IT WAS once regarded as a sinking ship but Singapore's offshore and marine sector has undergone a sea change as a result of surging crude oil prices.

Besides established players Keppel Fels and SembCorp Marine (SembMarine), newbies such as Cosco Corp and Labroy Marine have also muscled in, securing a lucrative slice of the multibillion-dollar rig building market.

All smooth sailing then but as any seafarer will tell you, a bit of caution is always advisable. You never know what might be just over the horizon.

Ask SembCorp Industries, the controlling shareholder of SembMarine. It was riding high on the last shipbuilding boom 20 years ago but hit a reef in the form of Swiss-based Allseas Group.

The two companies became entangled in a long-running, horrendously expensive legal wrangle over a $230 million contract to convert a bulk carrier, named Solitaire, into a pipe-laying vessel.

Allseas terminated the contract in 1995, two years after it was awarded, alleging that the Singapore shipyard had failed to make adequate progress.

This resulted in a flurry of lawsuits before the case was finally settled in April last year.

SembCorp had to pay sky-high damages of 350 million euros (S$727.5 million at the current rate) to Allseas. This worked out to 3.2 times the value of the original Solitaire conversion contract.

SembCorp has bounced back spectacularly from that setback, transforming itself into a utilities play.

But that painful lesson was not thoroughly grasped by shipyards elsewhere.

Oil and gas journal Upstream reported that earlier this month, QGM, a shipyard in the Middle East, had suddenly been shut down after failing to deliver the first of three jack-up rigs that it had been building for a Norwegian company.

'It highlighted the significant risks involving the use of newer players for offshore rig construction,' wrote Citigroup analyst Kevin Chong.

QGM had been awarded contracts worth US$252 million (S$381.7 million) for two of the three rigs in January last year, when similar rigs from Keppel and SembMarine were costing about US$140 million each, he noted.

In hindsight, the discount given by QGM might not have been worth the disruption and possible damage to reputation for the Norwegian buyer.

The episode also highlighted the potential risks that could emerge in executing complex contracts.

In March, Mr Chong had also written about the initial troubles that new players in the rig market might encounter, noting that they had to pay 'tuition fees' as they moved along the learning curve to complete contracts.

He noted for instance that Yantai Raffles, a yard run by prominent businessman Brian Chang in China, had incurred losses when it launched into more complex jobs in 2000.

After becoming profitable in 2003 and 2004, it again reported losses, due apparently to penalties imposed by a customer, before it returned to the black recently.

And Yantai Raffles was hardly the exception. Mr Chong observed that even an established name like Keppel Offshore and Marine had acknowledged suffering delays, cost overruns and penalties when it first entered the rig market.

These cautionary tales suggest that investors should not be carried away by the euphoria accompanying headline-grabbing announcements of yet more orders won.

They should bear in mind that such contracts can stretch over years and that something nasty and unanticipated could just crop up.

Even a three-month delay could adversely affect the profit forecasts of analysts based on the orders won by the shipyards.

Of course, keeping a clear head can be difficult given the intoxicating ride the companies and their investors have been enjoying.

Take Cosco, for example. In just three years, its market value has ballooned from $1.1 billion to $11.5 billion, as its share price shot up 11 times.

This followed its acquisition of a 51 per cent stake in China-based Cosco Shipyard Group, which is riding high on the shipbuilding boom.

But Mr Chong noted that going by the Yantai Raffles experience, merely hiring staff from other established yards to beef up expertise may not be enough to solve problems that could crop up when a shipbuilding order is executed.

What it takes to succeed in this business is having a 'complete package of qualities built up over the year', he wrote.

This point was also hammered home to me in January when a Keppel Corp executive called to publicise the impeccable record of its shipyards in completing orders last year within budget, either on time or ahead of time.

Surely, being able to get $2 billion worth of jobs done without a hitch, while keeping a good safety record, is just as important as securing the orders in the first place, she said.

But investors are now carried away by the next headline-grabbing order. They appear to assume that everything else will be smooth sailing.

Some of them are probably too young to remember the last shipbuilding boom in the 1980s and might not have been aware of the pain which even a big name such as SembCorp had to endure when a big order went awry.

But as Mr Chong observes, delays, cost overruns, penalties and cancellations are all part and parcel of a shipyard business.

Landing a blockbuster deal is cause for celebration but hardly the end-game. It's best not to be carried away by the current euphoria.