Jack-up rigs: Chinese make presence felt

Jack-up rigs: Chinese make presence felt

SINGAPORE - First Dalian Shipbuilding, now China Rongsheng Heavy Industries.

This year could be remembered as when Chinese shipbuilders-turned-offshore builders sealed more jack-up rig deals than Singapore's Keppel Corporation and Sembcorp Marine, the de facto hegemons in jack-up rigs that had a hand in building 70 per cent of the existing global fleet.

A report by Religare Capital showed that Chinese yards have won US$2.73 billion in jack-up rigs, while the Singapore duo hauled in only US$1.97 billion to-date.

"There's a substantial glut in shipbuilding capacity in China and the yards aren't getting orders so they're making a push into offshore," said Religare Capital analyst Vincent Fernando.

"Since 2006, Chinese shipyards have started to grow their market share, moving up the learning curve and delivering on new projects," said Barclays Research analysts Scott Darling and Clement Chen in a recent report.

Chinese yards are not the only ones that covet pole position. Other shipbuilder-turned-rig builders in Korea like Hyundai Heavy Industries, Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering have been busy too, securing orders for drillships that operate in ultradeepwater.

The stand-off between the Singapore rigbuilders and others from China and Korea has been brewing for some years, since shipping entered a slump.

But the moment for capturing more market share is now.

The aged global rig fleet is in need of replacement as consumption for energy increases in emerging economies. Of the world's 500 jack-up rigs, about 300 are over 30 years old.

A new jack-up rig could set back a drilling operator or national oil company by about US$200 million at current prices. And now, their choices are not confined to the top five yards in Singapore or Korea any longer: China yards like Cosco, CIMC Raffles, and Dalian Shipbuilding have entered the picture.

Barclays estimates that, In the past decade, Chinese yards have grown their market share of rigs from 5 per cent to about 30 per cent currently.

And it could increase further. Religare Capital surmised that Chinese yards will be capable of rivalling Singapore yards in terms of rig production capacity by 2015.

The Barclays projections corroborate that: China yards may capture 10 percentage points more of market share in the next two years.

While the perception is that Chinese yards stick to less complex and commoditised jack-up rigs, and are not competing head-on with the likes of Keppel and Sembmarine, that has proven to be increasingly untrue.

"CIMC Raffles in early January won orders for two high spec deepwater semisubmersibles from (Cyprus-based) Frigstad Offshore. These rigs are more advanced than most being built in Singapore right now," said Mr Fernando.

The dealbreaker was more attractive contract terms offered by Chinese yards, he added.

State backing has meant Chinese yards often offer discounts between 10-20 per cent off contract prices and extremely attractive payment terms of a one cent downpayment upfront and 99 per cent of the contract value upon delivery.

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