Published January 10, 2009

Deals In Jeopardy
Keppel loses 2 deals, revises terms for 1

SembMarine unit PPL too revises milestone payment schedule for one jack-up, defers payment for another

By VINCENT WEE
Email this article
Print article
Feedback

OF the three contracts it said were under review in November, Keppel Corp announced yesterday that its marine units have lost two of them.

MUTUALLY AGREED CHANGES
Sembcorp Marine's unit PPL Shipyard and customer Seadrill have agreed to revised terms on the US$430 million contract for two jack-up rigs like this one

Meanwhile, Sembcorp Marine said yesterday that unit PPL Shipyard and customer Seadrill have agreed to revised terms on the US$430 million two jack-up rig contract signed in June 2008.

Keppel Fels' US$420 million contract with Seadrill from the same order tranche will continue on revised terms that are mutually beneficial, but KepFels' US$405 million semisub deal with Scorpion Offshore and Keppel Singmarine's $69 million multi-function support vessel order from Ezra unit Lewek Shipping are being terminated.

Essentially out of the four jack-ups, two each from Keppel and SembMarine, the yards have agreed to postpone all remaining milestone payments for the second units to be built at both yards until delivery and revise the milestone payment schedule for the first two units.

Seadrill has agreed to issue corporate guarantees for the remaining instalments on the first two units. However, no corporate guarantees have been provided for payments of the second units at the yards. As such, the construction of all four newbuilds will continue under the project supervision of the current project teams sponsored by Seadrill. Delivery is scheduled for 2010.

KepFels and Scorpion are terminating their contract on 'mutually acceptable terms', Keppel said. KepFels is discussing with interested third parties to take over the building of the rig, but Keppel cautioned that 'the outcome of these discussions are highly uncertain'.

Keppel Singmarine and Lewek Shipping meanwhile are 'currently working towards an amicable termination of their contract' which is expected to be finalised shortly, Keppel said.

The moves are not expected to have any material impact on the net tangible assets and earnings per share of Sembcorp Marine for the year ending Dec 31, 2009. Likewise Keppel said the two contract cancellations are not expected to have a material impact for the financial year 2009.

The massive order worth nearly US$1 billion from Seadrill in June was touted at the time as a sign of the offshore and marine sector's remarkable boom.

Keppel shares closed eight cents lower at $4.92 yesterday while SembMarine shares gained one cent to $1.84.