Keppel Profit Drops as Oil Slump Delays Offshore Projects

A view of a Keppel Corporation shipyard in Singapore January 19, 2016. REUTERS/Edgar Su
A view of a Keppel Corporation shipyard in Singapore January 19, 2016. REUTERS/Edgar Su

By Kyunghee Park

(Bloomberg) — Keppel Corp., the world’s largest builder of oil rigs, reported a 41 percent decline in first-quarter profit as weak oil prices led to delivery delays of offshore projects.

Net income dropped to S$211 million ($156 million) from S$360 million a year earlier, Keppel said in a statement Monday. Sales slumped 38 percent to S$1.7 billion from S$2.8 billion. The higher contribution from its property business at 47% helped to partially offset lower profits from offshore and marine sectors, the company said in the statement.

Oil companies and rig operators face rising debt and spending cuts, and have abandoned orders or asked shipyards to delay deliveries of offshore drilling rigs and production facilities. That’s caused shipyards to post losses or smaller profits after writing off costs from projects under construction, and demand has fallen with crude prices still less than half of what they were three years ago.

“The sustained low oil price environment continues to take a toll on the global oil and gas industry, which is in the midst of one of the most severe downturns in recent years,” Chief Executive Officer Loh Chin Hua said in the statement.

Keppel fell 2 percent to close at S$6 Monday before the earnings announcement. The stock has fallen 7.8 percent this year.

Brazil Challenge

Keppel and its smaller rival Sembcorp Marine Ltd. also face risks from Brazil, where debt-ridden Sete Brasil Participacoes SA accounts for a combined $10.5 billion in orders for semi-submersibles and drill ships at the two companies. Sete Brasil fell into financial distress after it was unable to secure long-term financing and its only client state-run oil producer Petroleo Brasileiro SA, or Petrobras, faced allegations of kickbacks.

Keppel wrote off S$230 million in the fourth quarter over delinquent projects.

Brazil, which has traditionally been one of the company’s key markets, “continues to be mired in economic and political challenges,” Loh said.

Keppel stopped construction work for Sete Brasil and won’t resume until payment commences, Loh said.

Oil prices have plunged more than 60 percent over the past two years amid a supply glut and slower growth in China. Brent crude fell 4.2 percent to $41.29 a barrel as of 4 p.m. in Singapore Monday. Members of the Organization of Petroleum Exporting Countries and other producers ended talks over the weekend without any agreement to limit output.

More than $400 billion of proposed energy projects have been delayed since mid-2014 and pushed into 2017 and beyond as oil prices dropped, according to consulting firm Wood Mackenzie Ltd.

© 2016 Bloomberg L.P