Aker Solutions Provides Subsea Brazil Update, Expects Further Losses in Q3 2011

Aker Solutions is currently finalising revised execution plans for delivery of subsea production systems in Brazil. Delivery schedules for all major subsea production systems currently on order from Petrobras has been substantially further delayed and additional costs will accrue, mainly due to the prolonged execution time and various measures initiated to improve quality and delivery times.

Aker Solutions has presented the revised plans to Petrobras. Based on the company’s dialogue with the customer, the Board of Directors of Aker Solutions has today resolved that full liquidated damages for delays will be accounted for on all major subsea projects with Petrobras, including the Guara Lula NE project that was not assumed to incur liquidated damages when the second quarter accounts were announced.

The additional costs and potential future liquidated damages to Petrobras will be included in the financial results of the Subsea business area in the third quarter. As of now, it is expected that this amount will be in the range of NOK 400 – 500 million. Further detailed reviews are being carried out during October to verify the cost estimates and to ensure that all of the risks and opportunities for improvement have been fully quantified. An update will be provided on 3 November, when Aker Solutions presents its third quarter results.

“We have a close dialogue with our customer Petrobras and we appreciate their constructive response to our difficult situation. Together we are exploring ways to minimise the consequences of our delays,” says Øyvind Eriksen, Executive Chairman of Aker Solutions ASA.

“Our performance is hampered by high activity in Brazil. Suppliers to the oil industry in the region are facing lack of resources. But parts of the reason for our delays are also very specific to Aker Solutions and our manufacturing site in Curitiba,” Eriksen explains.

The revised plans are being prepared by the new management of the Subsea business area and the local team in Brazil, with support from a multidisciplinary task force from other parts of Aker Solutions.

A wide range of improvement initiatives have already been identified and implementation is underway. Top qualified project management and project control resources are being brought in to Curitiba to tighten control of projects. A recruitment campaign has been initiated to further strengthen the company’s engineering capacity in Brazil, and training and improvement of skills within the Brazilian organisation will be a central activity.

Several initiatives are being taken to increase capacity in assembly and testing, and new suppliers of critical components are qualified and taken into use, after consultation with Petrobras.

“We are deeply frustrated that we again disappoint our customer and investors, but our entire team in Curitiba, the new Subsea management and the task force mobilised from other parts of Aker Solutions deserve recognition. They have undertaken a thorough review of the situation. They have provided us with credible facts in a spirit of openness and transparency. We now have a deeper understanding of what we need to do to deliver. A lot of hard work remains,” Eriksen says.

Meanwhile Aker Solutions is continuing its expansion into other parts of the Brazilian offshore industry. In addition to the continuing investments into the Curitiba production facilities, further investments are being considered at its Rio das Ostras service base for drilling and subsea systems. This is also the manufacturing and assembly site for deepwater clip-joint drilling risers. Aker Solutions will also be expanding its engineering and process systems businesses in Rio de Janeiro.

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Source: Aker Solutions, October 12 , 2011