It used to be a tale of two cities with Singapore and Kuala Lumpur each competing to host regional headquarters for offshore and marine (O&M) players. But against a backdrop of persistently low oil prices, fresh concerns have emerged over Singapore's competitiveness as an O&M hub, following a decision made by a fourth top-tier international subsea contractor to ship out most of its operations to Kuala Lumpur.
A fortnight ago, Oslo and Nasdaq-listed Subsea 7 reached a decision to move its regional headquarters to Kuala Lumpur from Singapore.
The Business Times understands the move, to be completed by the third quarter of 2016, will see about two thirds of the 90-strong staff in Singapore made redundant. An informed source told BT Subsea 7 will offer only a handful of its staff in Singapore relocation options to Kuala Lumpur. The offshore crewing and logistics supply chain management will remain in Singapore, which would mean its Loyang supply base will stay, while its business address in PSA Building would likely have to be relinquished.
When approached by BT, Subsea 7 declined to confirm the move to Kuala Lumpur and did not comment on the rationale behind its recent decision.
But a general industry consensus is that cost was the primary driver behind Subsea 7's decision to relocate, unlike the case for three preceding others - McDermott, Technip and Saipem.
"It is more about costs and calculations put together by accountants," Singapore Shipping Association (SSA) chairman Mike Meade remarked when probed on Subsea 7's planned move to Kuala Lumpur.
As well as lower salary bands, housing, office rental and transport are cheaper in Malaysia, Mr Meade, who is also the managing director of Singapore-based offshore marine brokerage and consultancy, M3 Marine, said, adding that the cost differential has been more recently exacerbated by a weakened ringgit.
"Subsea players moving from Singapore to Kuala Lumpur were previously drawn by Petronas' (promise towards) projects-in-the-pipeline," the seasoned broker said.
He based his observations on New York-listed McDermott and Milan-listed Saipem's relocation to Kuala Lumpur.
Back in 2011 when Brent oil was trading at over US$100, Petronas had pledged RM300 billion (now US$72 billion) over five years through to 2015, towards capex on domestic exploration and production. Interests of subsea players in Malaysia were further piqued by a series of deep-water oil and gas discoveries Petronas subsequently unveiled off its East Coast.
McDermott and Saipem have in turn formed joint ventures with local partners, TH Heavy Engineering and SapuraKencana Petroleum, respectively, in their bids to penetrate the Malaysian O&M market. The duo subsequently made plans to relocate their regional headquarters to Kuala Lumpur.
The third named oilfield services contractor, Paris-headquartered Technip, however, had long set up to operate in the region out of Malaysia. The French contractor expanded its subsea presence in Singapore through buying out the then Houston-based Global Industries in 2011.
Both McDermott and Technip have named proximity to regional clients as a motivation for relocating or consolidating their operations.
McDermott said: "The move will bring us closer to our clients and key markets in the region as many of them are located within Malaysia, specifically Kuala Lumpur which is an active hub in the region for the oil and gas industry."
"It is important to be closer to our customers, where the O&G companies are, for better visibility," Technip said in an e-mail statement to BT.
Technip also added: "The consolidation of our subsea resources, made Technip KL regional headquarters a major Subsea Hub in South-east Asia regrouping all disciplines and regional assets that define the Subsea arena for Technip . . . and thus offering our clients a one-stop centre in the region."
Saipem did not respond to a request from BT for comments.
What was alluded in McDermott and Technip's responses is Singapore, unlike Malaysia, does not have a national oil company to anchor its O&M sector.
As Pareto Securities managing director, David Palmer, pointed out: "Malaysia as a producing nation, favours 'Malaysian content' and if you have a solid and trustworthy partner, it can make commercial and strategic sense to be close to both Petronas and their PSC (production sharing contract) holders.
"Singapore, as a non-producer (of hydrocarbons) cannot benefit from such practices," he said.
McDermott and Technip have, nonetheless, also acknowledged cost rationalisation as a key motivation behind the move to Kuala Lumpur and against bottom-line challenges from a low oil price environment; this is now higher up on the priority of Subsea 7 and the larger O&M industry.
One informed source, confirming Mr Meade's observation, said that unlike the case for McDermott and Saipem, Subsea 7, having obtained a licence from Petronas, has already been bidding for work with the NOC (national oil company).
Against the odds stacking up against Singapore, the Maritime and Port Authority of Singapore (MPA) has already attempted to level up the playing field by extending concessions on port due to offshore support vessel operators. The concessions had been in place since November 2015 after some discussion between the SSA and the MPA and Mr Meade lauded the move as a "well thought out" response to the challenges confronting OSV (offshore support vessel) players in the current economic environment.
"This will go some way in assisting with the additional financial burden placed upon our offshore marine members caused by reduced vessel utilisation during these troubled times," Mr Meade said.
"(Such) strong partnership between the associations, regulators and the industry players is a unique feature of Singapore and we have benefited greatly through our participation in many of the schemes, programmes and initiatives that have been implemented," Amyon Chaffey, financial director of leading OSV player, Swire Pacific Offshore (SPO), said.
"SPO has been based in Singapore since 1975 and since then, we have expanded our presence in Singapore establishing our head office and in 2007, our global training facility (SMTC) where we train our officers to the highest standards of operational excellence and safety," he said, adding that Singapore had been a clear choice for SPO "given its strategic location, sound infrastructure and a stable government".
Mr Meade flagged the possibility that those players moving to Kuala Lumpur may eventually return on realising it is still more cost-efficient to manage their projects from Singapore especially if the vessels are drydocked here or in Batam, Indonesia.
Mr Palmer also lauded Singapore for boasting an offshore marine network cluster "vastly superior to Kuala Lumpur".
"Singapore is much stronger in the provision of banking, insurance, shipbrokering, maritime law, operational support, classification societies, crew training and has an infrastructure that has been put in place by the government and the private sector over many years," he explained.
But none of the above factors are stopping Subsea 7 from shutting down its regional headquarters after 30 years in Singapore or McDermott from completing its move this year to Kuala Lumpur. Only time will tell if these industry players shall return to Singapore.
This article was first published on February 2, 2016.
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