The Board of Directors of Saipem has reviewed the Saipem Group preliminary consolidated results at December 31, 2008 (not yet submitted to the Company Statutory Auditors and Independent Auditors), which have been prepared in compliance with the new International Financial Reporting Standards (IFRS).
The investments made during year 2008 amount to €2,044 million (€1.636 million in 2007). The principal investment projects completed in 2008 were:
Work on a number of major investment projects will continue in successive years. We provide below the latest forecast completion dates, updated following the most recent discussions with clients and shipyards. For the New Pipelayer, Castor ONE, the new delivery date has been agreed to benefit from a recent reduction in steel prices along with further upgrading of the operating characteristics of the vessel, and compatible with the slippage of some projects.
Net financial debt at December 31, 2008 amounted to €2,028 million, representing an increase of €334 million from December 31, 2007. this is due to investments made in 2008 and the distribution of dividends, partially offset by the cash flow from operations, proceeds from the disposal of GTT and an increase in working capital.
New Contracts and Backlog
During the fourth quarter of 2008, Saipem was awarded contracts amounting to €2,897 million (compared to €4,402 million in the fourth quarter of 2007). New contracts awarded to the Saipem Group in 2008 amounted to €13,860 million (€11,845 million in 2007).
The backlog of the Saipem Group at 31st December 2008 stands at a record level of €19,105 million (€4,682 million in the Offshore sector, €9,201 million in the Onshore sector and €5,222 million in the Drilling sectors), of which €7,281 million are to be realized in 2009.
Management Outlook for 2009 and Medium-Term Outlook
In the second half of 2008 the dire forecasts for the development of the world economy led to a collapse of the (brent) oil price from a historical high in July of close to $150 to around $40 at year end.
This sudden dramatic fall in the oil price, coupled with much tighter access to credit due to difficulties of the international banking sector has led to a significant revision in the oil companies' spending plans. Projects for the development of non-conventional oil and marginal oil field development appear economically incompatible with short term oil price forecasts. Moreover, the expectation that a fall in the prices of several raw materials will lead to lower costs in manufactured products, and tighter access to credit, may lead oil companies to delay the launch of new projects and to reschedule existing ones.
All of this makes interpretation of the oil services market difficult and uncertain in the short term.
Saipem faces this negative phase with a record backlog, and a business portfolio that includes Drilling and Engineering & Construction in all the more promising areas: oil field development, subsea operations, heavy lifting, pipelaying; and with activities in all the most prolific hydrocarbon provinces. Our industrial model, which combines excellent engineering and execution with a strong presence in the countries where we operate, makes Saipem especially credible for the realization of complex projects in frontier areas; projects that are generally economically more robust, and that have planning and execution schedules that are less exposed to short-term variations in the price of
These considerations underpin Saipem's contention that it can weather this weak market, continuing to achieve a performance that puts it in a position of excellence in its own sector.
In contrast with the short-term uncertainty, the medium-term prospects for the Oil Services Industry are much more solid and promising.
The supply of Energy will continue to depend on oil and gas production, and increasingly on the development of fields in deep waters and remote areas. The oil industry has experienced a decade of under-investment that has significantly affected the ability of the International Oil Companies to replace reserves.
It therefore seems reasonable that as soon as the world economy shows signs of sustained recovery, the price of hydrocarbons will again start to climb, and with it, the investments by the Oil Industry.
With the objective of fully exploiting the potential of a market which, following this negative interval, is expected to expand strongly in the medium term, Saipem continues its own investment program with a forecast expenditure of €1.6 billion in 2009. These investments are approximately 50% in Drilling and are backed by long-term contracts with healthy clients. The remainder are in unique offshore vessels, designed to meet the challenges deriving from the production and transport of hydrocarbons in ultra-deep water and in frontier environments.
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