<News Analysis> Timely move to terminate rig contracts
- Termination of 4 stranded rigs ordered by Cleawater and Fecon in 2013/2014
- Under normal contract term, 10% deposits will be forfeited as customer failed to fulfil its obligation to take delivery
- These stranded rigs have been impaired in 2020 and hence do not expect further significant writedown if any
- Positive for Keppel to terminate these contracts and gain ownership of the rigs; opportunities to resell them as rig market improves
Keppel announced that it has issued notice of termination for the following four rig contracts:
- One rig with contract value of US$200m for Clearwater
- Three rigs with total contract value of US$650m for Fecon International
We do not expect material financial impact from these cancellations. The 10% deposits will be forfeited under normal contract term as customers failed to fulfil obligation to take delivery. These rigs have also been impaired during the assessment exercise in 2020, which Keppel O&M incurred ~S$1bn provisions and impairment. Furthermore, with the improving rig market on the back of high oil prices, risk of further impairment is low. On the contrary, we believe the official termination is actually positive, allowing Keppel to gain ownership of these rigs and reap opportunities to resell these rigs.
Keppel has remaining six jackup rigs on orderbook – one for TS Offshore and five for Borr Drilling.
NO change to our BUY call and S$6.90 TP