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Keppel O&M to exit offshore rig building and seek projects with predictable cash flow

01 Feb 2021

Keppel Corporation (Keppel) on Thursday (28 January) announced it is restructuring to better align its operations amidst the global energy transition and major disruptions facing the oil industry

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.

The company will be restructured into three parts, separating construction and ownership of legacy drilling rig assets from its core operations, which will be slimmer, asset-light and people-light.

The three parts after restructuring the business will be:

Rig Co : Manage Keppel’s completed rigs
Development Co (Dev Co) : Develop uncompleted rigs while prudently managing cash flow
Operating Co (Op Co) : Comprise the rest of Keppel O&M including fabrication yards and is the ‘core’ business.

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 cash flow, 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.

“Natural gas, as a transitional fuel, is also projected to overtake oil as the world’s largest energy source in the years to come,” said Loh Chin Hua, CEO of Keppel Corporation and Chairman of Keppel O&M.

“To seize opportunities in this fast-changing environment, we are making bold and decisive moves to transform Keppel O&M to ensure that it remains relevant and competitive, and fully aligned to Keppel’s Vision 2030.

“A key goal of the restructuring is to create a more competitive, asset-light and people-light Keppel O&M, focused on seizing opportunities with higher value capture as a developer and integrator of offshore energy and infrastructure assets.

“At the same time, the Rig Co and Dev Co will ring-fence Keppel O&M’s non-core rig assets, contain any further capital outflow beyond the initial funding, and work towards resolving this legacy issue.

“Through these changes, we aim to create a nimble industry leader that is well-positioned for the global energy transition and can be a strong contributor to Keppel’s target ROE of 15% as we progress towards Vision 2030.”

The restructuring will commence with immediate effect and is expected to be executed over the next two to three years.


Photo credit and source: Keppel Corporation
Published: 1 February, 2021

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