Sembcorp Marine seeing more inquiries but says competition still strong, margins depressed

Sembcorp Marine has seen an uptick in inquiries and invitations to tender from oil companies in recent months, particularly in the offshore production sector.
Sembcorp Marine has seen an uptick in inquiries and invitations to tender from oil companies in recent months, particularly in the offshore production sector.PHOTO: SEMBCORP MARINE

SINGAPORE - Sembcorp Marine (SembMarine) has seen an uptick in inquiries and invitations to tender from oil companies in recent months, particularly in the offshore production sector, but competition remains strong and margins remain depressed.

Recovery will, thus, take time, chairman Mohd Hassan Marican and president and chief executive Wong Weng Sun said in a note to shareholders in the company's annual report released on Thursday (March 29).

An improving global economy and higher oil and energy consumption in Asia, coupled with the reduction of inventories, have led oil prices to climb to a recent high of US$70 per barrel, before retreating to the US$60 to US$65 per barrel range.

They said: "A major part of our business remains cyclical in nature, and it takes time for the improvement in exploration and production capex spend to translate into new orders and revenue for Sembcorp Marine. Hence, even though the offshore oil and gas industry has begun to show signs of improvement, the flow of new orders remained weak, while competition within the sector intensified."

Offshore rigs utilisation and day rates have stabilised, but rig orders recovery may also take some time as the oversupply in most drilling segments has yet to rebalance.

Demand for vessel repairs and upgrades, especially for liquefied natural gas carriers and cruise ships, remains strong. Regulations on ballast water treatment requirements coming into force in the future will further support the potential of this segment.

Giving an update on Sete Brasil, it said that it believes the S$329 million provisions the group made in FY2015 for its US$5.6 billion Sete Brasil contracts inked in 2012 remain "adequate under the present circumstances".

It has since initiated arbitration proceedings against various Sete Brasil subsidiaries to safeguard its interests under the Sete Brasil contracts. The proceedings are ongoing.

Meanwhile, SembMarine continues to engage with Sete Brasil to better understand the latter's restructuring plan, after it filed for judicial restructuring in April 2016 and accordingly submitted its restructuring plan to the Brazilian court.