Keppel shares end flat despite rig order news

Borr Drilling agrees to buy 5 rigs Keppel is building for Transocean

Keppel Corporation shares barely moved yesterday despite news that Oslo-based rig operator Borr Drilling is buying five jack-up rigs that the conglomerate is building for Transocean.

Borr Drilling will take over the contracts and remaining payment instalments for the order which Transocean placed with Keppel Fels, Keppel's rig-building unit.

The sale announcement on Monday night helped lift Keppel shares to $6.92 yesterday morning, but the stock closed down two cents, or 0.3 per cent, at $6.83.

Still, the shares are up 18 per cent for the year.

In 2013, Swiss-based Transocean ordered five KFels Super B Class jack-up rigs from Keppel Fels for US$1.1 billion (S$1.5 billion) and made a 20 per cent down payment.

Under the agreement announced on Monday, each rig will cost US$216 million, compared with the original price of US$219 million. Borr Drilling will make a down payment of US$275 million.

The delivery dates of the five rigs were originally between last year and this, but were deferred by Transocean to 2020 amid the oil price collapse. The first three rigs will now be delivered between this year and next, while the remaining two will be delivered in 2020. "This will enable Keppel to improve cash flow and minimise risks of the projects," said Keppel.

The agreement with Borr Drilling is expected to be completed before the end of May.

Analysts noted that Keppel's uninspiring share price performance yesterday was likely due to broader sentiment across the local market, which finished weaker.

KGI Securities Singapore analyst Joel Ng also believes uncertainties remain for Keppel, in terms of the timing of order recovery and risks of further write-downs.

But he added that the Borr deal is positive for the group and other oil-related plays. "We believe the increased activity in asset acquisitions indicates the price mismatch between buyers and sellers is narrowing - a sign that industry players are beginning to turn positive."

Mr Ng has a "hold" call on Keppel, with a target price of $6.50.

CIMB head of research Lim Siew Khee upgraded the stock from "reduce" to "hold", with a target price of $7.24. The terms secured in the contract are "commendable, especially in the current oversupply situation in the rig market", she said. "Keppel was able to get almost zero discount for its fleet, which could be due to the quality and high specs of the Super B Class."

Meanwhile, a change in leadership is afoot at Keppel Offshore & Marine. Keppel said in a separate announcement on Monday that Keppel Fels managing director Chris Ong, 42, will serve concurrently as acting chief executive of Keppel O&M with effect from April 1.

Current Keppel O&M chief executive Chow Yew Yuen, 62, will retire on March 31, after being with the group for 36 years.

A version of this article appeared in the print edition of The Straits Times on March 22, 2017, with the headline 'Keppel shares end flat despite rig order news'. Print Edition | Subscribe