Offshore Construction in Malaysia

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Offshore Construction in Malaysia

Petroleum is essentially the most important commodity in the world today. In almost all form of transportation, oil or petrol, derived from crude petroleum, is used to move people and the importance of petrol is seen with the establishment of offshore drilling structure fabricator and its the supporting industries in Malaysia. As of today, there are 7 of such yards in Malaysia that is capable of fabricating offshore structure.

The world’s pricing mechanism of petroleum is determined by OPEC (Organization of the Petroleum Exporting Countries) and is quantified by barrels of crude oil. At peak, price of crude oil is USD147.27 per barrel in July 2008 following concern of an impending missile test by a Middle East country, while 5 months later, following news of the collapse of various financial institutions in the US, price of crude oil fell to USD33.87 per barrel. As of August 2009, crude oil has stabilized at USD70 per barrel. (Wikipedia, 2009). As the price of crude oil slowly increases, in tandem with the recovering world economics, oil and gas companies are starting to accelerate their search for new oil and gas fields and in doing so, more offshore drilling structure are required to churn out petroleum. In Malaysia, we have 7 major fabrication yards capable of undertaking offshore fabrication namely MMHE, Kencana HL, Sime Darby Engineering, Boustead Heavy Industries, OilFab, Ramunia Fabricators and Brooke Dockyard. This is added by the fact that more fabrication jobs totaling to RM4 Billion, would be offered by the end of 2009, thus spurning the growth of any 7 of the local players. (The Business Times 2009).

On top of that, the local players would have to compete with foreign fabricators, notably from Singapore and Batam Island, Indonesia. In the quest for drilling more oil, petroleum companies have resorted to moving their exploration of oil to deeper sea, which has richer oil deposits. However, Malaysian fabricators are unable to compete when it comes to fabrication of deep sea oil rigs, notably the “jack up” type of rigs. Keppel FELS Pte Ltd, one of the largest offshore structure fabricator in Singapore secured order for 5 units of jack up rig as of year 2008. (Keppel FELS Website, 2009). None of Malaysia’s offshore structure fabricator reported any orders of such rigs. It is vital for Malaysian fabricators to move into fabrication of the popular jack up rigs. In Asia alone, Jack up rigs make up 64% of the various drill rigs currently in operation. Worldwide, jack up rigs make up 66% of the drill rigs, which confirms the popularity over other form of drill rigs like Truss Spar, Semi submersibles and drill ships. In addition, jack up rigs in Asia has a utilization rate of 100%, which means that for every jack up rigs that is currently in Asia, every single one of them are chartered by various petroleum countries as compared to drill ships which has a utilization rate of 87.5%. (Malaysian Equity Investment Research Daily News, 2007). This confirms the extensive use jack up rigs and how important a business it is in the worldwide offshore structure fabrication industries.

Key to being able to secure jack up rig jobs is the timeframe needed to build such mega structures where it is reported that Keppel FELS has more than often delivered the projects to the oil and gas companies either on time or before schedule. (Keppel FELS Website, 2009). Pride International Inc, an oil rig operator based in USA reports that an average daily charter rate of a jack up rig is USD105, 000. Daily charter rates may rise to USD 129, 000 per day if the trend of crude oil price continues to rise. (Pride International, 2009). The earlier the fabricator can deliver the rig, the more likely they are to secure the contract and suffice to say, oil rigs operator prefer fabricators who can work within a shorter timeframe and even better if deliver before schedule, as shown in the lucrative...
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