Singapore’s Keppel, SembCorp Marine Merging To Create World’s Biggest Oil-Rig Builder

A unit of conglomerate Keppel Corp. and Sembcorp Marine—both controlled by Singapore state-linked investment firm Temasek—have agreed to merge to create the world’s largest builder of oil rigs.

The transaction was finalized nearly a year after the Singapore-listed companies announced in June 2021 that they’re discussing the possibility of combining their offshore and marine engineering (O&M) businesses as both entities seek to benefit from the shift towards cleaner and renewable sources of energy.

“The signing of a win-win agreement on the proposed combination of Keppel O&M and Sembcorp Marine marks a strategic milestone for the offshore and marine sector,” Keppel CEO Loh Chin Hua said in a joint statement. “It brings together two leading O&M companies in Singapore to create a stronger player that can realize synergies and compete more effectively amidst the energy transition.”

Upon completion of the transaction, which is subject to approval by shareholders and regulators, Temasek will own 33.5% of the combined entity. Temasek will abstain from voting on the deal. As part of the agreement, Keppel O&M will divest its legacy oil rigs business and associated receivables into a separate entity that will be owned by investors including Keppel Corp and a unit of Temasek.

Keppel and Sembcorp Marine’s O&M businesses have been hard hit by the drastic reduction in oil and gas exploration activities in recent years as energy companies pivot towards the production of cleaner and renewable energy. The Covid-19 pandemic exacerbated the situation, driving both companies into the red last year, with a combined net loss of S$1.3 billion, as oil demand and prices plunged.

With the merger, the combined entity will seek opportunities in renewable energy. “Growing commitments by governments and companies around the world seeking to achieve net zero carbon emissions are driving increasing demand for renewable and clean energy solutions,” the companies said. “These include areas such as offshore wind, hydrogen and ammonia, in which both Keppel O&M and Sembcorp Marine have built their respective capabilities and track records in the past few years.”

The combined entities’ pivot towards cleaner energy business is expected to bolster their order book, which stood at S$6.4 billion in 2021, in the next few years. Global investments in offshore renewable and cleaner energy solutions is expected to exceed S$500 billion between 2021 and 2030, the companies said, citing market research by a world leading consultant.

“We are pleased that Keppel and Sembcorp Marine have come to an agreement on the terms of a combination that we think will be transformational for the companies,” Nagi Hamiyeh, head of portfolio development group at Temasek, said. “We believe the combined business will have the expertise and capacity to accelerate the pivot towards growing opportunities in the renewable and clean energy sectors, and pursue meaningful projects around the world that address the increasing need for greener and cleaner energy solutions.”