Clinching three more orders for floating LNG (FLNG) vessels from Royal Dutch Shell has alleviated concerns that Samsung Heavy Industries (SHI) would be the worst hit among South Korea’s big three shipbuilders, a sector analyst has opined.
Hyundai Heavy Industries, SHI, and Daewoo Shipbuilding & Marine Engineering developed expertise in the construction of drillships, FPSOs, and other big offshore vessels prior to the boom in oil prices. But when oil prices began slumping from last year, so did the orders for such vessels.
On 1 July, SHI announced it had won three more FLNG orders from Shell. The contract came four years after SHI clinched the order for Prelude FLNG, the world’s first such vessel of its kind, from the same customer.
Prelude would be delivered in 2017, while the three other FLNGs will be delivered by 2023.
Samsung Securities analyst Han Young-Soo said, “We expect the shipbuilder to win USD7-8 billion more in new orders related to these vessels since the size of the project (including topside construction) will be determined in the second half of 2016. Today’s order has boosted SHI’s year-to-date order performance to USD8.7 billion – equivalent to 58% of its full-year target of USD15 billion.”
Han said it was not surprising that SHI clinched the Shell orders as it was almost impossible for its peers to compete.
He said, “For reference, back in 2009, a Technip-SHI consortium inked a long term, exclusive contract to construct FLNGs for Royal Dutch Shell.”
News of the Shell orders and orders for platforms from Statoil’s Sverdrup Topside project resulted in SHI’s stocks closing 13% higher at KRW19,300 (USD17.24) on 1 July. The stock is now trading at KRW19,550.
Han said SHI shares surged 13% because there have been few large offshore orders at South Korean yards this year, and the two contracts SHI won in the last two days have put an end to concerns over an offshore order vacuum.
“Having the lowest order backlog among South Korea’s big-three players, SHI has been plagued by concerns that its topline would continue to fall. In sum, improvement in investor sentiment and supply-demand dynamics are behind today’s share-price rally,” the analyst said.
However, the three FLNG orders would not have a major impact on SHI’s 2015 earnings as deliveries are not scheduled to start until 2021.