Keppel Announces Exit From Offshore Platform Construction Due to Industry Crisis

Keppel Initiated a Review of the Offshore Market as Part of Its Global Strategy and Roadmap Amid Sector Crisis in Late September 2020

Keppel announced yesterday (28/01) that, amid the global energy transition and the major disruptions faced by the oil industry, the company will undertake a bold transformation of its offshore and maritime business of its wholly-owned subsidiary, Keppel Offshore & Marine, to better align it with 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 will exit the offshore platform construction business.

The company will be restructured into three parts, separating platform construction and ownership of drilling assets from its core operations.

The review aims to make Keppel Offshore & Marine more competitive to support the energy transition, even as the company continues to explore inorganic options for its offshore and maritime business.

Exit from 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 the existing platforms under construction.

Loh Chin Hua, CEO of Keppel Corporation and Chairman of Keppel O&M, said: “The participation of renewables and new energy solutions in the global energy mix is growing rapidly, driven by environmental concerns as well as technological advancements and the declining cost of renewables. Natural gas, as a transitional fuel, is also set to surpass oil as the world’s largest energy source in the coming years. To seize 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. In the meantime, we believe that our organic restructuring of Keppel O&M will not only enhance its competitiveness but also its attractiveness should we pursue any inorganic action.”

As Part of the Transformation, Keppel Offshore & Marine’s Business Will Be Restructured into Three Parts:

Keppel O&M’s completed platforms will be placed under Rig Co, which will either put the completed platforms to work or sell them if suitable opportunities arise. A dedicated team will be appointed to support its chartering and marketing activities. This will be solely a transitional arrangement. As the oil market recovers, utilization and day rates improve, and the platforms generate steady cash flow, Rig Co will sell the platforms or collaborate with Keppel Capital to seek funding from external investors.

Unfinished platforms will fall under Dev Co, which will focus on completing the platforms while prudently managing cash flow. Priority will be given to completing platforms that have firm contracts with customers. Dev Co will be dissolved once the platforms have been completed and delivered to customers or transferred to 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.

It is estimated that Rig Co and Dev Co will collectively require about US$ 500 million in net funding, mainly to complete the platforms. This will be provided progressively by Keppel Corporation and repaid over time.

Op Co, comprising the rest of Keppel O&M, will progressively transition to a developer and integrator role, focusing on design, engineering, and procurement. Op Co will exit the offshore platform construction business and gradually step away from low-value-added repairs and other activities with low contributions to the bottom line. It will seek opportunities in floating infrastructure and infrastructure projects that can provide predictable cash flow streams, including renewable 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 business units of Keppel and leverage Group synergies 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 platform technology can be repurposed for other uses.

Loh Chin Hua added: “A fundamental goal of the restructuring is to create a more competitive Keppel O&M, asset-light and agile, focused on seizing opportunities with higher value capture as a developer and integrator of offshore energy and infrastructure assets. At the same time, Rig Co and Dev Co will surround Keppel O&M’s non-core platform assets, contain any capital outflows beyond initial 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 advance toward Vision 2030.”

Immediate Restructuring

The restructuring will begin immediately and is expected to be executed over the next two or three years. Reflecting its new focus, Keppel O&M will conduct a rebranding exercise and refine its vision and purpose.

The restructuring is expected to significantly enhance the competitiveness and relevance of Keppel O&M 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 fiscal year.