Subsea 7 Income Hit By Guara-Lula Cost Overruns
Subsea 7 S.A. announced today results for the second quarter and first half 2013 which ended on 30 June 2013. The company reported a net loss of $13 million, compared to a net profit of $411 million in Q2 2012. Half-yearly net income was $119 million, a decrease of $386 million or 76% compared to 1H 2012.
The company’s results were significantly impacted by the recognition of a $300 million increase in the estimated full-life project loss on the Guará-Lula NE project in Brazil. The Guará-Lula NE project entered the offshore phase in the second quarter 2013. Delays have been experienced during the quarter as a result of on-going problems with the supply chain, the delayed commencement of pipeline fabrication due largely to customs clearance issues, and adverse weather conditions in the winter season.
Jean Cahuzac, Chief Executive Officer, said:
‘While I am disappointed with the $300 million loss provision on the Guará-Lula NE project which we recognised during the quarter, I am pleased with project execution and our financial results throughout the rest of the business. Excluding this $300 million loss provision, we expect to deliver progress in Adjusted EBITDA compared to the previous year. We have achieved a record backlog of $10.4 billion, and with a further $2 billion of contract awards announced so far in the third quarter and tendering activity remaining high, we expect that this backlog will continue to grow. In June, we announced a plan to improve our margins in Brazil and we remain disciplined in our bidding approach for new projects with a focus on risk management and profitability. In this context, I am pleased with the PLSV renewal and new-build awards we have recently announced in this Territory.’
Operational highlights and outlook
In the North Sea, Knarr moved into the offshore phase and good progress was made on engineering and procurement for Martin Linge, which will move into the offshore phase in 2014. The quarter benefited from strong project execution, and tendering levels remain strong in the North and Norwegian Seas. The versatility of our fleet and breadth of our technology offering continue to act as differentiators. The recently launched West Franklin bundle represents the 71st unit constructed at our facility in Wick, Scotland, using our proprietary towed bundle technology. In Africa, the quarter benefited from high vessel utilisation and variation orders agreed with clients. Offshore Angola, Seven Borealis continues to operate successfully on the CLOV project, and good progress was made on the engineering and procurement for the Lianzi project which will move into the offshore phase in 2014. Offshore Nigeria, there was strong project execution on the MPN Trunk project, while good progress was made on the engineering and procurement for the Erha North project which will move into the offshore phase in 2015. The timing of additional market awards in West Africa remains uncertain. Tendering activity is improving in the US Gulf of Mexico and offshore Mexico, with Heidelberg and Line 67 awarded during the quarter.
Offshore work was completed on the Gorgon Umbilical project, offshore Australia, and the ONGC G1 project, offshore India. Within the SapuraAcergy joint venture, Sapura 3000 was active on the offshore phase of the Gumusut project, offshore Malaysia.
In Brazil, the Guará-Lula NE project entered the offshore phase during the quarter, and the estimated full-life project losses were increased by $300 million. The process of installing the first buoy has begun and, as expected, progress is hampered by challenging weather conditions in the Santos basin offshore Brazil. Following the renewal of the Kommandor 3000 and Seven Phoenix contracts with Petrobras during the quarter, the contract for Normand Seven was renewed and Petrobras awarded the Group contracts for three new-build pipelay support vessels. Both Seven Condor and Kommandor 3000 will be in planned drydock during the third quarter.
In a business environment where supply chain bottlenecks and cost pressures remain a challenge, we continue to focus our resources on risk management and cost effectiveness and remain positive about the medium and long-term market prospects. “