SINGAPORE -- Keppel wants to merge its offshore rig unit with local competitor Sembcorp Marine, the Singaporean group said Thursday, pursuing a major consolidation in a sector that has faced headwinds due to the global shift from oil and gas to cleaner energy.
The two companies have started talks for the potential merger, they said in a joint statement, stressing that discussions are at a preliminary stage.
If a deal is concluded, the combined entity will be listed, with state investor Temasek Holdings expected to be the controlling shareholder in that company, Keppel CEO Loh Chin Hua said. Temasek owns 20% of Keppel and 43% of Sembcorp Marine.
Keppel would hold no stake in the combined entity, instead choosing to distribute all shares it receives to the group's shareholders. Keppel intends to essentially divest the offshore business and focus on its other pillars such as data centers and urban development.
Loh said during an online briefing that merger talks would take several months, with any completion of the deal occurring well into 2022.
Thursday's announcement comes as the offshore energy sector faces structural challenges. The two companies have been major players globally in building offshore rigs -- floating platforms to drill for oil and gas that lie beneath the seabed -- which are used by companies like BP and Chevron.
But efforts to combat climate change have hampered the rig business. The COVID-19 pandemic dealt another blow, as global oil demand plunged with many airplanes grounded worldwide.
Sembcorp Marine reported a net loss of 582 million Singapore dollars ($432 million) for 2020, compared with an SG$137 million loss the previous year. Keppel's offshore and marine unit, officially called Keppel O&M, marked a net loss of SG$1.19 billion in 2020.
Keppel and Sembcorp Marine face pressure to restructure. Sembcorp Marine, previously a subsidiary of conglomerate Sembcorp Industries, was detached from the parent last year.
A combined Keppel O&M and Sembcorp Marine likely would focus on more promising areas such as offshore wind power, rather than traditional rig businesses.
"While the outlook for oil exploration and related activities remains uncertain, the outlook for energy transition is robust, including areas such as offshore wind and hydrogen," Keppel and Sembcorp Marine said in the statement.