Subsea 7 profit drops, but offshore activity levels are improving

UK subsea engineering and construction company Subsea 7 recorded a decrease in profit during the fourth quarter 2018, but the company believes offshore activity levels are improving. 

According to its financial statements released on Thursday, Subsea 7’s net income dropped to $32 million in the fourth quarter 2018 from $51 million in the same period of 2017.

The reduction in net income was primarily due to the decrease in net operating income and a taxation charge of $3 million in the quarter, compared to a credit of $32 million in 4Q 2017.

The company’s revenues in the fourth quarter 2018 were $1.023 billion, in line with the same period of 2017 and revenues of $1.003 billion.

Higher activity levels in the SURF and Conventional business unit, with increased operations offshore Africa, Norway and in the Gulf of Mexico were partially offset by lower activity levels in the Renewables and Heavy Lifting business unit, Subsea 7 explained.

Total vessel utilization in the quarter increased to 70% from 55% in 4Q 2017.

The improved utilization compared to the prior year periods reflects increased offshore activity on SURF projects.

Order intake of $913 million in 4Q 2018 was adversely impacted by approximately $110 million related to the de-recognition of the Fortuna project, which has been cancelled.

Jean Cahuzac, Chief Executive Officer, said: “Subsea 7 delivered good operational and financial results in 2018, despite the challenge of delivering projects awarded at lower prices during the downturn. The number of deepwater oil and gas projects awarded by our clients started to increase as industry-wide cost reductions and higher oil and gas prices supported better economic returns.”

Cahuzac further said: “In 2019 we expect continued pressure on our financial performance from the projects awarded at lower prices during the downturn and from a reduction in our offshore wind farm installation activity. However, offshore activity levels are improving and the projects we are now tendering and winning give us confidence that the expected market recovery will translate into better performance for Subsea 7 in the future.”

At December 31, 2018, order backlog was $4.9 billion, including adverse foreign exchange movements of approximately $200 million during the course of the year.

Order intake for the full year 2018 was $4 billion, helped by a significant increase in new SURF awards primarily on brownfield developments, which typically have lower investment decision hurdles.

Positive trend to continue in 2019 

Subsea 7 said it expects the positive trend of increased tendering and award activity to continue in 2019 and anticipates several large greenfield oil and gas projects will be awarded to the market in the year. Large projects require longer offshore campaigns for key enabling vessels and, as these come to market, industry utilization and project pricing should improve.

Although oil price volatility remains a risk, most projects that Subsea 7 is currently tendering have breakeven levels well below the projected long-term oil price trends as the benefits of collaboration, innovation and integration contribute to better economic returns.

Subsea 7’s guidance for the full year 2019 remains unchanged. Revenue is expected to be slightly lower than in 2018.

Offshore Energy Today Staff