Keppel Limited

Keppel Corporation
Price – $9.70
Target – $12.60

Keppel Corporation delivered a healthy 3Q14 net profit of $418.2m (down 9.5% y-o-y, up 2% q-o-q), with 9M14 net profit of $1,159m meeting 78% of our original forecast. Keppel’s offshore and marine segment delivered healthy operating margins of 15% for 3Q14. The order wins of $471m in 3Q14 were disappointing, but as contract wins tend to be lumpy, it may be able to make up the difference in 4Q14. In the 3Q14 results briefing, the firm mentioned a potential data centre REIT, which would mirror Keppel Land’s strategy of recycling capital into REITs, and may generate asset sales gains for the firm. Oil price fluctuations have triggered the recent sell off, which is overdone in our opinion. With stronger-than-expected property results, we raise our FY14F/15F earnings by 7.6%/8.3% respectively, nudging our sum-of-parts-based target price up. Maintain BUY. DMG & Partners (22 Oct)

Business profit will be falling this year and next year from numerous analysts. With the oil price not heading upwards soon, odds is against you to invest in this stock. As Keppel is also involved in property, being in two downward trending industries, downside is still there.

Not vested, great company thou

Keppel Corporation secured a contract worth US$240 million for a Keppel FELS Super B Class jackup rig. The vessel which boosts better performance and productivity which is capable of operating at water depths of 400 feet, is expected to be complete by end-2016.

Due to new technology, shale oil production is revolutionary, which has resulted in oil prices going low and production esp from US is increasing.

Does this represent a structural shift in the oil industry like how smart phones took over pagers,desktops took over type writers, ipod took over cassettes that kind of thing? Will the demand for conventional oil rigs/drill ships go down or does it have its place in shale oil production?Or just some hedge funds spewing misinformation?

Asking as i have a sizeable portion in keppel and sembcorp, and would like an opinion on the shale oil impact on industry.

It is worth to find out more information.

But there are article mentioned that shale gas production, storage and transport are much more costly than oil. Meaning when oil goes down to certain level. Shale gas producers are the first batch to go out from the market due to their thinner profit margin. In fact, most of alternatives for oil, including bio-fuel and renewable energy, can only survive with a high oil price. They are only profitable when oil is very profitable.

I have no idea on its production cost, but as shale gas need to be liquefied for storage and transport, it is likely to be more costly than oil. Also, huge water consumption is being highlighted as limitation for shale gas production in most of areas.

(17-11-2014, 12:28 AM)Fish Head Wrote: But there are article mentioned that shale gas production, storage and transport are much more costly than oil. Meaning when oil goes down to certain level. Shale gas producers are the first batch to go out from the market due to their thinner profit margin. In fact, most of alternatives for oil, including bio-fuel and renewable energy, can only survive with a high oil price. They are only profitable when oil is very profitable.

I have no idea on its production cost, but as shale gas need to be liquefied for storage and transport, it is likely to be more costly than oil. Also, huge water consumption is being highlighted as limitation for shale gas production in most of areas.

Sir

Shale oil and shale gas should not be mixed up. Shale gas, which is natural gas ("NG"), is trading at around $4 per thousand cubic feet (or per therm). On an energy equivalent basis, that is around $24 per barrel of oil equivalent. At that kind of pricing, NONE of the shale oil players can survive lah.....

On the other hand, shale oil is mainly tight oil (a term which I prefer to use). The oil is "tight" because the rocks are holding on tightly to the oil. That is why one has to fracture the rocks using water and proppant to allow the oil to flow out. The key difference between tight oil and conventional oil is in the fractional flow of the oil through the rocks.

The other thing is that although NG and crude are considered as substitutes, the situation is imperfect and applicable only in certain cases. Given the low pricing of NG in the past few years, most folks would have converted to NG if they could. To be considered truly equivalent, I guess you could be referring to a Gas to Liquids ("GTL") kind of plant (as opposed to just a liquefaction plant). Shell and Sasol are major players in this sphere but Shell just cancelled their plans to build a plant in Louisiana (despite such low NG prices in USA).....

(17-11-2014, 08:03 AM)HitandRun Wrote:

(17-11-2014, 12:28 AM)Fish Head Wrote: But there are article mentioned that shale gas production, storage and transport are much more costly than oil. Meaning when oil goes down to certain level. Shale gas producers are the first batch to go out from the market due to their thinner profit margin. In fact, most of alternatives for oil, including bio-fuel and renewable energy, can only survive with a high oil price. They are only profitable when oil is very profitable.

I have no idea on its production cost, but as shale gas need to be liquefied for storage and transport, it is likely to be more costly than oil. Also, huge water consumption is being highlighted as limitation for shale gas production in most of areas.

Sir

Shale oil and shale gas should not be mixed up. Shale gas, which is natural gas ("NG"), is trading at around $4 per thousand cubic feet (or per therm). On an energy equivalent basis, that is around $24 per barrel of oil equivalent. At that kind of pricing, NONE of the shale oil players can survive lah.....

On the other hand, shale oil is mainly tight oil (a term which I prefer to use). The oil is "tight" because the rocks are holding on tightly to the oil. That is why one has to fracture the rocks using water and proppant to allow the oil to flow out. The key difference between tight oil and conventional oil is in the fractional flow of the oil through the rocks.

The other thing is that although NG and crude are considered as substitutes, the situation is imperfect and applicable only in certain cases. Given the low pricing of NG in the past few years, most folks would have converted to NG if they could. To be considered truly equivalent, I guess you could be referring to a Gas to Liquids ("GTL") kind of plant (as opposed to just a liquefaction plant). Shell and Sasol are major players in this sphere but Shell just cancelled their plans to build a plant in Louisiana (despite such low NG prices in USA).....

Thanks FIsh Head and HitnRun,

Does Keppel or sembcorp have any product,service or technology that caters to shale oil production such that they can also ride the wave?

The decline of Transocean and Seadrill, customers of Keppel and sembcorp is a concern.

Don't know if its true, someone at Hardwarezone forum says that the cushing guys have hedged the oil price and so they have no worry of just producing as much as possible to weed out any competitors, so based on this, oil price can still decline.
(NOTE. this is just what someone said in a forum so pls use discretion)

On a side note, some people say low oil prices is good for economic growth, but from some articles, it seems it the bottlenecks at the refinery ( due to some piplelines not built yet to bring the oil from midwest to the GUlf) resulting in a glut of oil, so seriously, low oil prices good for economy is BS as people cant use crude directly but their refined products.

^^ U might want to see these threads (nested links) that we had been discussing for the past 18 months

http://www.valuebuddies.com/thread-5541-...l#pid97295

O&G sector as a whole will face a long overdue perfect storm.

The replacement cycle has gone on for too long and with the downturn of oil & gas prices, it could always result in over-supply given that forecasts by experts and existing players may be on the optimistic side after so many good years.

What goes up must come down and vice versa... noone can defy the laws of mother nature.

The only thing that differentiates a survivor and that of a fly by night company will then be the quality of the management in the midst of such economic tough times.

Vested
Keppel, Sembmarine, SCI

Crude can't trade below replacement cost for a prolonged period of time. It is bound to rebound and the best survivor is the one who can survive the longest, but not necessarily the fittest.

(17-11-2014, 02:48 PM)greengiraffe Wrote: O&G sector as a whole will face a long overdue perfect storm.

The replacement cycle has gone on for too long and with the downturn of oil & gas prices, it could always result in over-supply given that forecasts by experts and existing players may be on the optimistic side after so many good years.

What goes up must come down and vice versa... noone can defy the laws of mother nature.

The only thing that differentiates a survivor and that of a fly by night company will then be the quality of the management in the midst of such economic tough times.

Vested
Keppel, Sembmarine, SCI