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The main part of Lamprell’s (LSE:LAM) business, accounting for 70% – 90% of revenue, is the construction of large shallow-sea vessels, which can be moved around, but which look very odd.
They are triangular or square(ish). At each corner is a leg. When the vessel is moving the legs are not, as is usual for legs, underneath the main structure, but 200 feet or so in the air. When it gets to where the owner (e.g. oil company or driller for the oil company) wants to drill the legs are sent down to the ocean floor to stabilise the rig. These are called jackup rigs and take around 24 months to make.
While the company has a premium listing (top regulatory oversight and openness) on LSE, its base of operations is the Middle East, with its fabrication yards in the United Arab Emirates accounting for 99% of output (the rest is in Qatar and Kazakstan).
In the second half of 2016 its biggest yard in the UAE operated at full capacity, with seven rigs in various stages of fabrication. Each jackup sells for an enormous amount of money – tens of millions of dollars.
Breakdown of Lamprell’s revenue
| $m |
2014 |
2015 |
1H 2016 |
| New build jackup rigs |
748 |
676 |
376 |
| Oil and gas contracting services |
254 |
136 |
42 |
| Modules |
5 |
47 |
22 |
| Offshore platforms |
78 |
12 |
11 |
| TOTAL |
1085 |
871 |
451 |
| Revenue from one customer: | |||
| Customer A |
275 |
275 |
205 |
| Customer B |
156 |
196 |
106 |
| Customer C |
145 |
147 |
65 |
The jack-up rig players
After four decades in this business, making over 30 jackup rigs, Lamprell reckons it has “leadership in the jackup market”.
But I’ve discovered the biggest players are Keppel Corporation and SembCorp Marine (both Singaporean – but recently moved operations to cheaper Malaysia) which together account for about 70% of the market.
Each is much bigger than Lamprell. Keppel had revenues of over S$10bn (£5.2bn), and even in the poor year, 2015, produced a profit of S$1.5bn. Its Offshore and Marine division had revenue of $6.2bn and profit of S$0.5bn in 2015. It delivered seven jack-ups in 2015. The first nine months of 2016 have seen a deterioration: Revenue in Keppel Offshore and Marine is down from S$4.9bn in the first nine months of 2015 to S$2.1bn; net profit fell from S$542m to S$167m.
Sembcorp delivered one rig in 2015 (down……….To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
