Local fabricators in danger of losing out on oil rig boom.
The Edge Daily
29 January 2007

Local oil rig fabricators need to upgrade their services and technology or lose out on fast-growing global demand for shallow, deep-water and ultra-deep oil rigs, an industry researcher said.

“Industry estimates expect some 15 new rigs and 70 platforms to be installed in the next five years alone to cater to the Malaysian deep-water sector,” Maritime Institute of Malaysia (MIMA) research fellow Nazery Khalid told FinancialDaily via e-mail recently.

“The upswing in the oil rig market (worldwide) looks set to continue and in the near term, the market should remain tight as supply of rigs cannot be churned out fast enough to meet huge demand.

“With sites such as Kikeh expected to come onstream in 2007 and eight more deepwater fields expected to be developed from 2010 to 2013, the local demand for rigs is projected to rise in tandem,” he added.

The major local players are MISC Bhd subsidiary Malaysia Marine & Heavy Engineering Sdn Bhd (MMHE), Sime Darby Bhd subsidiary Sime Darby Engineering Sdn Bhd, Muhibbah Engineering (M) Bhd and Ramunia Holdings Bhd.

Nazery said while the major yards had capability in rig making, they were limited to building conventional offshore rigs and the fabrication of platforms, jackets, piles and bridges, despite holding the coveted Petronas Major Fabricator licences.

“As a measure of where local yards stand, no semi-submersible rig has been built thus far by a local fabricator while Singapore’s Keppel FELS, the world’s largest builder of shallow-water rigs, regularly gets orders to build some of the world’s largest rigs and floating production units in that category,” he added.

Nonetheless, Nazery said local fabricators were showing greater capability in building bigger structures and bidding for overseas jobs like Ramunia’s bid for the US$460 million (RM1.6 billion) Gulf of Thailand central processing platform, MMHE’s Norwegian tender rig bid and the Brazilian and Qatari projects in Sime Engineering’s order book.

Nazery said mergers and acquisitions could occur towards better utilisation of resources, bigger economies of scale and greater competitiveness.

“The fact that more yards are being commissioned by foreign clients to fabricate structures shows that they are moving up the value chain of rig manufacturing.

"With more experience and capability, there is no reason why they shouldn’t be able to develop the ability to fabricate more complex and bigger structures in the future,” he added.

Nazery cited the example of China fabricators like BOMCO, which decades ago were not even on the list of main players in rig fabrication but are now getting orders for large category rigs from foreign oil companies.

“( China) has leveraged on its abundance of labour resources to produce rigs at much cheaper prices for the export market.

"Given the right differentiation strategy and an equally focussed approach, there is no reason why Malaysian yards cannot emulate their success,” he added.