Hyundai Heavy May Win Orders as Gorgon Wins Approval

Hyundai Heavy Industries Co., the world’s biggest shipyard, and its rivals may end an eight-month dry spell with a slew of new orders after Australia approved the $42 billion Gorgon liquefied natural gas project. Hyundai Heavy, Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co., the world’s three largest yards, have bid for Gorgon contracts that may be worth as much as $6 billion, said Lee Sang Hwa, an analyst at Hyundai Securities Co., which isn’t affiliated with Hyundai Heavy. Gorgon partners Chevron Corp., Royal Dutch Shell Plc and Exxon Mobil Corp. may award orders as early as next month for the project off the Western Australian coast, Lee said.
Oil companies including Chevron and Petroleo Brasileiro SA are venturing into deeper waters to seek reserves, increasing the need for drilling rigs and production platforms. The offshore contracts may help the South Korean shipyards recover from their worst year for new contracts since the 1970s.
“More resources must be explored and produced in uncharted areas and that means more equipment will be needed to make it possible,” said Choi In Ho, who helps manage $4 billion in assets at UBS Hana Asset Management Co. including Hyundai Heavy shares, in Seoul.
Hyundai Heavy climbed 2.8 percent to 202,500 won as of 11:16 a.m. in Seoul. Daewoo Shipbuilding, the world’s second- biggest, gained 0.7 percent to 21,050 won and Samsung Heavy, the third-largest, was unchanged at 30,250 won.
Environmental Clearance
The Australian government gave environmental clearance to the Gorgon project after setting 28 additional conditions, Environment Minister Peter Garrett said yesterday. The Gorgon partners will make a development decision after they win production licenses and development approvals, Nicole Hodgson, a Chevron spokeswoman, said yesterday.
Gorgon, about 130 kilometers (80 miles) northwest of Western Australia’s coast, is the biggest gas field discovered in Australia with an estimated 40 trillion cubic feet of resources together with other fields in the area, according to the project’s Web site.
The Korean shipyards said they submitted bids earlier this year for the Gorgon gas facilities that can process 15 million metric tons a year.
Gorgon is expected to make the first shipments from the project in 2014, according to San Ramon, California-based Chevron. Liquefied natural gas, or LNG, is natural gas chilled to liquid form so it can be transported by ships to destinations not connected by pipelines.
Engineering Skills
“There are only a very few companies in the world that have the engineering skills to undertake this kind of a project and that is what will make the three shipyards weather the slump better than smaller rivals,” Hyundai Securities’ Lee said.
Gorgon has contracts to supply fuel to China, India and Japan and is among more than 12 LNG projects in the region competing for Asian buyers. That may mean more vessel orders to ship gas to those countries, said Kwak Tai Ho, who helps manage about $250 million worth of equities at Kyobo AXA Investment Managers Co. in Seoul as an analyst.
Chevron, Shell and Exxon plan to sell LNG valued at about A$300 billion ($251 billion) to customers in the Asia-Pacific region over the next 20 years, according to Australian Resources and Energy Minister Martin Ferguson.
Shipyards are also anticipating getting orders from Brazil.
Brazil is developing a deepwater offshore area that contains the biggest oil field discovery in the Americas in three decades, Kwak at Kyobo AXA said. Petrobras, as Brazil’s state-run oil company is called, will seek more than 240 drill ships, tankers, production platforms and supply vessels as part of its five-year $174.4 billion investment plan, Chief Financial Officer Almir Barbassa said on April 20.
Deep-Water Drilling
More than 80 percent of vessels used for deep-water drilling are hired globally and are leased for as much as $500,000 a day, said analysts including Kim Hyun at LIG Investment & Securities Co. There are about 70 rigs in the world that can dig more than 6,000 feet in water, Clay Williams, chief executive officer of National Oilwell Varco Inc., the world’s biggest oilfield-equipment maker, said on July 28.
“This is a very scarce resource and Petrobras obviously has very large rig needs, but it is not the only one,” Williams said. “There are a lot of frontier deepwater basins out there left to be explored and developed, and so the fundamental driver here is very, very solid.”
Petrobras has six drilling rigs working in so-called pre- salt areas, Barbassa said on Aug. 18. Two more rigs will be added by the end of 2009 and another six will come online in 2010, he said.
‘Breathe Easier’
“Demand in the offshore sector is helping the three top shipyards breathe easier at a time when demand for new vessels remains bearish,” Kyobo AXA’s Kwak said. “That will also help mitigate concerns that the shipyards may be forced to drastically cut ship prices to win new orders.”
The global economic recession caused shipbuilding orders to slump more than 90 percent in the first seven months of this year, according to Clarkson Plc.
Hyundai Heavy won $492 million of new orders in the first seven months of the year, compared with $14.7 billion a year earlier. Daewoo Shipbuilding received $300 million in the first eight months of the year, slumping from $11.5 billion a year earlier, and Samsung Heavy got $680 million of contracts compared with more than $11 billion a year earlier.
“The growth potential is huge and we’re only just starting to tap that potential,” said Lee Sokje, an analyst at Mirae Asset Securities Co. in Seoul.