Lamprell chief a sceptic on Chinese rigmaking boom
A boom in business for Chinese rigmakers is not sustainable because of “surreal” payment terms, said the head of the Dubai-based Lamprell.
Korean and Singaporean shipyards, the dominant players in the market for jackup rigs and other offshore oil and gas vessels, have watched Chinese competitors encroach on their turf, and regional competitors are now taking note.
Chinese state companies are “building the rig for free” by allowing buyers to pay 1 per cent up front, instead of the 20 per cent traditionally taken by international rigmakers, said Jim Moffat, Lamprell’s chief executive.
“It’s something that somebody does to break into the market. You have to offer something sensational to get there,” he said at the company’s corporate headquarters in Jebel Ali. “I don’t see it as a threat because I don’t think it’s a sustainable. If it is sustainable and you have continuous business and you’re equally safe and you’re building on schedule and the quality’s the same – none of which I think are the case by the way – then you’ve probably got a compelling differentiator if you can effectively build the rig for free.”
China entered the market in the mid-2000s to make up for slowing growth in cargo ship orders, and last year beat Singapore for the first time in winning the most orders for jack-up rigs – Lamprell’s bread and butter.
By next year, Beijing hopes to have secured a fifth of the global market for offshore rigs and platforms, equivalent to US$32.3 billion in sales over five years. By 2020, it hopes to have raised that share to 35 per cent.
China’s rise in the oil rig market echoes its successful entry into the manufacturing of other energy equipment, such as solar panels and wind turbines. Unlike in those sectors, where western companies have been forced to merge or file for bankruptcy, the core of the offshore rig and platform competition is already in Asia, which controls 75 per cent of the market.
Lamprell’s strategy is to focus on what Mr Moffat calls “Tier 1” clients – the majors and large contractors such as Transocean – that will be more concerned about safety and delivery time.
It has doubled the size of its sales team as it emerges from the shadow of a disastrous 2012, when it issued five profit warnings and was eventually fined by the London stock market regulator for failing to alert investors in time. Earlier this year the company cautioned investors to expect “modest to flat” revenue growth for the next two years.
The company is seeking buyers for niche businesses that came with its $336.1 million acquisition of MIS in 2011, including Sunbelt, which focuses on safety in operating fields heavy in sour gas or carbon dioxide. Earlier this year it sold Inspec, a consultancy that was bundled with MIS.
Revenue from the businesses targeted for sales is equal to half a jack-up rig, said Mr Moffat.
“Some are very profitable businesses actually, but they’re too small and they’re very difficult for us to grow and geographically, their centre of gravity is farther and farther away from Dubai,” he said. “We’re looking to put these businesses in a good home. We’re not just going to get rid of them at any cost.”
Hydra marks a step in Dubai rigmaker Lamprell’s rebirth
Big as a building, the jack-up rig was christened with the crash of a bottle on the hull.
The “Hydra”, named last week in Hamriyah, also marks a step in the rebirth of Lamprell, the Dubai rigmaker that posted five profit warnings in 2012 and was later fined by London’s market regulator.
Since then the company has cleaned out its management team and “picked ourselves up, dusted ourselves down”, says Jim Moffat, the chief executive who joined Lamprell in March last year.
Now the company hopes to reshape itself from a modest builder of shallow-water jack-up rigs – many of them for Abu Dhabi’s state-owned National Drilling Company – into a go-to for the world’s majors.
After naming the Hydra last week – significant for being an on-time delivery of a wind-turbine installation vessel, the same type of project that ate into profits in 2012 – Lamprell announced a US$390 million order from Ensco, a British oil and gas service provider and celebrated the breaking of one of the Guinness Book of World Record’s most obscure categories: “Heaviest load moved by self-propelled modular trailers.”
Yesterday, shares of Lamprell in London rose more than 3 per cent to 144.7 pence.
“We clearly still have to work off what we would call our problem projects,” says Mr Moffat, but “the engine room, as I would call it, is still very strong”.
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Updated: April 22, 2014 04:00 AM