Singapore rig builders agree merger deal

Singapore shipbuilding and offshore installation firms Keppel O&M and Sembcorp Marine have agreed to merge after nearly a year of negotiations, in a deal driven by the impact of falling oil exploration activity and a shift to cleaner energy sources.

The firms signed definitive agreements on 27 April to combine to compete more effectively in the offshore and marine sector. "The combined entity will be well-positioned to capture opportunities arising from decarbonisation in the oil and gas sector and from the global energy transition towards renewables, particularly in the areas of offshore wind, and new energy sources such as hydrogen and ammonia," Keppel said.

Keppel will take a 56pc stake in the joint company, which it valued at S$4.87bn ($3.53bn), plus S$500mn in cash. That would value the combined company at around $8.7bn.

Keppel announced last year that it was pulling out of the oil rig sector and planning an overhaul of its offshore and marine business.

The offshore and marine sector has faced a prolonged and severe downturn since 2015 when crude prices collapsed, made worse by the global energy transition and Covid-19-related disruptions. This intensified competition for a shrinking pool of projects, contributing to increased debt across the sector and prompting Keppel O&M and Sembcorp Marine to consider merging.

The medium-term outlook for the offshore and marine sector has improved in recent months as oil prices have rallied, but the sector continues to undergo a shift amid the energy transition, Keppel said on 27 April. There are robust prospects for renewables such as offshore wind, while the outlook is good for new energy sources such as hydrogen and ammonia, it said.

The firms envision the combined entity offering offshore renewable, new energy and cleaner solutions in the offshore and marine sector. Singapore state-controlled investment firm Temasek will become the largest shareholder in the combined company with a 33.5pc stake.

The proposed combination is subject to regulatory approvals and expected to be put to shareholders for approval in the fourth quarter of this year.

By Reena Nathan