Keppel, Sembcorp rallies seen ending as oil-rig orders drop

Analysts are warning that the business outlook for oil rig builders is still quite challenging, given the current prices of oil.
Analysts are warning that the business outlook for oil rig builders is still quite challenging, given the current prices of oil.PHOTO: KEPPEL CORPORATION

SINGAPORE (BLOOMBERG) - The world's two biggest builders of oil rigs saw their stocks rise the most in more than two years last month as crude rebounded. Investors looking for more gains shouldn't get their hopes up just yet, Baring Asset Management and Henderson Global Investors say.

Keppel Corp. surged 13 per cent and Sembcorp Marine rose 7.8 per cent in March, the larest monthly gains since January 2012 and September 2013 respectively. Oil climbed briefly above US$40 a barrel last month, a level not seen since December.

Oil companies and rig operators remain at risk of rising debt and spending cuts, and are abandoning or delaying orders of offshore drilling rigs and production facilities as crude prices are still less than half what they were three years ago. That's prompted shipyards to post losses or smaller profits after writing off costs from projects under construction.

"We've had a good rally from oversold levels, but the business outlook for the oil-rig builders is still quite challenged," said Soo Hai Lim, a Hong Kong-based money manager at Baring Asset Management, which oversees about US$41 billion. "The current price of oil still doesn't make it viable for energy producers to increase their exploration activities."

Brent oil has plunged more than 60 per cent over the past two years amid a supply glut and slower growth in China. The global benchmark crude rose 2.4 per cent to US$38.77 a barrel as of 5:29 p.m. in Singapore Wednesday.

Mr Lim and Sat Duhra, a fund manager at Henderson Global, say they have no plans for now to buy shares in Keppel or Sembcorp Marine.

"Oil prices remain volatile and will continue to have an impact on oil and gas players, including Sembcorp Marine," the company said in an e-mail. However the market challenges are an impetus for Sembcorp Marine to focus on diversifying its offerings, and the company aims to generate "acceptable risk- adjusted sustainable returns," it said. Keppel declined to comment on the company's outlook in an e-mail.

Shares of Keppel gained 1.8 per cent to close at S$5.65 in Singapore Wednesday, and Sembcorp Marine advanced 1.6 per cent to S$1.565. The two stocks are the worst performers on Singapore's Straits Times Index in the two-year period through Tuesday.