy transition, even as the company continues to explore inorganic options for its offshore and marine business.
Departure in platform construction and Keppel's commitment to sustainability
Reflecting Keppel's commitment to sustainability and combating climate change, Keppel O&M will exit the offshore platform construction business, after completing existing platforms under construction.
Loh Chin Hua, CEO of Keppel Corporation and President of Keppel O&M said: “The share of renewables and new energy solutions in the global energy mix has been growing rapidly, driven by environmental concerns as well as technological advances and the declining cost of renewables. Natural gas, as a transitional fuel, is also projected to overtake oil as the world's largest energy source in the coming years. To seize the opportunities in this rapidly changing environment, we are making bold and decisive moves to transform Keppel O&M to ensure it remains relevant and competitive, and fully aligned with Keppel's Vision 2030.
“We are also exploring inorganic options for the O&M business, but there is no guarantee that any transaction will materialize. Meanwhile, we believe that our organic restructuring of Keppel O&M will not only increase its competitiveness, but also its attractiveness, if we are to take any inorganic actions.”
As part of the transformation, Keppel Offshore & Marine's business will be restructured into three parts:
Keppel O&M's complete 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 your chartering and marketing activities. This will only be a transitional agreement. As the oil market recovers, utilization and daily rates improve, and the rigs generate steady cash flow, Rig Co will either sell the rigs or collaborate with Keppel Capital to seek funding from outside investors.
Uncompleted rigs will come under the Dev Co, which will focus on completing rigs while prudently managing cash flow. Priority will be given to completing platforms that have firm contracts with customers. The Dev Co will either be closed down 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. Dev Co would require some initial funding from Keppel, after which it is expected to operate independently.
The Rig Co and Dev Co are expected to collectively require around $500 million in net funding, primarily for them to complete the rigs. This will be progressively provided by Keppel Corporation and reimbursed over time.
Op Co, comprising the rest of Keppel O&M, will progressively transition into a developer and integrator role, with a focus on design, engineering and procurement. Op Co will exit the offshore platform construction business, and will progressively exit low value-added repairs and other activities with low contribution to the bottom line. Will seek opportunities in floating infrastructure and infrastructure projects that can provide predictable cash flow streams, including renewables projects such as offshore wind farms and solar farms, gas solutions, manufacturing assets and new energy solutions such as hydrogen and tidal energy .
He will collaborate with other Keppel business units and leverage the Group's synergies to deliver 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 platform technology can be reused for other uses.
Loh Chin Hua added, “A key objective of the restructuring is to create a more competitive Keppel O&M, light on assets and people, focused on seizing opportunities with greater value capture as a developer and integrator of energy assets and offshore infrastructure. At the same time, Rig Co and Dev Co will hedge Keppel O&M's non-core platform assets, contain any capital outflows beyond seed funding, and work to resolve this legacy issue. With these changes, we aim to create an agile industry leader that is well positioned for the global energy transition and can be a strong contributor to Keppel's target ROE of 15% as we move towards Vision 2030.”
Immediate restructuring
The restructuring will begin with immediate effect and is expected to run over the next two to three years. Reflecting its new focus, Keppel O&M will undertake a rebranding exercise and refine its vision and purpose.
The restructuring is expected to significantly increase Keppel O&M's competitiveness and relevance in the long term, but is not expected to have any material impact on the Company's net tangible assets per share or earnings per share for the current year.
