Jackup rigs under construction at the Keppel FELS shipyard in Singapore. Photo courtesy Maersk
Singapore-based rig builder Keppel Ltd. is set to secure complete control over 13 legacy rigs currently held by Rigco Holding Pte. Ltd. (Asset Co), part of a strategic move reflecting the resurgence of the offshore rig market.
The transition of ownership will be facilitated through a selective capital reduction (SCR) exercise, scheduled for completion by the end of 2024. Upon successful execution, Asset Co will emerge as a wholly-owned subsidiary of Keppel, housed within a newly established private fund under Keppel’s management.
The development comes as Keppel capitalizes on improving market conditions, positioning itself to maximize returns from these valuable assets.
“Asset Co has one of the most advanced rig fleets available in the market today, with about half of these rigs contracted and generating stable cashflows,” said Keppel’s CEO, Mr. Loh Chin Hua. “Amidst the improving conditions in the offshore rig market, with some segments benefitting from utilisation rates of about 90% and improving day rates, securing control over the management and monetisation of our legacy rigs will enable us to reduce our risks as a substantial creditor to Asset Co, and better realise the potential of its assets.”
This strategic repositioning aligns with Keppel’s asset-light business model. The company plans to launch the Keppel Offshore Infrastructure Fund, which will not only manage the legacy rigs but also include Keppel’s 49% stake in Floatel International, an associated company of Keppel.
The timing of this move is particularly opportune given the current state of the global drilling fleet. According to Keppel, years of underinvestment have led to an aging fleet, with a notable shortage of premium rigs projected in the coming years, especially in the jackup market. This scarcity, coupled with the high costs and lengthy lead times for constructing new rigs, presents a unique opportunity for Keppel’s legacy assets.
Keppel’s strategy is not to re-enter the offshore and marine business directly. Instead, the company will focus on monetizing these legacy assets, leveraging its position as the largest economic interest holder in Asset Co. The existing partnership with Seatrium Limited will continue, with Seatrium providing construction, maintenance, and other associated services for the legacy rigs over the next decade.
This strategic shift is expected to yield multiple benefits for Keppel. The company says it will allow it to exert better control over the substantial cash reserves held by Asset Co (S$843 million as of September 2024), accelerate rig monetization, and potentially unlock funds for debt reduction, growth reinvestment, and shareholder rewards.
As the offshore drilling market continues its rebound from a prolonged downturn, Keppel’s move to take full control of these legacy rigs and establish a dedicated fund represents a calculated step towards capitalizing on the industry’s recovery while keeping an asset-light approach.
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