Keppel Corporation - Petrobras to bid out US$4 billion worth hull contracts by July-end; Keppel in the running

Wednesday, July 15, 2009

Petrobras to bid out US$4billion worth of hull contracts by July- end: Keppel Corp along with 4 other companies (namely Atlantico Sul, 10% Samsung owned, Engevix Engenharia SA and UTC Engenharia SA) are intending to bid for US$4 billion worth of Petrobras contracts to build hulls of FPSOs to be used in Brazil’s pre-salt oil fields (source: Bloomberg). The news article further adds that the companies are likely to submit the proposals between July 17 and July 24 and Petrobras is likely to open the offers on July 31. Petrobras aims to start operating the vessels in 2015 and 2016.

Potentially add S$4.2-6 billion to Keppel Corp’s new contracts versus JPM’s estimate of S$1 billion for FY09E: Assuming Keppel Corp successfully bids for these projects and takes a 70-100% stake within the order (70% is arrived at assuming Keppel successfully bids for Rio Grande wherein news reports (source: Upstream) suggest a 70% stake for KEP) it would add S$4.2-6 billion to the orderbook. Moreover assuming a 7-8% EBIT margin given its a hull contract (this may however be on the higher side for initial contracts given historic performance of ‘new projects’ by Keppel in Brazil), this would potentially add 11-12% to our FY10E / 11E EPS estimates and possibly S$0.30 / share (assuming a 2x on profit contribution). Do note however that our estimates already assume S$0.83 / share Petrobras option value (although this has been assigned only for new rig orders).

Still await news on Rio Grande shipyard purchase; would push Keppel Corp in to lead position for these orders: Given that Rio Grande shipyard has been identified for the assembly work of 8 hulls for the FPSOs, we believe Keppel Corp would be in a ‘leading’ position for the bids of these hulls for FPSOs in case it eventually does take the 70% stake in Rio Grande.


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