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Acergy Beats Expectations, Sees Higher 2010 Margin

13 October 2010

Oilfield engineering group Acergy reported better than expected third-quarter results on Wednesday, underpinned by recovering oil prices and strong booking that analysts say heralds a positive season.

The Oslo-listed firm, which agreed to buy peer Subsea 7 earlier this year to create a major new player in subsea engineering services for the oil and gas industry, posted third-quarter operating profits of $89 million against an average $83 million in a Reuters poll of 17 analysts.

At 1410 GMT, the stock was up 3 percent compared with a 2.5 percent rise before the announcement.

The oil services industry has begun to put the financial crisis behind it on the strength of rising oil prices and a return to investments by oil companies.

Danske Equities analyst Endre Storloekken said the oilfield engineering and development sector -- which includes Acergy and competitors like Saipen SPNI.MI and Wellstream -- were heading toward better times.

"Overall we certainly expect market conditions to improve going forward and for order intake to improve compared with how it's been," said Storloekken.

Acergy said its order backlog after the June-August quarter was $3.5 billion, exceeding the $3.42 billion anticipated by the Reuters analysts.

"We have delivered a strong operational and financial performance in the third quarter, further supporting our confidence in achieving our 2010 revenue expectations," CEO Jean Cahuzac said in a statement.

He said Acergy's EBITDA margin for continuing operations in 2010 was on track to be "slightly ahead" of that achieved in 2009. Earlier this year the company had said it expected a "somewhat lower" margin in 2010 compared with 2009.

Carnegie analyst Frederik Lunde said Acergy's Q3 EBITDA margin of 25 percent was "super strong".

He cited the company's return to profitability in the North Sea -- where it reported an operating profit of $27 million after a lacklustre first half -- as an important indicator of health.

The chief executive, however, expressed caution about North Sea prospects, which he said could weigh on 2011 margins.

"As anticipated, we foresee a high level of activity for 2011 but we could see some impact on our overall margins due to the delays in project awards over the last two years and the continuing competitive market prevailing in the North Sea," Cahuzac said.

In the U.S., the world's top oil consumer and a benchmark for signs of economic recovery, crude inventories are currently at record highs. In China, currently the second-largest consumer in the world, oil demand accelerated in August and is expected to continue its support of prices.

Acergy said on Wednesday that confidence in the current oil price and strong tendering activity "continues to underpin momentum in our business".

The lifting of the U.S. drilling moratorium will have little effect on prospects for European-based contractors like Acergy, analysts said.