Keppel O&M and Sembcorp Marine Discuss Merger

In response to the dramatic changes in the global offshore and marine engineering and energy sectors, Keppel Corporation and Sembcorp Marine have agreed to begin merger negotiations to combine Keppel O&M and Sembcorp Marine. The companies said the move was in response to the sustained reduction in oil exploration and development activities as a result of the fall in oil prices as the world prepares for an energy transition. They also pointed to moves by competitors that have also pursued consolidation strategies.

According to the companies’ statement confirming the discussions, the objective of the combination is to create a stronger company that is prepared for the new opportunities in the renewable energy sector. While the outlook for oil exploration and related activities remains uncertain, they believe the outlook for energy transition is robust, including areas such as offshore wind and hydrogen.

If completed, the companies said the combination would create a stronger player to capitalize on growing opportunities in the O&M, renewable, and clean energy sectors. They believe the new company would be able to accelerate the move towards O&M renewables opportunities and would be better positioned to compete for larger contracts.

Both companies have been working to realign their business to the renewables sector. Keppel O&M has secured multiple orders from leading players including TenneT Offshore, Ørsted, and Dominion Energy. Sembcorp Marine completed work for Siemens’ Dudgeon Offshore Wind Farm Project and has contracts for the Ørsted’s Hornsea 2 Offshore Wind Farm, and RWE Renewables’ Sofia Offshore Wind Farm.

Under the terms of the preliminary agreement, a new company would be created through the combination of Keppel O&M and Sembcorp Marine, which would become a 50-50 joint venture of which Keppel Corp would hold a 50 percent ownership stake. Keppel would continue to have access to Keppel O&M’s capabilities required for its projects. The new, combined company, will be publicly listed with Sembcorp Marine’s shareholders receiving shares while Keppel will potentially receive both shares and a cash consideration of up to S$500 million.

In a separate but related development, Keppel has also signed a non-binding MOU with Kyanite Investment Holdings, a wholly-owned subsidiary of Temasek, for the sale of Keppel O&M’s legacy rigs and associated receivables. The two proposed transactions will be inter-conditional and pursued concurrently.

Independently, both Keppel O&M and Sembcorp Marine have been reporting declines in their legacy businesses in the oil and gas sector. In 2020, Sembcorp Marine announced plans for a recapitalization plan in response to mounting losses that involved separating the offshore, marine, and energy industries building and repair business from Sembcorp Industries.

Keppel Corporation announced plans in January 2021 to exit the offshore rig building business. Once one of the leaders in offshore oil rigs, the financially troubled Keppel Offshore & Marine unit they announced would transition into a role as a developer and integrator in the new segments of the energy industry, winding down its construction and repair operations.

The companies expect it will take several months to undertake mutual due diligence and discuss the terms of the potential combination. The scope of the strategic partnership JV is subject to a final agreement between the companies and regulatory review.