Swissco_GSP_FortunaSwissco has extended its offshore fleet to include oil rigs, with the injection of oil rig charterer Scott and English Energy by Double Dragon Energy Holdings which is majority-owned by Kim Seng Holdings. Above: Scott and English's jack-up drilling oil rig, GSP Fortuna.
Company photo

SWISSCO HOLDINGS made its maiden entry into the oil rig leasing market on 30 July when it completed its acquisition of 100% of Scott and English Energy, which owns and leases mobile offshore drilling and service oil rigs, for S$285 million.

"The acquisition enables us to offer the full spectrum - from offshore support vessels to oilrigs," said Swissco CEO Alex Yeo at an investor briefing this week.

Arising from the acquisition, changes were made to the composition of Swissco's board and its committees. "Our new chairman (Tan Fuh Gih) is one of the founding members of KS Energy. His oilfield experience is invaluable to our 
know-how and resources for the provision of upstream oilfield drilling services," he said.

Mr Tan and his brother, Tan Kim Seng, and concert parties now control a combined 63.9% stake in the enlarged Swissco.

“We are not speculators. We buy oil rigs and put in place long term charters that give clear earnings visibility,” said Mr Chua Wei Teck, the CEO of Scott and English Energy and newly-appointed excutive director of Swissco Holdings.

"Based on our existing fleet size and pipeline, we expect about 75% of next year's revenue to be from 
oil rigs and the remaining 25% from the chartering of our other offshore support vessels," he added.

Alex_Yeo_8.14"We are concentrating on oil rigs deployed in shallow water oilfields. As drilling campaigns for shallow water fields are less costly than for deep water fields, there will be demand for shallow water oil rigs even in a market downcycle," said Swissco CEO Alex Yeo, 46.
Photo by Sim Kih
At the point of acquisition, Scott and English had 3 oil rigs operating in Mexico on 5 + 2-year charter contracts.

fourth oil rig is undergoing conversion in the Middle East into an accommodation rig.

This oil rig is expected to commence operations in 4QFY2014 on a 4-year charter contract.

Strong momentum for oilrig business

On 15 Aug, Scott and English announced that it secured charter contracts worth a total of US$94.8 million for another 4 offshore drilling rigs from an oil major for 2 years.

The Group expects to complete the acquisition of another 4 operating drilling jack-up rigs by 30 September.

The additional 4 rigs will also be deployed in the Gulf of Mexico.

“We are acquiring 4 older rigs that come with charter contracts,” said Mr Yeo.

He pointed out that as investments in oil rigs entail huge capital outlay, it is the Group’s strategy to acquire assets that are already generating stable cash flow.

It also targets older oil rigs as they require a lower capital investment relative to newbuildings.

Swissco is mindful of a risk with newbuildings: there’s no telling whether long term charter contracts can be signed at good charter rates when the Group takes delivery of the vessels
.

A brand new oilrig takes 2.5 years to deliver.

To finance its oil rig acquisitions, on 7 August, Swissco inked a deal to raise US$42.847 million through the issue of 43.95 million redeemable exchangeable preference shares to private equities and individuals.

Contribution from the new business segment is expected to significantly boost its financial performance next year.

Swissco posted a 15.1% year-on-year growth in revenue to reach S$24.9 million for 1HFY2014 and net profit growth of 48.9% to reach S$5.7 million.

90% of its 1HFY2014 revenue was generated from chartering its fleet of offshore support vessels that range from anchor handling tug supply (AHTS) vessels, crew boats, utility tugs to accommodation vessels.

Its vessels are deployed in Asia, Australia, the Middle East and West Africa.


Below is a summary of questions raised at the meeting and the replies provided by Mr Yeo and Mr Chua.


chua wei teck_8.14"Our strength is in getting an oil rig and in putting a charter contract in place for it," said executive director Chua Wei Teck, 35. Photo by Sim Kih
Q: How old are the 4 oil rigs that you are acquiring?

Mr Chua:They are over 30 years each and they are able to reach water depth of 250 feet.

Time charter day rates range from US$90,000 to US$100,000 for 30-year old oilrigs, compared to US$160,000 to US$180,000 for the new and larger rigs.

Q: What are the charter rates for your oil rigs?

Mr Chua: We do not disclose our rates but we are happy to share that the payback period for our oil rigs is relatively short.

Our payback period (cash generated for full recovery of investment) ranges from more than 3 years to less than 5 years. 

The total contract value for the 4 existing oil rigs (which are 50:50 JV with Ezion) in our fleet is about US$500 million.

Q: What does your marine consultancy service division do?

Mr Yeo:If a prospective customer approaches us with vessel specifications, we come up with the vessel design, secure a shipbuilding facility together with the customer and supervise the construction of the newbuilding.

We also provide equipment procurement services.

Q: What are you building now?

Mr Yeo:We are building a total of 10 vessels, ranging from crew boats to anchor handlers.

We are delivering 5 vessels to external clients this year. We expect to deliver one in 3QFY2014 and the other 4 in 4QFY2014.

The other 5 vessels are for our own fleet.

Q: You can't build a business just based on old oil rigs. How is your oil rig business strategy going to change over the next 3 to 5 years?

Mr Yeo: When we first entered the OSV market, we bought two old boats. Similarly, with the oilrig business, we do not intend to enter with top-of-the-line assets. Old oil rigs can also have a second life. For example, old drilling rigs can be converted into accommodation rigs.

Mr Chua:The condition of a rig depends very much on how it has been maintained over the years. All our rigs are in good working condition.

Going forward, we are looking into a mix of old and new oil rigs.

Mr Yeo:Many oil rigs are being delivered in 2015 and 2016. We expect this to put downward pressure on charter rates. The way we mitigate this is to go into a long term charter contract. The downside to this is we may renew at a lower rate if the market is at a down cycle during time of contract renewal.

On the other hand, a down cycle is also opportune time for investing in newer rigs.

Q: What is your depreciation policy?

Mr Chua:It is usually 15 years for the older assets. 


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