Singapore's Keppel Corporation, the world's largest offshore rig builder, said it expects an extended slowdown in the offshore sector even though oil prices have recovered from their historically low levels a year ago.
"This is due to, among other factors, the oversupply of rigs and support vessels. It will take some time before the industry fully recovers," Loh Chin Hua, Keppel's chief executive, said during a Thursday evening webcast to announce the company's first quarter earnings.
His remarks are a testament to challenges that the oil support services sector still faces. The recovery in oil prices have yet to translate into greater oil exploration and production activities, which will help to shore up demand for rigs and support vessels.
The prolonged slowdown resulted in Keppel reducing its global workforce in its offshore and marine unit by close to 18,000, or about 49 percent, since the start of 2015, according to Loh. The company also stopped operations at two overseas yards and announced plans to close three in Singapore.
While Keppel's offshore and marine unit has held up against an unfavorable environment, smaller players in the industry are not as lucky.
Singapore-listed Swiber Holdings and Ezra Holdings made headlines after failing to repay their debt, leading to their bankers – which include the three largest lenders in Singapore – to put aside more money to cover for bad loans coming from the beleaguered sector.
Analysts agreed that demand for the oil support services looks set to remain sluggish for now, but noted that outlook is slowing improving.
"Expectations are low, and while there is unlikely to be nay demand for new-build rigs, there remains the possibility of production-related orders, as well as (floating liquefied natural gas) orders," said OCBC Investment Research analyst Low Pei Han in a note.