Singapore’s Keppel Offshore & Marine, one of the world’s largest rig builders, sees no quick recovery in demand for offshore drilling rigs, despite the somewhat higher oil prices.

Also, presenting its financial results on Thursday, the company revealed the level of headcount cuts for the first half of the year. The number is in thousands.

But, financials first. The rig builder posted a lower net profit for the second quarter of 2016 amounting to S$61 million ($44.98M), compared to S$173 million ($127.6M) in the prior year quarter.

The company also reported lower revenues for the quarter totaling S$720 million, versus S$1.58 billion in the second quarter of 2015.

During the second quarter, Keppel received requests to postpone the delivery of three jack-ups for Mexico’s Grupo R and one jack-up for Uruguay’s Parden Holdings to next year. The company noted it would be compensated for the delays.

Loh Chin Hua, Chief Executive Officer (CEO) of Keppel Corporation, Keppel O&M’s parent company, said: “Although oil price has rebounded from below US$30/bbl in January to around US$47/bbl, the offshore and marine sector continues to face serious challenges. Given the oversupply in the rig market and falling day rates, we do not expect demand for drilling rigs to return soon.

“Our traditional customers, the offshore drillers, need time to repair their balance sheets. Meanwhile, oil majors continue to conserve cash for dividends and potential M&As, rather than spend on E&P.”

Job cuts in 1H 2016

During the first half of 2016, Keppel O&M reduced its direct staff in Singapore and overseas by 4,900 headcount, or around 16% of its staff. Subcontract headcount in Singapore was also further reduced by another 670 persons.

Since the company started rightsizing its operations a year and a half ago, Keppel has reduced its global direct workforce to date by a total of about 11,000 headcount, and about 8,600 headcount of the subcontract workforce in Singapore.

Apart from reducing variable costs, Keppel added it has also worked at cutting overheads which have come down by 20% compared to the first half of 2015. The company noted that its cost-cutting and rightsizing efforts would continue.

Loh Chin Hua stated: “The harsh winter will not last forever. Our aim is to keep Keppel O&M profitable during the downturn, while at the same time, explore new opportunities and develop new capabilities to strengthen the company.”

Keppel stops working on Sete Brasil rigs

When it comes to Sete Brasil, a struggling Brazilian driller, which ordered a total of six drilling rigs from Keppel back in 2011 and 2012, Keppel has stopped working on those rigs since the end of last year.

Sete Brasil was formed in 2011 to own and operate drilling rigs to be used by Petrobras for drilling offshore Brazil.

The company was subsequently linked to the largest corruption scandal in Brazil, the Lava Jato, which blocked it from obtaining the previously approved bank loans that were meant to be used for rig payments.

Also, Petrobras has been postponing its decision to sign a long-term contract for Sete’s rigs. All this has lead to Sete failing to pay installments for more than $10 billion dollars worth of drilling rigs it had ordered from Sembcorp and its compatriot Keppel.

Sete Brasil has been working with a financial advisor on its restructuring plan and has filed for judicial recovery, Keppel noted in its statement this week.

To remind, Keppel was named as a defendant in an action started by Investment fund EIG against Brazilian oil company Petrobras alleging that the defendants took part in an unlawful conspiracy further to which EIG was induced to invest over $221 million in Sete Brasil Participacoes.

Keppel CEO said: “While we wait for more clarity on Sete’s plans, we believe that the provision of S$230 million made last year remains appropriate and adequate. We made the provision on the assumption that Sete may not continue its business as before. Now that Sete has filed for judicial recovery, we have excluded Sete’s projects from our net orderbook. The contracts remain legally valid, and we will continue to work with Sete towards achieving a win-win outcome.”

Keppel Corporation’s net orderbook currently stands at about S$4.3 billion, excluding the Sete Brasil projects which amounted to about S$4 billion.