A difficult market environment
In 2015, the Marine business faced a very difficult market environment.
Amid further collapse in oil prices, oil and gas exploration projects
were curtailed globally. This led to a reduction in new projects for
yards worldwide, as well as requests for deferment or cancellation of
existing rig deliveries. In addition, the Marine business was affected
by uncertainties in the Brazil market and by the financial
difficulties of its customer, Sete Brasil.
Against this background, in 2015, Sembcorp Marine recorded a turnover
of S$5.0 billion compared to S$5.8 billion in 2014, and a net loss of
$289.7 million compared to a net profit of S$560.1 million in 2014.
Profit from operations was negative S$342.0 million for 2015, in
comparison to S$717.8 million
in 2014.
2015 saw the business making prudent impairment and provisions totalling
S$609 million for its rig contracts, of which S$329 million was for
Sete Brasil projects. It also recorded S$192 million of
associate /
joint venture losses.
In light of uncertainties in Brazil, a provision of S$329 million
was made by the business for its Sete Brasil projects, taking into
consideration what the business believes to be the full extent of
its exposure to the contracts. In addition, the business also made
provisions of approximately S$280 million in case of prolonged
deferment or possible cancellation of rigs. Following the failure
of one of its customers to take delivery of its rig, the business has
terminated that contract and taken legal action to recover the amount
due to it. All other completed rigs with deferment requests have been
technically accepted by customers and the business has arrived at, or
is finalising, mutually acceptable solutions with these customers.
To date, the business has not had any cancellation of rig orders.
The business’ share of losses in associates and joint ventures of S$192
million comprised the net impact of the Marine business’ equity-accounted
share in provisions made by its 30%-owned associate Cosco Shipyard Group,
which was also affected by the severe industry down-cycle, as well as its
share of loss in other associates and non-operating items.
Excluding the impairment, provisions and share of losses of associates and
joint ventures, the business posted a net profit of S$384 million for 2015.
Orderbook of S$10.4 billion
S$3.2 billion of orders secured in 2015 despite depressed market conditions
In 2015, the business’ best-in-class facilities, new capabilities
and success in broadening its customer base enabled it to secure
S$3.2 billion in new orders, despite the depressed market conditions.
These new orders brought the business’ net orderbook to S$10.4
billion as of December 31, 2015.
The new orders included a contract from Heerema Offshore Services
to design and build the world’s largest semi-submersible crane
vessel for approximately US$1 billion. Scheduled for delivery in
the fourth quarter of 2018, this giant crane vessel will be built
at the state-of-the-art Sembcorp Marine Tuas Boulevard Yard. Also,
the business secured an engineering, procurement and construction
contract worth more than US$1 billion from Maersk Oil North Sea UK,
for the construction of a central processing facility,
two connecting bridges, a wellhead platform as well as utilities and
living quarters platform topsides, for deployment in the Culzean
field development.
In addition, during the year the business entered into a floating
storage and offloading (FSO) conversion contract worth S$56 million
with Teekay, as well as a contract to design and build a new FSO
for MODEC Offshore Production Systems (Singapore).
Over the last five decades, Sembcorp Marine has developed strong
relationships with many customers, including national and international
oil companies and key players in the drilling and production markets.
With its diversified and enhanced capabilities, the Marine business
aims to further cement such relationships and build strategic
partnerships with them.
Strategic response to competition
Building long-term capabilities, diversifying to serve new segments
Sembcorp Marine recognises the need to deepen and
broaden its yard capabilities to enable cost- effective
execution and maintain its competitiveness globally.
In 2015, the business completed a new state-of-the-art
steel structure fabrication workshop at its flagship
Sembcorp Marine Tuas Boulevard Yard in Singapore. The
120,000-square-metre workshop is the largest of its kind
in Southeast Asia. It will boost the business’ steel
fabrication capacity and productivity, and allow the
business to undertake more complex projects in a more
cost-effective manner and with shorter delivery times.
In addition, the Marine business sees further need to
diversify to serve different segments within the
exploration and production value chain, such as the
development and production segments. To this end, it
remains committed to enhancing its technology and
engineering expertise, investing prudently in research
and development to improve operational efficiency and
develop new capabilities. The business has broadened its
product offering to include well intervention semi-submersibles,
accommodation rigs and proprietary design drillships.
The business is also developing other product segments
within the offshore oil and gas value chain to enhance
its full spectrum of integrated solutions. Through its
investment in GraviFloat, it has the technology to design,
deliver and operate re-deployable, gravity-based, modularised
terminals for nearshore gas and power generation installations.
It also has proprietary expertise in the design, engineering
and delivery of innovative floating production and drilling
solutions for the oil and gas industry, through its
Houston-based subsidiary Sembmarine SSP. This enables it to
offer next-generation innovative and cost-effective solutions
for deep-water oil and gas drilling, production and storage,
as well as logistics hub applications in harsh environments
and extreme arctic conditions.
Becoming nimbler and more efficient
Transformation to build a global integrated company
In 2015, the Marine business reached a key milestone
in transforming its businesses for the future. From a
multi-brand, multi-business-unit entity, the business
became an integrated company, operating under one brand.
The new integrated Sembcorp Marine is focused on four key
capabilities: rigs & floaters, repairs & upgrades, offshore
platforms as well as specialised shipbuilding.
As an integrated company, Sembcorp Marine will be able to
harness the combined scale and expertise of its global
operations to become more flexible, innovative and responsive.
This puts the business in a good position to undertake larger
and more complex projects, and take on challenges and
opportunities in a fast-changing and increasingly complex
business environment. Furthermore, integrating the combined
shared expertise and accumulated experience of high-calibre
teams across its global operations will allow our Marine
business to serve its customers better.
Looking ahead, the current down-cycle for the business
is expected to be more protracted than previous cycles.
However, Sembcorp Marine believes that it is sufficiently
prepared, not just to ride out the storm, but also to
lay stronger foundations for its future when the market
recovers. The business will continue to actively manage
its balance sheet to maintain a healthy financial position.
The business remains optimistic on its longer-term prospects,
as its facilities have been built to cater to the industry’s
demand for the long term. As an integrated Sembcorp Marine,
the business will optimise its capabilities and capacities,
as well as increase its efficiency and productivity to
better serve its partners and customers.
