Rig builders

Rig builders: Recent demand in the O&M sector has largely been shallow-water focused with the bulk of orders for jackup rigs. But demand for deepwater units could come next, extending the recent order momentum for rig builders. This comes on the back of recent approvals in the Gulf of Mexico (GOM) for the resumption of work by Noble, BHP, ExxonMobil, and ATP. Shell most recently became the first to obtain approval for a plan to drill new wells…

Meanwhile news flow on other fronts has been positive as well. Rig players such as Pacific Drilling, Sevan Marine, Seadrill, Petrobras are looking to, or have raised funds to invest in more drilling units. In particular Maersk, Seadrill have given strong indication that they are planning to expand their deepwater fleet. In addition, Petrobras sees oil prices rising, and has revised its 5-yr investment plan to include as much as US$10b spending on its new deepwater fields…

All this bodes well for the offshore sector, which Deutsche remains bullish on. Says that unlike the last boom in 2005-08, where there was substantial Norwegian speculation, the bulk of new orders this time are coming from established drillers, indicating a more sustainable trend. Sees Keppel Corp and SMM having a potential addressable market for jackups worth US$10-20b, and for semi-subs worth US$8-17b over the medium term. Reiterates Buy on Keppel (TP $14.20), SMM (TP $7)…

We highlight Cosco as a beneficiary too, as the company shifts gears to its offshore marine business from its bulk carrier building business. Recall the co recently announced 2 pending rigbuilding deals worth a combined US$1.2b, and is in the midst of developing 2 types of semi-sub offshore vessels to diversify its range of vessels.