Sembcorp Marine has been adversely affected by the global spread of the COVID-19 pandemic, along with all other sectors and industries in the global economy. Measures to contain the pandemic have severely disrupted transportation, supply chains, manpower access and plant operations, with resulting reduction in the demand for oil and energy.
A separate major development has been the collapse in oil prices from March 2020. The current low and volatile oil price levels have resulted in major oil companies deferring their final investment decisions (FIDs) for projects and cutting their capital expenditure (CAPEX) significantly for 2020.
While COVID-19 has resulted in delays in the execution and completion of Sembcorp Marine’s existing projects, the collapse in oil prices has significantly affected its securing of new orders for the foreseeable future.
Operations Review
Industry-wide cuts in CAPEX have affected the Group’s ongoing negotiations and finalisation of new orders, including the Siccar Point Cambo Floating Production, Storage and Offloading (FPSO) project. The project’s FID is now postponed to 2021.
Delays in executing existing orders and lack of new orders have resulted in lower revenue recognition. COVID-19 has also affected global shipping operations, and adversely affected the Repairs & Upgrades business.
The above have resulted in low overall business volume for the Group. This in turn impacted the Group’s revenue recognition and overall bottom line performance.
Sembcorp Marine’s projects in progress include:
- Johan Castberg and Karish newbuild FPSOs;
- Shell Vito and Shell Whale Floating Production Units (FPUs);
- Transocean drill ships;
- Ørsted Hornsea 2 offshore wind farm substations;
- Jan De Nul Formosa 2 offshore wind farm jackets fabrication;
- Tyra offshore platforms;
- Norled battery-powered roll-on/roll-off passenger (ROPAX) ferries; and
- MOL LNG bunker vessel.
Other ongoing repairs and upgrades projects include:
- Floating Storage & Regasification Unit (FSRU) Karmol LNGT Powership Africa;
- FSRU Karmol LNGT Powership Asia; and
- Floating Storage Unit (FSU) LNG Flora.
In a statement, the company said: “As we make every effort to progress the above projects to completion, the Group will continue to right-size our resources in response to the activities outlook. We will also defer all non-essential CAPEX to preserve our cash flow and manage our overall liquidity with prudence and discipline.
COVID-19 Management
Sembcorp Marine has implemented all necessary COVID-19 mitigation measures, such as social distancing, safe distancing at work, workplace segregation, staggered work hours, telecommuting, twice-daily temperature monitoring and intensified cleaning at all its work sites and worker dormitories.
The statement says: “As migrant workers’ dormitories have evolved into significant clusters of COVID-19 infections, we are coordinating with the Government’s inter-agency task forces to identify, treat and isolate infected workers through mass-testing at our dormitories.
Since April 7 when circuit breaker measures were implemented, we have imposed no-entry into our yards for those workers staying in close proximity to dormitories linked to COVID-19 infections. This was followed by a stand-down of production activities from April 17 for two weeks to further protect our employees and other stakeholders.
On April 21 when the Ministry of Manpower announced movement restriction measures that disallowed migrant workers from leaving their dormitories for work, our operating yard workforce of about 20,000 persons was substantially reduced to 850 persons. The reduced workforce was deployed to manage critical works and support yard essential services such as emergency response teams, facilities and utilities management, dormitory operations (including the central kitchen), medical centres and yard security. This was applied to our yards in Singapore. The movement restriction measures and other circuit breaker measures have been extended to June 1, 2020.
Our yard activities have been severely constrained by the reduced workforce. We will continue to assess the impact on our project schedules and are working closely with our customers to manage the ongoing projects during this challenging period. We aim to reactivate our workforce and resume work safely and efficiently when the measures are lifted.”
New orders affected
The statement continues: “Except for the Repairs and Upgrades segment, the Group’s business activity levels remain low for all other segments. Overall business volumes for all segments are expected to further weaken for the rest of the year.
Challenges have intensified, particularly due to the COVID-19 disruption of supply chains and the resulting impact on the timely execution of our projects.
The effects of COVID-19 as well as the low oil prices on projects’ FIDs will continue to adversely affect new orders in the foreseeable quarters.”