Low activity levels chop Subsea 7 profit
Subsea 7 S.A., a subsea engineering, construction and services company, has seen its third quarter 2015 net profit and revenues drop due to lower activity.
Subsea 7 on Wednesday posted a net income for the 3Q 2015 of $145 million, compared to $199 million in 3Q 2014.
The reduction was primarily due to the decrease in net operating income, and an increase in the tax charge of $13 million compared to 3Q 2014, Subsea 7 explained.
The effective tax rate for 3Q 2015 was 40% compared to 29% for 3Q 2014. The percentage increase reflected the impact of the charges relating to the resizing programme and the impairment of Seven Polaris as well as non-cash adjustments to deferred tax.
The company’s net operating income for the third quarter of 2015 was $214 million, a decrease of $103 million compared to 3Q 2014.
According to the company, this decrease was primarily due to: lower activity in both Business Units and lower vessel utilisation of 74% in 3Q 2015 compared to 91% in 3Q 2014; an impairment charge of $36 million related to Seven Polaris recognised in the quarter; and a charge of $36 million related to the Group’s cost reduction and resizing programme, of which $13 million related to operating expenses and $23 million related to administrative expenses.
The subsea company’s revenue for the quarter was $1.2 billion, a decrease of $702 million or 37% compared with 3Q 2014. The decrease reflected lower activity levels in both Business Units, due to the sustained downturn in oil company expenditure.
Global vessel utilisation was 74% in the quarter reflecting a reduction in Life of Field work in the Northern Hemisphere and reduced activity levels as certain projects completed their offshore phases. In Brazil, there were high levels of vessel activity under the long-term PLSV contracts with Petrobras throughout the quarter, the company said.
In its 3Q 2015 results report, the company said that the cost reduction and resizing programme announced in May 2015 was on track to deliver approximately $550 million of annualised cost savings. At the time, the company said it would lay off 2,500 workers by early 2016.
According to Subsea 7, the headcount and active fleet reduction has progressed as planned: of the 12 vessels to leave the active fleet by early 2016, six owned vessels have been stacked and one chartered vessel has been returned during the third quarter, Subsea 7 said. An impairment charge of $36 million was recognised during the quarter on Seven Polaris, which will be scrapped.
Regarding the company’s outlook, Jean Cahuzac, Chief Executive Officer, said: “The sustained low oil price environment continues to result in lower oil company expenditure and subdued industry activity. The timing of contract awards to market remains uncertain.
“Group revenue is still expected to be significantly lower in 2015 compared to the record level reported last year, but due to strong execution and timing of completion on several projects Adjusted EBITDA percentage margin is now expected to be above 2014 levels.
Cahuzac added that, based on the prevailing market trends, both revenue and Adjusted EBITDA percentage margin in 2016 were expected to be significantly lower than the Group’s forecasts for 2015.
“The outlook beyond 2016 remains uncertain,” Cahuzac said.
“The fundamental long-term outlook for deepwater subsea field developments remains intact despite the challenges facing the industry as a result of the lower oil price.”