Keppel Corporation (Keppel) will carry out a comprehensive transformation of its wholly-owned subsidiary, Keppel Offshore & Marine (Keppel O&M), to better align it to Keppel’s Vision 2030. This is part of Keppel’s strategic review of its offshore and marine (O&M) business, with the goal of creating a slimmer, and more competitive Keppel O&M that is well-placed to support the energy transition, even as Keppel continues to explore inorganic options, the company said in its release.
Reflecting Keppel’s commitment to sustainability and combating climate change, Keppel O&M will exit the offshore rig building business, after completing the existing rigs under construction. In line with the Group’s more disciplined approach towards capital allocation, Keppel O&M will not undertake any new project requiring large upfront capex or without milestone payments. It will also progressively exit low value-adding repairs and other activities with low bottom line contribution, and focus on higher value-adding work.
As part of the transformation, Keppel O&M’s business will be restructured into three parts: a Rig Co and a Development Co (Dev Co), which will be transient entities created to hold its approximately S$2.9 billion worth of completed and uncompleted rig assets; and most importantly, an Operating Co (Op Co), comprising the rest of Keppel O&M, which will be transformed into an asset-light and people-light developer and integrator of offshore energy and infrastructure assets. With a healthy balance sheet and undistracted by its stranded rig assets, the Op Co, which has a strong net order book of S$3.3 billion, 82% of which is in renewables and gas solutions, will seize opportunities in the energy transition, and is expected to be self-sustaining, financially independent and profitable over time.
Rig Co: Keppel O&M’s completed rigs will be placed under the Rig Co, which will put the completed rigs to work, or sell them if there are suitable opportunities. A dedicated team will be appointed to support its chartering and marketing activities. This will only be a transitional arrangement. As the oil market recovers, utilisation and day rates improve, and the rigs generate steady cashflow, the Rig Co will sell the rigs or collaborate with Keppel Capital to seek funding from external investors. A cash flow generating Rig Co can be monetised or spun off in the future. The Rig Co is expected to be self-sustaining and would only require limited initial funding to maintain the rigs.
Dev Co: Uncompleted rigs will come under the Dev Co, which will focus on completing the rigs, while prudently managing cashflow. Priority will be given to completing rigs that have firm contracts with customers. The Dev Co will be wound up, once the rigs have been completed and delivered to customers, or transferred to the Rig Co, where they will be put to work or sold. The Dev Co would require some initial funding from Keppel, after which it is expected to operate independently.
The Rig Co and Dev Co are collectively expected to require about S$500 million in net funding, mainly for the latter to complete the rigs. This will be provided progressively by Keppel Corporation and repaid over time.
Op Co: The Op Co, comprising the rest of Keppel O&M, will progressively transit to a developer and integrator role, focusing on design, engineering and procurement. It will be people-light and asset-light, with fabrication work subcontracted to its eco-system of contractors, including other yards. Keppel O&M’s yard operations will be streamlined, including repurposing or divesting part of its global network of yards. At the same time, the Op Co will invest in capability building as it seizes new opportunities.
The Op Co will exit the offshore rig building business, and progressively exit low value-adding repairs and other activities with low bottom line contribution. It will seek opportunities in floating infrastructure and infrastructure-like projects that can deliver predictable streams of cashflow, including renewables projects such as offshore wind farms and solar farms, gas solutions, production assets and new energy solutions such as hydrogen and tidal energy. It will collaborate with other Keppel business units and harness the synergies of the Group to provide diverse solutions for sustainable urbanisation, such as offshore and nearshore infrastructure and floating data centre parks, and also explore how Keppel O&M’s offshore rig technology can be repurposed for other uses.
The restructuring will commence with immediate effect and is expected to be executed over the next two to three years. Reflecting its new focus, Keppel O&M will carry out a rebranding exercise and refine its vision and purpose.
The restructuring is expected to significantly enhance the competitiveness and relevance of Keppel O&M in the longer run but is not expected to have any material impact on the net tangible assets per share or earnings per share of the Company for the current financial year.