Sembcorp Marine - Secures second SeaDragon US$237 million rig order; crystallization of April '09 option

SMM secures 2nd rig order from SeaDragon worth US$237.3 million; crystallization of April’09 option: Sembcorp Marine has secured a 2nd SeaDragon rig order (first rig order was reported in April 2009) to complete and deliver a Moss Maritime Fully Dynamically Positioned (DP-3) semi-submersible drilling unit. The contract is worth US$237.3 million excluding equipment supplied by owner with the hull having been built in a Russian yard (which arrived at Jurong shipyard in early June 2009). While the first rig (order win in April 2009) is contracted with Pemex for five years, this recent rig is un-contracted for now.

Why is contract value only for US$237.3 million versus new build of US$500-600 million?: Given that the hull has been constructed at the Russian yard and transported to Jurong and the rig contract is on an ex-equipment basis, the contract value is only at US$237.3 million versus a usual price tag of US$500-600 million for a new build semi-submersible.

Year to date "new contracts" stand at S$954 million versus JPM estimate of S$1 billion for FY09E; steady recovery of order-book momentum? Sembcorp Marine has achieved in total, new contracts worth S$954 million versus our FY09E estimate of S$ 1billion. Moreover we believe we could see S$500-800 million upside risk to our current estimate of new contracts as we'd expect to see additional orders in 2H09; however more related to conversion work as against 'new build rig’ orders.

Petrobras still the ‘clearest & biggest opportunity’; SMM willing to consider drillships? During the 1Q09 conference call, management had indicated that they would be willing to consider drillship orders and highlighted they have been approached in the past in this regard. PBR’s 1st batch of 5-7 rigs (out of 28 rigs) is likely to bid out in 2H09.

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