An interview with Mr Choo Chiau Beng, CEO of Keppel ...



Keppel Offshore & Marine Business

Integration of Keppel FELS and Keppel Hitachi Zosen

The integration of Keppel’s offshore and marine businesses under Keppel Offshore & Marine Ltd (Keppel O&M), to be completed in end April 2002, will strengthen Keppel’s global leadership in the highly competitive offshore and marine industries.

The group’s vision is to be a leader in the provision of design and engineering solutions, shipyard services, and products to the offshore and marine industries.

Clearly, the aim is to enhance value for shareholders by delivering sustainable earnings in this business.

Presently, the enlarged group has a total of $2.2 billion worth of orders at hand.

Offshore : S$1.7b

Marine : S$0.5b

With the active level of enquiries, more contracts are expected to bring earnings right through 2004.

Areas of focus

Specifically, Keppel O&M is focusing on four selected segments of its expertise, namely:

1. Building, upgrading, enhancement and life extension of a complete range of offshore rigs,

2. Conversion of Floating Production Storage and Offloading facility (FPSO) and Floating Storage Offloading (FSO) facility,

3. Shiprepair services especially for Liquefied Nitrogen Gas (LNG) carriers, Liquefied Petroleum Gas (LPG) and dredgers

4. Specialised shipbuilding such as harbour tugs and Anchor Handling Supply Vessels (AHTS).

Market Opportunities in the areas under focus

• Globally, oil and gas exploration and production activities are still very active. Rig upgrading and conversion businesses continue to be very strong.

• Replacement of aging rigs built in the 70/80s by more sophisticated and technically advanced rigs is necessary for deep-well drilling

• Strong deepwater development driving demand for FPSO conversions

• Worldwide there is a steady increase in the fleet for LNG and LPG carriers

• Growing demand for specialised shipbuildings such as harbour tugs and AHTS

Keppel’s Competitive Advantages

A. Keppel FELS -Rig building, upgrading, enhancement and life extension

• World leader in the construction of jack-ups, having built majority of the total jack-ups in the world since the last decade, and holding a leading position in semi-submersibles

• One of the very few one-stop shipyards in the world capable of offering proprietary designs and full construction capabilities such as the KFELS Mod V classes “A” and “B for deepwater, the purpose-built semi-submersible tender drilling rigs based on the “Pelaut” and the semi-submersible DSS-20

• Its patented equipment and systems are second to none, such as the jacking system and fixation system

• Track record of on-time deliveries, within budget – a quality that is highly prized in the offshore industry

• Strong base of repeat customers – ENSCO, Chiles Offshore, Diamond Offshore, GlobalSantaFe Corporation, Atwood Oceanics, Transocean SedcoForex, Maersk

• Global network of 12 shipyards under the Keppel Offshore & Marine brings the company nearer to its market and customers. Leveraging the global network of the integrated offshore and marine, the group will be able to achieve greater cost-efficiencies through better utilisation of facilities and capital, and shared services such as group procurement and business development

• First Singapore shipyard to be ISO9001:2000 re-certified, and within six months, affirming its strength in customer service, continuous system improvement, design and high quality fabrication

Positioning

With its strong design and engineering capabilities, Keppel FELS continues to position itself as a total solution provider and partner to customers, participating in their design and planning.

To be near market, near customer – servicing customers in the market areas they work in – Gulf of Mexico, Brazil, Caspian Sea, Asia Pacific.

B. Keppel Shipyard - FPSO and FSO Conversions

• Leader in FPSO and FSO conversions having carried out 37 such projects since 1981

• Has established a reputation for on-time delivery of complex FPSO/FSO conversions

Positioning

To focus on improving its lead in this market segment, and to enhance its profit margins through reliability and value added services.

The integration of Keppel’s offshore and marine businesses allows Keppel Shipyard to move up the production value chain from being an integration specialist of FPSOs to a partner and design/engineering solution provider to production contractors and oil companies.

C. Keppel Shipyard – Repair of LNG/LPG carriers

• Outside of Japan, Keppel Shipyard is the largest LNG repairer in Asia. In 2001 alone, the yard repaired 10 LNGs and to date four more have called at the yard this year

• Renowned for its expertise and consistently meeting stringent safety standards in the extensive and complicated repair of LNG carriers

Positioning

To expand and enhance this niche market. While strong emphasis is being placed conversions, Keppel Shipyard will continue to maintain a good mix of conversions and repair work.

D. Keppel Singmarine - Specialised shipbuilding

• Shipbuilding experience ranges from highly sophisticated Anchor Handling Tug and Supply vessels, FPSOs, sub-sea fibre-optics cable laying and repair vessels to LPG carriers and chemical tankers

Positioning

To take advantage of the strategic locations of our global network of shipyards near the oilfields and exploration areas to better meet the demand for support vessels.

Competitive Landscape

• Growing competition from lower cost centres such as China and Vietnam

• China and Vietnam have the competitive advantages of lower raw material cost, abundance of unskilled workers, cheaper labour, proximity to the offshore and marine markets, and their own oil and gas resources for development

• Compared to these lower cost centres, Singapore’s strength lies in its strategic location as a logistic hub with a strong cluster of supporting marine infrastructure which is conducive to undertaking high value added projects that require large numbers of components and parts

Keppel’s Strategies

1. Focus on higher value added products and services that have stronger engineering content.

2. Deliver better value proposition than our competitors by being a total solution provider and a partner to customers, participating in their design and planning work, creating value for them.

3. Attract the right mix of talents into this industry – good quality people with passion, energy and integrity, and unlock their full potential to provide innovative solutions.

4. Exploit fully infocomm technology in wiring up Keppel’s global network of shipyards, engineering units and marketing offices into seamless system facilitating swift decision-making.

5. Integration of Keppel’s offshore and marine operations to realise higher productivity, optimise use of facilities, equipment and capital as well as corporate services for cost efficiencies and revenue synergies.

6. Leverage our global network of shipyards, business associates, customers, consultants, suppliers of equipment and services to offer better, cheaper and faster solutions.

Near Market, Near Customer

Presently, Keppel Offshore and Marine has a global network of 12 shipyards includes facilities in the Gulf of Mexico, Brazil, Caspian Sea, North Sea, Middle East and South East Asia.

Our strategy is to be near our market and customer. Acquisition plans in the immediate future are focused on yards in the North of the Gulf of Mexico and Europe, to strengthen our presence in the repair, upgrade and conversion market in these two regions.

In the longer term, we will enter into new markets such as China to take advantage of lower operating cost.

However, low cost labour is only one factor and is of use only if labour is managed properly, i.e. supervision and management is just as important if not more so than cheap labour. Overall productivity is the key not just low wages.

We are studying different locations in China which possess the key attributes that we want. Management control is crucial in any joint venture shipyard to create value and profits, especially in China.

Our overseas investment strategy is guided by a set of stringent principles. Unless the venture makes good commercial sense and yield a satisfactory return on investment, we will not acquire the additional facilities.

Conclusion

Keppel Offshore & Marine aims to achieve an annual profit growth of up to 30% from 2001 over the next two to three years, and will contribute 50% of Keppel Corporation’s profits by 2003. It is committed to an ROE of 12 to 15%.

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