Singapore-based offshore and marine stalwarts Keppel and Sembcorp Marine (Sembmarine) have confirmed they are in talks over a potential merger as they look to respond to "dramatic changes" in the global energy and contracting sectors.
A joint announcement on Thursday confirming that Keppel Offshore & Marine (Keppel O&M) and Sembmarine have "entered into a non-binding memorandum of understanding (MoU) to enter exclusive negotiations" over a potential merger follows a halt to trading earlier in the day for both companies on the Singapore Stock Exchange.
A potential link-up between the two oil and gas industry and shipping industry contracting giants has long been mooted as global activity levels were hammered by the coronavirus pandemic, which saw operators rein in spending and cancel or delay projects.
Thursday's joint statement said the intention of the talks was to "create a stronger combined entity and sustainable value over the long term" for their stakeholders "in response to dramatic changes in the global offshore and marine engineering and energy sectors".
'Prolonged downturn' amid Covid-19
"In recent years, there has been a sustained reduction in oil exploration and development activities, which caused a significant reduction in business for the O&M sector," the statement read.
"The prolonged downturn has been exacerbated by the impact of Covid-19, the fall in oil demand and prices in 2020, and the global energy transition away from oil."
If the merger goes ahead, the companies said it will create "a stronger player to capitalise on growing opportunities in the O&M, renewable and clean energy sectors".
"While the outlook for oil exploration and related activities remains uncertain, the outlook for energy transition is robust, including areas such as offshore wind and hydrogen," the pair added.
Keppel rigs kept out
Keppel's parent Keppel Corporation has also signed a non-binding MoU with Kyanite Investment Holdings — which is a wholly owned subsidiary of Singapore's sovereign wealth fund, Temasek — for Keppel O&M's legacy rigs to be sold to a company that would be majority owned by external investors. This means that they would be omitted from the potential combined company.
If the merger goes ahead, it is envisaged that Keppel Corporation and the new combined entity will enter a strategic partnership whereby the former would hold 50% of a 50-50 joint venture between them.
"This would allow Keppel (Corporation) to continue accessing Keppel O&M’s capabilities required for its projects, on terms to be agreed," Thursday's statement read.
"The scope of the strategic partnership joint venture will be subject to final agreement between the parties concerned.
"In addition, subject to regulatory review, the combined entity will be the preferred engineering, procurement and construction partner for Keppel (Corporations)’s projects where the combined entity has the relevant expertise."
Should the merger progress, it is envisaged that the combined entity would be listed in Singapore and that Sembmarine's shareholders would hold shares in it, while Keppel Corporation would receive shares and a cash consideration of up to S$500 million (US$372 million).
Both Keppel Corporation and Sembmarine will now conduct due diligence and discuss the terms of the potential combination, "which is expected to take several months".
Sembmarine has reportedly recently demerged from Sembcorp Industries, while Keppel recently announced it was exploring options for its O&M business as it exits the rig-building business.