Subsea 7 profit drops. Tendering activity picking up. Pricing under pressure

Offshore installation and construction specialist Subsea 7 saw its profit drop in the third quarter of 2018. The company’s vessel utilization hit 2014-highs in the quarter, tendering activity is picking up, but pricing remains under pressure.

Subsea 7 posted revenue of $1,08 billion, a slight rise compared to $1.06 billion a year ago. Net profit was $76 million for the quarter, down from $111 million in the third quarter last year.

Order backlog at the end of September was $5.1 billion, of which $2.2 billion is due to be recognized as revenue in 2019.

Jean Cahuzac, Subsea 7 CEO, said revenue was boosted by the higher levels of activity in SURF and Conventional projects and Inspection, Repair and Maintenance (IRM) services, which made good progress in the favorable offshore conditions of the summer months in the northern hemisphere.

“Renewables and Heavy Lifting activity diminished as the Beatrice [wind farm project, offshore UK] was substantially completed; the next wave of large EPCI wind farm projects are not expected to be awarded until 2019,” Cahuzac said.

Commenting on vessel utilization for the quarter, the CEO said: “Our total vessel utilization was the highest it has been since 2014 with several large projects executing offshore installation campaigns using our key enabling vessels supplemented by vessels from the wider fleet.”

Subsea 7 has said that positive momentum in tendering activity has continued in all three of Subsea 7’s operational Business Units. The company has, however, said that pricing on new awards remains under pressure, particularly for short-cycle projects.

“The majority of new awards in 2018 have been for projects that deliver incremental production for existing developments. Looking ahead to 2019, several large greenfield project awards to market are anticipated, which will improve utilization of key enabling vessels and drive margin improvement in the medium-term,” Subsea 7 said.

Looking ahead, Subsea 7 expects revenue in 2019 is to be slightly lower than Subsea 7’s guidance for 2018 due to a reduction in its renewables and heavy lifting activity.

“Given the positive momentum in tendering activity, 2019 is forecast to be the low point in cyclical profitability for Subsea 7, with a recovery expected in utilization and financial performance from 2020,” Subsea 7 said.