S$18.6bn orderbook for the combined entity
- Both SMM and KEP secured the P-82 and P-83 FPSO contracts at US$3.05bn and US$2.8bn respectively. We think P-81 may be in the pipeline.
- With the above, we estimate SMM’s orderbook to be at S$6.77bn and KOM’s at S$11.8bn. Together, the combined entity orderbook could be at S$18.6bn.
- We believe this fortifies the potential merger of KOM and SMM as both yards aggressively build up order momentum. Stay sector Overweight.
SMM’s YTD order wins amount to S$6.15bn
? SMM announced that it clinched the Engineering, Procurement, and Construction (EPC) contract for the P-82 FPSO (Floating, Production, Storage, and Offloading) from Petrobras. The P-82 FPSO has a production capacity of 225,000 barrels of oil per day and 12m cm/day of gas processing. It is scheduled for delivery in 1H26 with expected commercial operations in 2026.
? This US$3.05bn (c.S$4.25bn) contract brings YTD order wins to S$6.15bn and order book to S$6.77bn, from S$2.52bn in 1H22.
KEP’s YTD order wins amount to S$8.1bn
? Last week on 28 Sep 2022, Keppel Offshore & Marine (KOM) secured a similar EPC contract from Petrobras for the P-83 FPSO. It is scheduled for delivery in 1H27. The P83 FPSO is also equipped with a production capacity of 225,000 bbl/day of oil and 12m cm/day of gas processing at US$2.8bn (c.S$3.8bn).
? This is on the heels of P-80 (with identical work scope) clinched in Aug 22 at US$2.92bn for delivery in 1H26. The lower pricing of P-83 could be due to efficiency gains factored in. According to KEP, both P-80’s and P-83’s hulls and accommodation modules will be sub-contracted to CIMC Raffles in China. KOM is currently working on the P-78 FPSO secured in May 21 at US$2.3bn. P-78 is a slightly smaller FPSO, producing 118,000 bbl/day and 7.2m cm/day of gas processing.
Potential for more
? In the recent series of Petrobras FPSOs, there is still P-81 (120,000 bbl/day of oil and 10 cm/day of gas processing) that is still not awarded. According to Upstream, a bid of US$4bn by Brazilian Ocyan was rejected. The project could be up for bid by end-2022. We think SMM could be tendering, assuming KOM yard could be occupied.
Combined entity to get S$600m of profits from Petrobras orders
? Adding SMM’s orderbook of S$6.77bn and KOM’s orderbook of S$11.8bn, the combined entity (called Bayberry) will have a total net orderbook of S$18.57bn.
? Historically, the P-series projects have been well executed by SMM and KOM, with milestone payments and positive cashflows. Using a net margin of 5%, we estimate the recent Petrobras orders to add c.S$610m of profits to Bayberry in addition to enhancing yard utilisation in the medium term. Severe cost overrun is key risk.
? We expect the SMM-KOM merger to be completed in 4Q22. As of SMM’s and KEP’s 1H22 updates, the merger was pending shareholders’ approval.