Revival in new rig construction driving shipyard expansions

Critical issues in drilling & completions with Chong Heong Tong, CEO of Keppel Offshore & Marine

By Linda Hsieh, Managing Editor

How many drilling rigs has Keppel delivered from its shipyards in the past few years?

The last five years have been the very best in the 40-odd year history of Keppel FELS. In terms of numbers, it would be at least 24 (rigs) in 2008 and 2009, and another 12 in 2010. But of course we’re ramping up our top line – getting new projects, new revenue.

Where will your major areas of growth be over the next few years?

From all over the world. I was in Thailand yesterday signing a letter of intent (with Mermaid Maritime for the construction of two KFELS B Class jackups for delivery in 2012 and 2013). Hopefully there will also be some orders from the Brazilian and Indian markets. In some ways, there has been a revival in jackups as you have seen in recent newbuild contracts signed by Seadrill and Atwood. There is also interest shown by other big contractors.

What are the most critical issues Keppel is facing with regards to people, competency and safety?

Safety has always been at the top for Keppel. Two days ago we held our annual safety convention, where the Singapore Minister of Manpower was the guest of honor. It was our third such convention. In our presentation to the minister, we showed that we have had a marked improvement. But safety is something that you have to continue pursuing with vigor so you can change the mindset of all the people working. You have to have the cultural imprint on everybody that works in the yard.

We still call on expertise like Dupont to take us to the next level. The next level is always the most difficult, but we are putting in very strong efforts, and that has produced encouraging results. But then again, you never can become complacent. You’ve got to just push on.

We have also invested quite a bit in our safety training program, spending about S$35 million last year (2009). This year (2010) we opened our new integrated safety training facility, the Keppel Safety Training Center, for simulated safety training practices. Every employee, be they contractors or our own, have to go through this simulated training program so they have a better feel of what to expect in a real situation.

Previously we did not have this luxury. We trained them and assumed or even hoped that they understood exactly what they’ve been taught. Today we have all the simulation so that, even before they are given the right to go out to the yard, they will have achieved a much higher level of understanding.

We have already trained about 4,000 people since the facility’s inauguration early this year (2010).

We’re also paying strong attention to our employees’ competency level. We believe that people are definitely our key to success. The fact that we’re able to work very cohesively as a team has resulted in most, if not all, of our projects either finishing on time or ahead of time. In addition to that, in 2009 we were awarded S$2 million in bonuses for early deliveries.

Especially for the Keppel group, because commitment, reliability and dependability are so key, we want all of our projects to be completed on time and, as much as possible, even ahead of time. For many years now we’ve not had any case of having to pay for late delivery. That is a key selling point of Keppel.

What other critical issues is Keppel facing in the rig construction business?

Anticipating what changes might come about. We believe there are many rigs that are very aged. We’ve always believed that a time would come when more modern rigs would be built to replace them. In some way, maybe the Macondo experience could be a catalyst to change to newer, more modern and better equipment. It’s not easy to scrap a rig, but either upgrading or building a new rig to replace a really old, unproductive one might be a good sign for the revival of the business.

Will you be expanding your shipyard capacity in anticipation of new business?

Not right now, but if an opportunity comes across, we are always on the lookout. In fact, we’ve had many invitations to set up shop in West Africa. We have taken a look, and we have taken a second look. When opportunity comes, we’ll be there.

In Brazil we just bought a second yard. We have already been there for 10 years, and we have done a great deal of work there. The potential we see led us to acquire a yard in 2010 that is about an hour’s flight from São Paolo in the state of Navegantes. It will not only support our present operations in Angra dos Reis but will also specialize in doing platform vessels and anchor-handling tugs.

We’re not the kind of company to spend billions of dollars to set up a yard and wait for business. By 2011 we will have 22 shipyards around the world. The newest is in Nakilat in Qatar, which was launched in November 2010.

How has Keppel worked to improve engineering and construction efficiency in 2010?

We’ve done quite a bit. We’ve built a semi-automated pipe shop. We have continued to train our people. In line with the (Singapore) government’s push for higher productivity, we have also focused very much on innovation, R&D and process improvement. We have had teams of people in various divisions coming out with ideas on how to improve production and engineering. We now have a 3D imaging engineering software that provides a visualization of exactly what goes where even before work begins on a project. That reduces the kind of rework that – I wouldn’t say is bound to happen – but regularly happens.

Any other efforts to improve efficiency?

We are just finishing our 300-meter extension of a pier at our Singapore yard for the first time since it was built 30 years ago. It was timely so that we could accommodate more vessels and projects. We had never dreamt that we would need to extend it, but the last five years have been so great. We’ve gotten to a state of delivering 10 to 12 rigs a year.

Do you expect to continue delivering at that pace for the coming few years?

I’m not expecting, but I’m hoping. We are capable of doing that if there is the opportunity.

As rig equipment becomes more complex and automated, how is Keppel working to improve the integration and testing aspect of rig delivery?

We have risen to a level of much higher confidence today than in the early days. In the early days, at most you probably get one or two rigs a year. Fewer people were exposed to all this modern equipment. Today and especially over the last few years, we have had so many rigs to build and so many vendors to work with. We have a much bigger engineering base across China, India, Bulgaria and the US. While we sleep they work; while we work they sleep.

Years ago when we first started in this business, the only form of communication – apart from the telephone – was courier. We sent every drawing by courier. By the time it reached its destination, was approved and sent back, it was at least a week. Today it can be quite instantaneous. That has helped tremendously.

What are some other sticking points in the rig delivery process that Keppel is working to address?

There will always be challenges, but we always stress to the owners that every project has got to be a team effort with a common goal. So let’s work together, work hard and reach the goal post together. So far that formula has worked for us. We work in the open, and we’re willing to bring up whatever problems early on in the process rather than assume everything is well.

Further, every level of our people gets engaged, one way or another. We do not just leave it to the project team. On every level we keep in touch so that whatever issues or problems, likes and dislikes, get voiced, and then we find a solution. To say that a project of that magnitude has no problem cannot be true. There will be challenges, there will be a lot of problems, but more important is a constructive solution going forward.

In fact, this is where I can even add that we have now become a problem-solver for other yards’ projects.

Your competitors?

It may sound odd, but that is a fact. When Sevan was building three semisubmersible units in different Chinese yards, eventually all were completed in our yard in Verolme, Rotterdam. When I say completed, I’m not talking about completing a very small scope of work. We also just signed a contract with Saipem to complete a semi. I do not know how long it’s going to take or what surprises we’re going to have, but as sure as anything else, we’re going to complete it.

Macondo and the ensuing regulations may lead to the need for refurbishment of some drilling units. Are there going to be limitations on what rigs can be refurbished?

Of course there will be some form of limitation to certain rigs. We take that as a challenge as well as opportunity.

Incidentally we had a visit recently from the Norwegian directorate. One of the greatest challenges has always been the uncertainty with the Norwegian regulators. We learned from lessons way back in the early ’90s when we built FPSOs for the Norwegian fields. That caught us with many surprises. Back then they would come and inspect a rig three months before delivery, and that could be very challenging. Now, we are consulting them even before the rigs are built and inviting them here to look at the rigs. The regulators are happy, we are happy and our customers are happy.