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 As crude prices slide, oil producers are slashing new project
spending. With a near 40 percent slice of a global market worth tens
of billions of dollars, Chinese rig builders that offered juicy
financing terms and discounts to leapfrog Asian rivals in recent
years are now the most exposed to a slowdown.
Diversifying to pull out of a downturn in traditional shipbuilding,
China's state and privately owned yards have lured orders away from
regional peers, building scores of rigs for down payments of as
little at 1 percent. Many haven't yet been chartered by oil
explorers, industry watchers say.
Some in the industry fear that rig builders are now heading toward a
slowdown, possibly with cancellations and price cuts, that could
persist longer than the oil market's slump. Even if oil prices
recover enough to stoke exploration, an inventory of ready-made rigs
will be on hand, delaying new construction.
"Future cancellations will depend on the market going forward and
unfortunately we are looking at a real risk for yards in this
respect," said Joachim Skorge, regional head of investment banking
in Asia for DNB Market.
Chinese yards are scheduled to supply 37 new 'jackup' rigs - used in
shallow-water exploration - this year, according to Nomura research,
none of which has contracted customers to date. The most widely used
drilling platforms, a jackup rig typically carries a price tag of
around $200 million.
"We're having a big headache because there are no orders," said an
official at a large state-backed Chinese shipyard, speaking
condition of anonymity. He cited a lack of rig order enquiries for
the year 2016 and beyond.
Earlier this month, COSCO Corp, one of China's biggest shipyards,
said it has decided to terminate building an offshore platform known
as Octabuoy after failing to find buyers.
'MAIN CULPRIT'
China became the world's biggest offshore drilling rig builder after
rapid expansion led by the likes of state-backed yards China
Merchants Heavy Industry, Dalian Shipbuilding, a unit of China
Shipbuilding Industry Corp, and Shanghai Waigaoqiao, a subsidiary of
China CSSC Holdings Ltd. All three yards declined to comment for
this story.
But their jackup rig market share gains from traditional powerhouses
in Singapore came at a financial cost.
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"The Chinese yards are the main culprit (of speculative rig
buildup)...Even if crude oil prices are to recover as expected, we
expect new-build jackup rig orders to be subdued in 2015" with
considerable inventory of already made rigs available, Nomura
analyst Wee Lee Chong said in a report earlier this month.
China Merchants Heavy Industry has the largest number of orders at
14, followed by Dalian Shipbuilding and Shanghai Waigaoqiao,
according to data from shipping consultancy Drewry.
By comparison, less than 5 percent of orders at Singapore yards
Keppel and Sembcorp Marine are by speculative buyers,
according to Oversea-Chinese Banking Corporation. Sembcorp Marine
and Keppel declined to comment.
Except for a single order won by Daewoo Shipbuilding & Marine
Engineering in 2013, South Korean shipyards make very few jackup
rigs, leaving the business for its Chinese and Singaporean rivals.
Companies like Samsung Heavy have concentrated on deepwater
drillships instead.
Even without competition from South Korea, prospects look bleak in
the jackup rig trade.
"Some yards might have to drop their prices by 5-10 percent in order
to attract potential buyers in the current market climate," said
Lianghui Xia, a Shanghai-based shipbroker at RS Platou.
(Additional reporting by SHANGHAI Newsroom and Joyce Lee in SEOUL;
Editing by Kenneth Maxwell)
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