Singapore's rig builders gain as oil drilling industry recovers

Singapore's rig builders gain as oil drilling industry recover:

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The oil drilling industry has bounced back after a hiatus brought about by the Gulf of Mexico oil spill and the global economic slump.

Analysts estimate that oil rig orders worth US$74 billion will be placed in the next three years and Singapore's offshore-and-marine (O&M) sector is poised to win big.

On Monday, oil prices breached two-year highs, hitting US$91 a barrel.

Analysts say high energy prices will boost capital expenditure on oil-rigging assets, especially in deepwater oil fields.

Low Pei Han, Investment Analyst, OCBC Investment Research, said: "After being badly hit by the financial crisis, the jack-up rig market has recovered, especially the premium rig segment.

This refers to jack-ups of independent leg units of water depth greater than 300 feet and rigs with higher hook load capacity.

Recent orders secured by Sembcorp Marine and Keppel Corp have been for rigs of this type. And it reaffirms the confidence in the jack-up rig market."

Keppel and Sembcorp have bid for US$8.7 billion worth of contracts from Brazilian oil giant Petrobas.

Meanwhile, analysts are expecting more replacement demand to kick in from next year onwards.

About 60 per cent of the world's oil rigs are more than 25 years old.

Ng Kian Teck, Investment Analyst, SIAS Research, said: "The trend we are seeing right now is that orders are coming in partly because of the deepwater oil spill in the US itself.

Some of the oil operators want to be more cautious and they want to replace the older rigs that they have."

Analysts are optimistic about the long-term prospects for Singapore's O&M companies.

Ms Low said: "Going forward, we think that the demand for such rigs is going to stay strong, as oil companies are increasingly forced to search for oil in deeper waters and harsher conditions.

Indeed the global demand for such rigs have increased over the years, where the number of other kinds of jack-up rigs have fallen since 2000."

Many analysts expect oil prices to breach US$100-a-barrel mark next year, thanks to robust energy demand in China and a weak US dollar.