U guys never been through years without any rig contracts in the late 80s to 90s, u won't understand...
If you have been through what I have been through - analysing FELS via analysing power barge power production returns in the Philippines and discovering conjob of Van Der Horst by Kotjo, then you will understand what is Rig and offshore cycle.
In those dark days, you can forecast marine and yard contracts via contract numbers and value of each contract...
GG
(17-11-2014, 09:21 PM)holy grail Wrote: 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.
(17-11-2014, 09:30 PM)greengiraffe Wrote: U guys never been through years without any rig contracts in the late 80s to 90s, u won't understand...
If you have been through what I have been through - analysing FELS via analysing power barge power production returns in the Philippines and discovering conjob of Van Der Horst by Kotjo, then you will understand what is Rig and offshore cycle.
In those dark days, you can forecast marine and yard contracts via contract numbers and value of each contract...
GG
What have you been through actually? You have any link or reference for this Phillippines, Van Der Horst, Kotjo, 80s, 90s? I have no idea what is it or what happened during that time.
The way i see it people act like suddenly every cars can be powered by solar panel and no more oil worth extracting anymore. Don't forget many oil companies are still the biggest companies in the world in term of market capitalisation. Basically oil is still the fundamental source of energy for mankind. For gas, for transport, for electricity, for cooking, for plastic.
Not to mention recent nuclear reactor tragedy has disrupted the alternative energy and many developing countries might need more oil in the future.
(17-11-2014, 09:30 PM)greengiraffe Wrote: U guys never been through years without any rig contracts in the late 80s to 90s, u won't understand...
If you have been through what I have been through - analysing FELS via analysing power barge power production returns in the Philippines and discovering conjob of Van Der Horst by Kotjo, then you will understand what is Rig and offshore cycle.
In those dark days, you can forecast marine and yard contracts via contract numbers and value of each contract...
GG
What have you been through actually? You have any link or reference for this Phillippines, Van Der Horst, Kotjo, 80s, 90s? I have no idea what is it or what happened during that time.
The way i see it people act like suddenly every cars can be powered by solar panel and no more oil worth extracting anymore. Don't forget many oil companies are still the biggest companies in the world in term of market capitalisation. Basically oil is still the fundamental source of energy for mankind. For gas, for transport, for electricity, for cooking, for plastic.
Not to mention recent nuclear reactor tragedy has disrupted the alternative energy and many developing countries might need more oil in the future.
Was an analyst covering FELS in mid 90s lor... FELS is leader in rig but with zero contracts on hand... looking to develop FPSOs. Meantime they constructed and operated power barges in the Philippines to help in the brownout situation.
VDH was a darling stock linked to Johannes Kotjo, an ex_Salim group key personnel. Wilmar Kuok also took a strategic stake with Kotjo and Peter Lim was the star broker rumoured to be behind VDH.
With O&G the way it is and Singapore rig builders going through a decade long offshore boom, it is likely that the bust years will be ahead and may just decend into those dark ages of the 90s...
(17-11-2014, 09:30 PM)greengiraffe Wrote: U guys never been through years without any rig contracts in the late 80s to 90s, u won't understand...
If you have been through what I have been through - analysing FELS via analysing power barge power production returns in the Philippines and discovering conjob of Van Der Horst by Kotjo, then you will understand what is Rig and offshore cycle.
In those dark days, you can forecast marine and yard contracts via contract numbers and value of each contract...
GG
What have you been through actually? You have any link or reference for this Phillippines, Van Der Horst, Kotjo, 80s, 90s? I have no idea what is it or what happened during that time.
The way i see it people act like suddenly every cars can be powered by solar panel and no more oil worth extracting anymore. Don't forget many oil companies are still the biggest companies in the world in term of market capitalisation. Basically oil is still the fundamental source of energy for mankind. For gas, for transport, for electricity, for cooking, for plastic.
Not to mention recent nuclear reactor tragedy has disrupted the alternative energy and many developing countries might need more oil in the future.
Was an analyst covering FELS in mid 90s lor... FELS is leader in rig but with zero contracts on hand... looking to develop FPSOs. Meantime they constructed and operated power barges in the Philippines to help in the brownout situation.
VDH was a darling stock linked to Johannes Kotjo, an ex_Salim group key personnel. Wilmar Kuok also took a strategic stake with Kotjo and Peter Lim was the star broker rumoured to be behind VDH.
With O&G the way it is and Singapore rig builders going through a decade long offshore boom, it is likely that the bust years will be ahead and may just decend into those dark ages of the 90s...
Caveat Emptor
Ok GG I trust u on this one...will divest keppel this week. My own decision, haha.
Anyway , possible for keppel to go to $4 bucks like in GFC?
(17-11-2014, 09:30 PM)greengiraffe Wrote: U guys never been through years without any rig contracts in the late 80s to 90s, u won't understand...
If you have been through what I have been through - analysing FELS via analysing power barge power production returns in the Philippines and discovering conjob of Van Der Horst by Kotjo, then you will understand what is Rig and offshore cycle.
In those dark days, you can forecast marine and yard contracts via contract numbers and value of each contract...
GG
What have you been through actually? You have any link or reference for this Phillippines, Van Der Horst, Kotjo, 80s, 90s? I have no idea what is it or what happened during that time.
The way i see it people act like suddenly every cars can be powered by solar panel and no more oil worth extracting anymore. Don't forget many oil companies are still the biggest companies in the world in term of market capitalisation. Basically oil is still the fundamental source of energy for mankind. For gas, for transport, for electricity, for cooking, for plastic.
Not to mention recent nuclear reactor tragedy has disrupted the alternative energy and many developing countries might need more oil in the future.
Was an analyst covering FELS in mid 90s lor... FELS is leader in rig but with zero contracts on hand... looking to develop FPSOs. Meantime they constructed and operated power barges in the Philippines to help in the brownout situation.
VDH was a darling stock linked to Johannes Kotjo, an ex_Salim group key personnel. Wilmar Kuok also took a strategic stake with Kotjo and Peter Lim was the star broker rumoured to be behind VDH.
With O&G the way it is and Singapore rig builders going through a decade long offshore boom, it is likely that the bust years will be ahead and may just decend into those dark ages of the 90s...
Caveat Emptor
Ok GG I trust u on this one...will divest keppel this week. My own decision, haha.
Anyway , possible for keppel to go to $4 bucks like in GFC?
I think only time will tell... being a cyclical business... the boom and bust cycle can be extreme...
Don't trust me on my experience as I always try to convince people. However, do trust history since history seldom lies and are good lessons for the future...
Just a recent experience... I traded on Atlas Iron (AGO) since September starting from 55. I was lucky and discipline to have cut losses on several occasions when there were negative news... I suffer small losses, very small in the grand scheme of things. AGO was last traded on Friday at 18 after touching a low of 16.5 on the same day... Luckily I was not iron teeth to have held on. AGO's all time high was 400+ and even at present with sunk in capex and a operational mine, debt was so insignificant that the stock has to tank to such unbelievable levels. Basically the market does think that AGO will survive and the BV of the AGO in excess of 150 is meaningless.
ASEAN Industrials
End of Four-year Rig Cycle;
More Downside than
Upswing
Although valuations of O&M names are now below
long-term averages, we caution against turning
positive on the group too soon as we expect
headwinds to cap upside to share prices.
Recent sell-down in Singapore’s O&M sector has been
due to lack of investor conviction, oil price decline from
its Jun-14 peak of US$112/bbl to US$72/bbl, and
investors’ concern on peaking fundamentals.
Regardless of the oil price rebound, we expect rig
orders to slow for the coming one to two years: We
remain cautious given: i) decline expected in global E&P
capex; ii) oil price rebound unlikely to herald a rebound in
rig orders; and iii) oversupply in the jackup market.
Competition intensifying; backlog declining: i)
Competition is intensifying with regional players gaining
market share – Singapore shipyard’s market share in
the jackup market declined from 55% in 2010 to 24% in
2014. ii) Order backlog is declining – historically,
earnings peak two to three years after orderbook peaks.
We double-downgrade Sembcorp Marine to
Underweight with a PT of S$3.00. Stock has
underperformed on concerns relating to its Petrobras
contracts. Despite the 25% decline YTD, we think that
the stock could continue to underperform on downward
revision in order expectations, lower margins due to
higher operating costs in Brazil and Singapore. Our
2015-16E EPS are now 10% below consensus.
We stay Equal-weight on Keppel and Sembcorp
Industries: For Keppel, although we believe that the
stock can better withstand headwinds in the industry
given customer diversity and consistent execution, nearterm
upside catalysts are lacking. For Sembcorp
Industries, concerns over Singapore power operations
and Marine business will be key overhangs for the stock,
in our view
Investment Case
Morgan Stanley is acting as financial advisor to Temasek in
relation to the proposed combination of CitySpring
Infrastructure Trust and Keppel Infrastructure Trust as well as
the Combined Trust's acquisition of 51% stake in Keppel
Merlimau Cogen Pte. Ltd. as announced on 18 November
2014. The proposed transaction is subject to approval by
CitySpring Infrastructure Trust and Keppel Infrastructure Trust
unit holders, regulatory approval and other customary closing
conditions. This report and the information provided herein is
not intended to (i) provide voting advice, (ii) serve as an
endorsement of the proposed transaction, or (iii) result in the
procurement, withholding or revocation of a proxy or any other
action by a security holder. Temasek has agreed to pay fees
to Morgan Stanley for its financial services. Please refer to the
notes at the end of the report.
Although valuations of Singapore rigbuilders look attractive
post the underperformance of 26-36% against the Straits
Times Index (STI) year to date, downside remains, and we are
cautious on the O&M names currently.
Industry-specific headwinds to cap upside to share
prices: Since 4Q10, 210 jackups and 121 floaters have been
ordered globally. We expect rig orders to slow in the next one
to two years. We remain cautious for the following reasons: i)
oil price rebound is unlikely to herald a rebound in rig orders;
ii) decline expected in global E&P capex; and iii) oversupply in
the jackup market. In addition, the Singapore rigbuilders face
intensifying competition with Singapore losing jackup market
share (24% YTD vs. 55% in 2010) and a decline in order
backlog.
Impact of oil price decline on shares: Over the last two
years, KEP has had a correlation of above 70% with oil prices,
while SMM’s correlation was weaker due to operational
concerns. We believe that oil prices above US$80/bbl would
keep investments in oil fields and rigs viable. However, the
industry is facing other headwinds, including an oversupply of
rigs in the next two years that could cap orders. Hence, we do
not expect an oil price rebound to be positive for the shares.
We adjust our price targets for KEP and SMM down to
account for lower order expectations in F2015-16. We
downgrade Sembcorp Marine to Underweight and maintain
our Equal-weight rating for Keppel Corp. We note that EPS
earnings tend to peak two to three years after a net orderbook
peak, as seen in 2008 (Exhibits 5-6). Based on our
assumption that net orderbook will peak this year, this couldexpect KEP to secure S$4.3bn (-11% YoY) of new contracts
and for SMM to secure S$2.5bn (-46 YoY) of new contracts.
We expect a lower decline for KEP as new orders could be
driven by national oil companies. KEP is currently negotiating
an MOU with Pemex, which includes contracts for six jackup
rigs. We expect the MOU to be concluded by 1Q15. Based on
current discussions and options that have yet to expire, we
see more earnings visibility for KEP compared to SMM
(Exhibits 7-8).
Although national oil companies, which have a lower
breakeven oil price, could drive new orders (e.g., breakeven
for Pemex is ~ US$20/bbl according to Keppel), we think that
it will not be sufficient to mitigate the decline from offshore
drillers who remain extremely cautious on the market.
Companies such as Diamond Offshore and Seadrill have
stated explicitly that they will refrain from ordering new
offshore rigs in the near future due to the challenging market
conditions for offshore drilling contractors.
O&M Outlook – Lower Rig Order Demand from Offshore Drillers
Where are we in the cycle? The rig-building cycle started in
4Q10 and, since then, 210 jackups and 121 floaters have been
ordered globally (Exhibit 9). We think we are at the end of the
cycle and rig orders will slow for the next one to two years.
Why We Are Cautious on the Rig Cycle
Industry-specific reasons:
Oil price rebound unlikely to herald a rebound in rig
orders: Our US commodities analyst, Adam Longson, is
optimistic on an oil price rebound in late 2015 for the
following reasons: 1) Crude oil “supply imbalances” are
vastly overstated. Physical markets should improve into
Feb, and Brent structure has improved despite the selloff.
2) OPEC could still act in 2015, especially if prices fall too
far. 3) Lower prices may spur non-OPEC exporters into
action. 4) Low prices should stimulate demand and slow
investment, which could begin to help as early as 2H15. 5)
As prices fall, outage risks rise. However, we believe that
the rig cycle is not determined simply by oil prices, and
customers will increasingly consider the potential
oversupply in the rig market as well as their FCF before
placing further orders.
Decline expected in global E&P capex: US large-cap
E&P names have signaled that they are taking an
incrementally cautious approach on capex in the current
low oil price environment. Our US analyst, Evan Calio,
forecasts a 9% decline in capex for 2015. Delayed
spending is likely to lead to fewer orders, as project delays
lead to a greater number of existing rigs without charters.
We see potential cost deflation through the supply chain,
which could lead to lower margins.
Oversupply in the jackup market: Approximately 134
jackups will be delivered in the next three years. However,
only 17% of them have secured chartering contracts
(Exhibit 11). The potential oversupply will likely lead to a
decline in jackup dayrates and lower new orders for KEP
and SMM. As noted earlier, long-time customers of KEP
and SMM, including Diamond Offshore and Seadrill, have
stated that they will refrain from ordering new offshore rigs
due to the challenging market conditions for offshore
drilling contractors.
Specifically for Singapore rigbuilders:
Competition is intensifying: Shipyards in China and the
Middle East have ventured into building offshore rigs.
Chinese shipyards have gained significant market share,
with 54% of global orders in 2014 YTD vs. 20% in 2010
(Exhibit 12). Shipyards in China are also able to price the
contracts at a lower levels due to cheaper labor and offer
more attractive payment terms thanks to subsidies from
the government. Hence, we could see more pricing
pressure and profitability being driven down.
Decline in net orderbook: Both KEP and SMM’s net
orderbooks have declined after reaching record highs in
1Q14 as order wins in 2014 have been below the
replenishment rate (revenue recognized). We have
lowered our orderbook estimates and expect 20% and
28% declines (from end-3Q14) in 2015 net orderbooks for
KEP and SMM, respectively (Exhibit 13).
EV/ backlog: EV/backlog ratios are below the 10-year
average for both KEP and SMM. However, we believe this
is justified because we expect order wins to slow down for
both companies.
Upside risks: i) Cycle for KEP and SMM is sustained through
product diversification; and ii) Singapore shipyards continue to
have an edge in securing Brazilian contracts.
Exhibit 12
Market Share of World Jackup Orders
Country 2010 2011 2012 2013 2014YTD
Singapore 55% 62% 30% 38% 24%
China 20% 27% 48% 51% 54%
South Korea 0% 0% 0% 4% 0%
UAE 15% 9% 11% 3% 22%
Brazil 0% 0% 0% 0% 0%
Others 10% 2% 11% 5% 0%
Total 100% 100% 100% 100% 100%
Source: Company Data, Morgan Stanley Research
The MS report seems like after the fact. I thought all this already happens and well within expectation.
Clearly this drives related companies share price lower today.
I think this is a long and slow horror movie in the making based on my ancient experience...
Caveat Emptor
GG
(01-12-2014, 01:18 PM)corydorus Wrote: The MS report seems like after the fact. I thought all this already happens and well within expectation.
Clearly this drives related companies share price lower today.
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