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Keppel moves on rig-holding company to 'accelerate monetisation of rigs'
Major Singapore firm Keppel has taken control of a baker’s dozen of legacy rigs and hundreds of millions of dollars held by its Rigco Holding
The Singapore-based consortium of companies that trades under the name Keppel has taken control of 13 rigs and more than a half-billion dollars in capital, citing "improving conditions in the offshore rig market".
Originally founded as a shipyard, Keppel Group’s Keppel Offshore & Marine (O&M) was among the largest offshore rig builders in the world when it was acquired by Singapore offshore shipyard Sembcorp Marine in a years-long deal that completed in March 2023.
What was originally proposed as a spin-off and merger agreement for Keppel O&M in April 2022, following nearly a year of discussion and negotiation between the two firms, became a "direct acquisition" in October 2022 as the offshore oil and gas market began to improve in the wake of huge energy policy shifts driven by geopolitical events including Russia’s war against Ukraine.
As part of the terms of the original deal, Keppel O&M’s legacy rigs and associated capital was sold to a separate asset company, Rigco Holding, that was to be 90%-owned by other investors, with Keppel holding a 10% stake.
In moving to secure Rigco’s rigs and capital assets, Keppel said it has "no intention to re-enter the offshore market".
"This is part of a plan to accelerate monetisation of rigs," Keppel wrote.
Keppel said it will create a new, "Keppel-run private fund for [Rigco Holding’s] rigs and flotel stake that can attract third-party capital with optionality for monetisation through future securitisation".
The handover, Keppel said, will happen after a "selective capital reduction exercise", to be completed by Rigco Holding.
“[Rigco Holding] has one of the most advanced rig fleets available in the market today, where about half of these rigs are contracted and generating stable cash flows. Amid the improving conditions in the offshore rig market, with some segments benefiting from utilisation rates of about 90% and improving day rates, securing control over the management and monetisation of our legacy rigs will enable us to reduce our risks as a substantial creditor... and better realise the potential of its assets," Keppel chief executive Loh Chin Hua said.
“A successful selective capital reduction exercise by Asset Co will put us in the driver’s seat to exert better control of the cash... and accelerate rig monetisation which will unlock funds that can be used to reduce debt, reinvest for growth and reward shareholders."
Keppel said it plans to establish a private fund to manage the legacy rigs, allowing the company "to turn these legacy assets into fee-bearing funds under management in line with our asset-light model".
Keppel said it currently holds a 10% equity stake in Asset Co, S$139M (US$104M) in perpetual securities and around S$4.3Bn (US$3.2Bn) in vendor notes issued by Asset Co.
Keppel said, once the rig holding company completes its selective capital reduction exercise, "by end-2024", the shares in the capital of Rigco Holding not held by Keppel will be cancelled, resulting the company becoming a wholly owned subsidiary of Keppel, housed in a newly created private fund to be managed by Keppel.
"Keppel will be able to effectively manage when and how the legacy assets are monetised, with the goal of achieving the best risk-adjusted returns. Keppel will also have control of S$843M (US$627M) of cash... which it can utilise to complete the unfinished rigs. Keppel has no intention of re-entering the offshore and marine business. However, as the largest economic interest holder... Keppel remains focused on the monetisation of the legacy assets."
Keppel said Seatrium Ltd, formed from the combination of Keppel O&M and Sembcorp, will continue to provide construction, maintenance and other associated services for the legacy rigs for an initial period of 10 years as part of the acquisition.
"The global drilling fleet is ageing rapidly, compounded by years of underinvestment in new supply. This trend is especially evident in the jack-up market, where a shortage of premium rigs is projected in the coming years.
The increasing shortage of advanced drilling rigs, along with the high costs and long lead time associated with constructing new ones, is likely to create attractive opportunities for undelivered rigs from the previous construction cycle and the remaining idle rigs that can be reactivated. This trend presents a prime opportunity for Keppel as an asset manager to unlock the potential of its legacy rigs by offering operators a more cost-effective and quicker means of securing additional rigs for their near-term drilling requirements," Keppel said.
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