Rigbuilders may not be immune from the gloom surrounding the global economy after all, a leading analyst says.
So far the offshore industry has escaped the worst of the pain currently afflicting shipowners thanks to oil prices remaining stubbornly high despite the uncertainty surrounding the global economy.
But a sustained recession could prompt a dip in crude that would place major offshore projects in doubt and put the squeeze on rigbuilding activity in the near term, according to a report by Kim Eng Securities.
“While oil prices have been uncharacteristically firm despite the storm clouds ahead, we expect [the] crude oil price to pull back by about 20% from its current $100 per barrel to reflect lower demand in a recessionary environment,” the report says.
“Crude oil at around $80 per barrel is near the expected margin for new deepwater exploration to be profitable, and hence rig owners will be highly reluctant to place new orders.”

Credit crunch
The report explains that with Europe badly affected by the credit crunch, finance could be in short supply for the offshore sector, just as it is for shipowners.
As reported by TradeWinds yesterday, shipbuilders are already beginning to see delays to newbuildings as owners struggle to pull together the cash to fund existing orders.
“The worsening situation in the European sovereign bond markets is prompting lending institutions to be more prudent.
“European banks, which are a major source for offshore financing, will take a more cautious approach to lending, at least in the near term, as the situation unfolds.
“This has derailed the go-ahead on orders for rig projects previously, and we expect it will happen again.
“We also do not see Singapore banks filling this void, in keeping with their more cautious stance."
Kim Eng said the combination of factors could lead to a short-term dip in share prices for Singaporean rigbuilding giants Keppel Corp and Sembcorp Marine.
But with oil exploration inevitably going more and more offshore, the long-term prospects for the industry look much stronger and investors could be picking up a bargain if they move now, Kim Eng says.
The bank has maintained a ‘buy’ tag on both companies with a fair value of $12.60 per share for Keppel and $4.95 for Sembcorp Marine.