Analysis of Keppel Fels

  • View

  • Download

Embed Size (px)


A Rig Builder in Singapore


Analysis of Keppel FelsSITUATION ANALYSIS OF KEPPEL FELS1 WHAT IS SITUATION ANALYSISThe great Chinese strategist Sun Tzu said Know your enemy, know yourself; your victory will never be endangered. Know the ground, know the weather; your victory will then be total.[1] According to Sun Tzu, situation analysis is to know about everything that can impact on the victory. And the purpose of conducting situation analysis is to formulate a winning strategy.In this coursework, we will do a situation analysis on Keppel Fels. The 6 parts analysis is:a. The history of Keppel Felsb. Environmental factorsc. Companys capabilitiesd. Major stakeholderse. SWOT analysisf. Future potential2 HISTORY OF KEPPEL KFELSIn 1967, present day Keppel Fels (which started out as Far East Shipbuilding Industries) was founded by Lee Kim Chee. [2]In 1969, Singapore became the first country in South-east Asia to land a contract to fully build an oil rig. It was built by Far East Levingston Shipbuilding (Fels), a joint venture of Far East Shipbuilding Industries) and US rig builder Levingston Shipbuilding Company.[3] Since then, Fels had specialised in the building of oil rigs.In 1980, Keppel Shipyard took over the management of Fels.In 1997, Fels was renamed as Keppel Fels.[4]From a humble beginning in 1969, Keppel Fels has become the world leader in the fabrication of offshore oil drilling platforms.[5]

3 ENVIRONMENTAL FACTORSWe will mainly use Porters Five Forces Model (Figure 1) for environmental analysis.[6]Figure 13.1 Threat of New EntrantsOil rig construction is a highly specialized field. The technical expertise requirement and high capital requirement combine to set up a formidable entry barrier. However, this does not stop new entrants to the market. An example of how an India shipyard overcomes this barrier is reflected in the following quote:"We are in talks, with two US-based oil rig manufacturers for a technological tie-up for entering offshore rig construction, and are planning to invest Rs4.14bn ($90m) in the proposed facility, which will cover an area of 180,000 sq m," said ABG managing director Rishi Agarwal.[7]Beside India, shipyards in China and other countries have started oil rig construction. 3.2 Bargaining Power of CustomersInternational Herald Tribune carried an article entitled Singapore rig builders thrive as oil explorers re-equip; Want to make an order? You may have to wait until 2009[8] This title sums up nicely the current bargaining power of Keppel Fels customers.Some reasons for diminishing bargaining power of customers are:3.2.1 Soaring demand for oil from fast-developing countries like China and India.3.2.2 In addition, about 75 per cent of the rigs in operation worldwide were more than 25 years old. Replacements needed to be built. Orders flooded in, mostly from long-time of the local industry who decided it was time to go on a spending spree. US oil and offshore conglomerate Global SantaFe, for instance, has built about a dozen jack-up and semi-submersible rigs in Singapore over the last 25 years.3.2.3 Hurricane Katrina had caused damage to numerous rigs. Industry analysts estimate that 12 rigsare damaged, of which five are likely to be scrapped. As a result, the cost of oil rigs soar, jack-up rig (three-legged floatable structures designed to take root in shallow seabeds to drill for oil and gas) cost between US$160 million (S$253 million) and US$180 million apiece in 2006, up sharply from US$120 million to US$130 million which was the price in 2004. Semi-submersibles rig (They do not have legs. As their name suggests, they are half-submerged in the water.) cost twice as much and are for deeper waters.[9]While the customers have less bargaining power in term of prices, that does not mean they have less bargaining power in other critical areas, such as product design. "We see a crossbreeding between traditional floating production installations resulting in entirely new designs," says Kenneth Richardson, ABS VP of Energy Development. "These hybrids are unlike anything we have ever seen.[10]3.3 Bargaining power of SuppliersThe marine sector in Singapore comprises about 600 firms and employs nearly 49,000 workers. Most small marine sector firms serve big companies such as Keppel Shipyard and Jurong Shipyard.[11] Due to the large number of suppliers as compare to the shipyard, the bargaining power of the suppliers is limited.In Singapore, the bargaining power of suppliers is further restricted by the government. For example, when Keppel Felss resident contractors want to employ foreign workers, they have to get approval from Keppel Fels. Supposing the contractor requests to recruit 100 foreign workers, and Keppel Fels grants quota of 50, then the contractor can only hire 50 workers. Work permit application to recruit the foreign workers are required to submit through the shipyard.[12]3.4 Threat of Substitute productsTill date, oil rig have not faced any danger of substitute product. There is simply no way to extract crude oil except through the use of oil rig.3.5 Competitive Rivalry within the IndustryJackup rigs recently delivered or currently on order[13]Delivery Keppel FELS PPL Remainder ofdate Singapore Singapore world shipyards2000-2004 5 2 82005 3 0 12006 5 2 32007 6 5 02008 3 2 22009 1 0 0Totals 23 11 14As seen from the table above (data correct as of July 2005), Keppel Fels is the world leader in jackup rigs construction, PPL (a subsidiary of Sembcorp Marine, formerly known as Promet) is the runner up in oil rig construction. Both Keppel Fels and PPL possess state-of-the-art proprietary rig designs that were sought after by top drilling and oil companies. Both rig designs have become world leaders.In the current boom, when both companies are functioning at full capacity, rivalry between the 2 companies is clearly not as intense.However, the battle for skilled labour is getting more and more intense. Being the worlds best and second best means that both companies have to recruit and retain the best marine engineers. As both companies are situated in Singapore, where the local skilled marine labour pool is limited, both companies are getting innovative in recruitment. Keppel Offshore and Marine (parent company of Keppel Fels) has even resorted to sponsoring a 21-part, prime time Mandarin Chinese drama series, featuring tales of romance on a jack-up rig[14] The purpose is to give the marine industries a more sexy image and subtly encourage young people that it is an exciting career option.

3 COMPANYS CAPABILITIES3.1 Financial Keppel Fels never experienced losses even during the worst times when many shipyards throughout the world closed down. During the industry bust time, Keppel Fels diversified into shipbuilding and repair activities. In the current boom, employees in Keppel Fels enjoy a record high of 7.2 months bonus.[15]It is fortunate that Keppel Fels is financially strong, as the financial institutions in Singapore are reluctant to finance and insure offshore projects. In fact, it's easier to get a housing loan at present than a loan for a rig which can cost between US$150 million and US$450 million. 3.2 TechnologicalKeppel Fels has the advantage of proprietary design. That engineering expertise is difficult to replicate or accumulate. Today, there are 117 deepwater jackups listed on the poster published by Offshore (a magazine covering the key issues and trends relative to offshore technology, oil and gas E&P operations), with 46 (39%) under construction or soon to be built. The Keppel FELS design is the second most popular design, cornering 25% of the market (29 rigs).[16]Research and development has always been a focus of Keppel Fels management. Even now, Keppel Fels is working hard into development of deepwater solutions. It is working with partners such as US energy services company J. Ray McDermott and TexBASS to develop next generation rigs.3.3 ContractChoo Chiau Beng, head of Keppel Offshore & Marine, says: 'In our business, the first hurdle is of course to get the contract with the right terms and conditions. However, winning a contract is only the beginning of long and arduous work to ensure that we make money.[17]Quoting a mishap that cost rival SembCorp Industries $685 million on a conversion job that went awry, Mr Choo warned that yards must pay special attention to the termination, liabilities, indemnities and dispute resolution clauses as well as the specifications of a contract. Shipyard should avoid signing for uncapped penalties and liabilities.3.4 PeopleKeppel Fels workforce consists of 70% foreigners and 30% local. This is due to government regulation that states for every local headcount, a company in marine sector can hire 3 foreigners. In addition, foreigners who are work permit holders are allowed to work up to 15 years in Singapore. Keppel Fels has a large population of work permit holders working as welders, fitters, mechanics and other skilled labourers. These are recruited from China, India, Myanmar, Thailand, Bangladesh, Malaysia and Sri Lanka. Keppel Fels faces an ageing local workforce. Many of them have served 30, 35, even 40 years. While they are committed, dedicated and enjoy the work, they are however in their 50s and 60s.[18] While this group of employees had built Keppel Fels into a world leader, they will not be around 20 years later. The key human resources challenges are:3.4.1 RecruitmentRecruitment is always difficult for the marine industry in Singapore. Even when unemployment was high in 2003, more than 4,000 jobs went abegging in the rigbuilding and shiprepair sector. The problem is more acute in current boom, so much so that Keppel forks out S$2m to woo talents. Recruitment modes include TV and print advertisements, career talks, roadshows, outreach programmes at universities.[19]3.4.2 RetentionStaff retention is currently a big challenge for Keppel Fels. Engineers down to skilled welders are being po