Keppel waits to buy Asia shipyards after boom

SINGAPORE (Reuters) - Singapore's Keppel Corp. (KPLM.SI), the world's top offshore oil drilling rigs maker, said it may look to snap up Asian shipbuilding yards in several years when it expects a glut in capacity to depress asset prices.

Choo Chiau Beng, chief executive of Keppel Corp.'s rig-building unit Keppel Offshore and Marine, was cautious on current expansion prospects and "paranoid" about growing competition, but said excess capacity will hit the industry when hundreds of yards finish construction.

"There will be a surplus of shipyards in China and Vietnam. After the building boom is over, there'll be a lot of yards to buy cheap," Choo said in an interview on Monday at the Reuters Energy Summit.

Keppel and its Singapore peer SembCorp Marine Ltd. (SCMN.SI), the world's second-largest offshore rigs builder, has seen a flood of orders for new offshore drilling rigs in the past three years, aided by record-high oil prices CLc1.

Their main competition is major shipyards such as South Korea's Daewoo Shipbuilding (042660.KS) and Hyundai Heavy Industries Co. (009540.KS), but a host of smaller yards in Singapore and North Asia have also recently won orders.

Shares of Keppel Corp. jumped 3.5 percent on Monday to a record closing high of S$11.70, outperforming the 0.8 percent rise on the main index .STI.

"Anyone can build rigs -- but the question is can you build competitively for the world market," Choo said, adding he thought Singapore's open economy, thriving port and technology access still gave it an edge.

Together Keppel and SembMarine are building over 70 percent of all under construction offshore rigs globally, though Keppel does not build oil tankers or container ships.

Choo said while its yards were building more rigs than ever before, it still has the capacity to take in more orders and would expand capacity at its 17 yards or acquire new ones if needed, picking out deepwater rigs as a key growth area.

"There is acreage being secured by majors that they need to explore," he said. "But we understand that this is a cyclical business. So we don't expand capacity because we believe that the industry will continue to grow forever."

However, Choo said demand for commodities from economies such as China, India, Russia and the Middle East were acting as new drivers for global growth and the oil industry. That would keep demand healthy for oil rigs and for oil products, produced by Keppel Corp.'s 49 percent-owned Singapore Petroleum Co. SPCS.SI, he added.

"The fundamental drivers have changed. We don't depend on the U.S. anymore -- there's more a mix of customers," he said. "This golden age will last a bit longer -- there's still more legs." He said the biggest challenge in meeting in this demand was human capital -- getting and keeping good people. Oil service firms have been stretched by booming demand and many industry leaders worry about recruitment in a graying industry.

"We cannot get ready-made people... The pressure on costs is going to be very high."

(Additional reporting by Neil Chatterjee and Felicia Loo)