Published June 27, 2009

Keppel outplays Sembcorp Marine in shipyard talks

By VINCENT WEE

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KEPPEL Corp again appears to be using its might to get itself further ahead in the rig-building game, with reports that it is in talks to take a stake in a new shipyard in Brazil - apparently shoving rival Sembcorp Marine aside in the process.

'We are conducting a feasibility study. No decision has been made,' a Keppel spokesperson said in response to queries.

According to Dow Jones, Brazilian construction group WTorre has confirmed it is in talks with Keppel on a 70 per cent stake in a shipyard project at Rio Grande in southern Brazil. 'We're in advanced - but not conclusive - talks with Keppel,' the news agency quoted a WTorre spokesperson as saying.

Industry sources estimate such a yard would cost about US$850 million. But given it is the first large-scale rig-capable yard to be built in Brazil in 30 years, and generally high costs in that market, the value could well be closer to US$1 billion.

Keppel recently completed the $1.47 billion sale of a 45.51 per cent stake in Singapore Petroleum Company, and should be well able to afford the Brazil deal.

According to industry website Upstream, Keppel is eyeing a 70 per cent stake in the yard ahead of the closing of a Petrobras tender for the hull construction of eight floating production, storage and offloading (FPSO) vessels. Production at Brazil's massive Tupi offshore field is set to come steadily on stream - and can only be served by floating production units. Petrobras recently announced a five-year investment budget of US$174.4 billion from 2009 to 2013. Building contracts for Petrobras often come with heavy local content requirements of 80 per cent or more.

Keppel already has yard facilities in Angra and Niteroi in Rio de Janeiro state, where it has been building massive production platforms for Petrobras for several years.

WTorre's Rio Grande yard has an estimated total land area of about 55 hectares and will be equipped with a 133m by 350m graving dock with ancillary steel fabrication facilities.

The facilities are geared towards constructing and repairing semi-submersible units, including the largest production rigs, ship-shape FPSOs and full-scale top-side fabrication.

However, Keppel was not the first to express interest in the yard. Sembcorp Marine subsidiary Jurong Shipyard signed a memorandum of understanding to form a joint-venture company to own and operate the yard in October 2007. 'Jurong Shipyard is at an advanced stage of negotiations on the terms of the joint-venture partnership with WTorre Group. A further announcement will be made upon finalisation of the agreements,' Sembmarine said at the time.

It appears that in the interim, Keppel has outmanoeuvred its local rival, as the first phase of the yard reaches completion. Sembmarine declined to comment.

Petrobras is believed to have committed to a 10-year contract to do work at the yard, where it will convert oil tankers into FPSOs and repair oil rigs. WTorre claims the yard will cut delivery times by between 270 and 280 days because of a new structure developed by the company, which is a major Brazilian civil engineering group.

Keppel shares closed 21 cents higher at $6.96 yesterday.