Rig builder Lamprell to to reduce operations to one yard

UAE rig builder, Lamprell, will consolidate its operations to one yard, down from three as part of plans to significantly reduce cost and improve operational efficiency as market conditions are affected by the coronavirus pandemic.

The company, which also does engineering, procurement and construction projects, has stopped using its Jabel Ali facility in Dubai since January and will close its Sharjah facility later year when work on the Moray East project is complete, Lamprell said in a statement.

Bringing operations in line with medium-term fabrication requirements,  Lamprell will continue to operate from its largest facility in Ajman’s Hamriya yard, which can facilitate scaling up scape if needed.

“These actions allow for the group to gradually grow fabrication volumes whilst significantly improving efficiency and reducing its cost base. The measures are associated with significant headcount and allowance reductions, most of which have already been implemented,” said the company, which has been restructuring its business and debt following losses in recent years due to shrinking demand in the oil and gas sector.

The measures will reduce overheads by about US$23 million for 2020, of which over 90 per cent relates to cash overheads.

Additionally, the company has also reduced salaries, working hours where feasible and also implemented some redundancies to further cut costs, which are expected to result in savings of approximately $10 million in 2020.

Subject to audit, the restructuring will result in a non-cash impairment charge of intangible and immovable assets in Sharjah of approximately $13.2 million in the 2019 financial statements. In 2020 there will be an estimated one-off charge of  $7.5 million, related to the demolition costs in Sharjah and staff termination costs.

These measures are expected to help preserve cash and maximise liquidity in a period of low revenue and slow pace of major contract awards, while retaining core capacity for future growth, the company said, adding that it plans for low levels of critical-only capital expenditure at its facilities, with a total value below $10 million in 2020.

In Saudi Arabia, Lamprell is a joint-venture partner in the mega-project International Maritime Industries (IMI) with Saudi Aramco, Bahri and Hyundai Heavy Industries.

Lamprell said that as challenges in the traditional term debt segment persist as a result of market-wide impact of the COVID-19 crisis, the company is s assessing alternative project funding options.

“We have commenced negotiations with the other IMI shareholders regarding the deferral of the next installment of our strategic capital expenditure in the Saudi maritime yard currently scheduled for this year,” it added.

Lamprell said the group is now debt free since its loan facility was fully repaid in March 2020. As at 31 March 2020 the group’s cash balances stood at $77 million, of which $35 million is restricted.

Despite reduced staff in the facilities due to the COVID-19-triggered restrictive measures, Lamprell said works, including the two IMI rigs and the Moray East project, continue with the first jackets delivered to the client on time and on budget.

“We are operating in a period of unprecedented global uncertainty, focusing on the safety and sustainability of our operations and the health and wellbeing of our employees,” Christopher McDonald, CEO of Lamprell said. “Amidst industry-wide insecurity and distress, we continue to deliver our projects safely and reliably and we remain focused on strict financial discipline to sustain a healthy balance sheet and progress our strategy.”

Meanwhile, Lamprell said bidding activity continues in both markets of oil and gas and renewables but there are signs of deceleration and delays in some awards.

Given the macro environment uncertainty, Lamprell withdrew its previously announced FY2020 revenue guidance. Its 2019 year end backlog stands at $470.1 million with approximately $275 million scheduled to run off in 2020.