Poised to capture opportunities

With governments around the world working together in an unprecedented co-ordinated response, a tentative global economic recovery has been gradually gathering momentum since the start of 2010. Public and investor confidence in the capital markets and financial institutions were slowly returning.

However, this fragile recovery was buffeted in recent months by the growing Eurozone crisis as well as the oil spill in the Gulf of Mexico which injected greater volatility into the US economy. While it remains to be seen how the European crisis will pan out, the repercussions of one of the worst oil spills in history are already apparent.

The Obama Administration’s announcement in late May of a six-month moratorium on deepwater drilling in American waters in the Gulf of Mexico has had an immediate impact on international drilling contractors, whose stocks have been battered by major sell-offs. After a federal judge decided in June that there was insufficient ground for the May moratorium, the Administration revised and renewed the moratorium in mid-July.

Companies along the value chain of the oil and gas industry, including Keppel, have been impacted by the oil spill and its implications for future development plans of drillers and major oil companies.

Notwithstanding all this, it is clear that deepwater drilling in the Gulf of Mexico cannot be stopped permanently. The world’s demand for oil and gas is projected to continue to grow for coming decades. Fossil fuels will remain the dominant energy source for the foreseeable future, with renewable playing a supplementary role.

What might change is that there could be a new set of rules on the playing field. More so than ever, rig builders, drilling contractors and oil companies alike will be challenged to maintain the highest standards of integrity and safety in their systems and processes.

The likely adoption of new safety regulations in the US will provide opportunities for our yards to carry out the needed safety enhancement works on rigs. Tighter and more stringent standards for the entire offshore industry will also catalyse the repair and replacement cycle for older rig fleets and equipment. Major oil companies are expected to choose flight to quality and opt for reputable contractors and rig builders.

As deepwater exploration and production continue to show promising prospects, major oil producers are not likely to be deterred by the higher costs and tighter regulations.

For Keppel, as the world leader in the design and building of offshore drilling rigs with a proven track record for execution excellence and commitment to safety, these are opportunities to add value.

We have kept an unwavering focus on safety and guarded our integrity in all our businesses zealously. In such times, we appreciate how these efforts pay off and this has translated into yet another record set of results for Keppel for the first half of 2010.

We will continue to enhance and strengthen our position as the provider of choice both in the industry as well as globally while sustaining value creation for all our stakeholders.