Subsea: State of the Industry

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Recent quarterly results from oilfield services and equipment suggest the subsea sector is in rude health despite a wider slowdown in capital spending by upstream firms.

Many oil and gas services companies have been complaining lately of a slowdown in capital spending on upstream projects as energy majors prefer to focus on returning cash to their investors via greater dividend payments. But subsea is one upstream sector that is bucking this trend.

Despite being mindful of the need to keep investors happy, the upstream industry continues to move ahead with plans for large subsea developments, as recent statements from several oilfield services and equipment firms that supply the subsea sector indicate.

Norwegian services firm Aker Solutions said in February that the last three months of 2013 represented its best quarter of the year thanks to its subsea operation delivering a record profit margin.

Subsea revenues at Aker for the final quarter of 2013, at $626.8 million (NOK 3.7 billion), were 7.5-percent greater than for 4Q 2012. The profit margin (at the EBITDA level) on these revenues was 11.4 percent, compared to 8.2 percent in 4Q 2012. Meanwhile, the subsea business also more than doubled its order backlog during the year to $3.5 billion (NOK 21.6 billion).

At specialist seabed-to-surface engineering contractor Subsea 7 S.A., conflicting pressures on the use of capital by the major oil and gas companies was blamed for the recent lower level of tendering and market award activity for EPIC (engineering, procurement, installation and commissioning) work in the latter part of 2013. Meanwhile, the company complained in its results statement March 7 that a general trend of postponement of large SURF (subsea umibilicals, risers and flowlines) projects is continuing.

However, despite these concerns, Subsea 7 still expects to increase revenue and profits in 2014 after its revenue for 2013 matched that for 2012.

"We remain positive about the medium and long-term prospects for our business, which is supported by a strong fundamental outlook for deepwater subsea field developments," Subsea 7 CEO Jean Cahuzac said in a statement.

French oilfield services firm Technip S.A. also suffered a hiccup in its subsea business towards the end of last year.

In its 2013 results, Technip reported that last year most regions showed signs of active subsea business – particularly in West Africa and Brazil. The firm said the year showed a mix of deep and shallow water projects as well as small-to-large awards during the year, with only the Gulf of Mexico producing a less than satisfactory performance.

However, after steady revenue and profit growth in the subsea segment during the first 9 months of 2013, Technip had to revise its expectations downward for the fourth quarter. Revenue from its subsea business for the year came in at $5.7 billion (EUR 4.1 billion). Order intake during 4Q 2013 was $1.3 billion (EUR 914.1 million) compared to $2.2 billion (EUR 1.6 billion) in 4Q 2012.

Yet for 2014, Technip still anticipates steady growth from subsea with revenue from this segment expected to increase to between $6 billion (EUR 4.35 billion) and $6.6 billion (EUR 4.75 billion).

FMC Technologies Inc., the U.S.-based equipment supplier to the oil and gas sector, reported in early February that its Subsea Technologies business achieved record results during the fourth quarter of 2013. The subsea business unit produced $1.4 billion of revenues and $210 million of operating profit during the quarter, which meant that it also achieved a record annual performance as well with full-year revenue and operating profit amounting to $4.7 billion and $548 million respectively.

FMC CEO John Gremp commented on the day of the firm's results announcement: "We delivered record quarterly subsea revenue and operating profit on improved execution in the fourth quarter. For 2014, we expect to see another year of subsea revenue growth along with margin expansion for Subsea Technologies as the outlook for activity remains strong."

FMC took in subsea orders amounting to $1 billion during the final quarter of 2013, which boosted its backlog to $6 billion at the end of the year.

The indication from all of these recent results is that some subsea services companies may have suffered a little fallout from the tightening of capex budgets among major oil and gas firms, but the above companies' outlook statements all show that the medium-to-long term picture should be a strong one.



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