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European Oil Services Groups Gird for Growth

17 February 2011

European oil services firms are gearing up for further strong demand for everything from rigs to underwater pipes in 2011 as high crude prices speed up a global race to find new reserves.

Orders for high-margin subsea equipment from the offshore oil and gas industry drove above forecast profits at Technip, Europe's second largest oil contractor, and Norway's Aker Solutions which both both reported on Thursday.

And expectations of a raft of contracts in high-growth areas such as Brazil, the Middle East and Australia meant Technip, which build refineries, gas plants, underwater pipes and oil rigs, forecast sales growth of at least 7 percent in 2011, and a subsea profit margin above 15 percent.

Aker also predicted "stronger growth" in major offshore regions that will benefit the subsea equipment market and its core engineering-services-to-rigs business.

"Looking into 2011, the market is about the rebound. The order backlog is sound and the level of tender activity is very high," Aker Chairman Oeyvind Eriksen told a news conference.

Smaller Norwegian companies Prosafe, an offshore accommodation provider, and seismic surveyor Petroleum GeoServices also cited positive prospects for semi-submersible accommodation rigs and seismic services.

But there are some clouds on the horizon. Technip, which has been conservative on its guidance, cautioned that regulation in the Gulf of Mexico -- following BP's spill -- and unrest in oil-rich North Africa added some uncertainty to its outlook.

Technip also warned of rising costs. While this is not as much of an issue as in 2008 when $140 a barrel oil drove a rush of projects that pushed raw material and staff costs sky high, it was still more of a risk than a year ago.

"That said, there's still a good window of opportunities for clients to secure projects at current prices," Technip Chairman Thierry Pilenko told a conference call. "There's still a very sweet spot for customers to make decisions on contract awards."

Technip shares added 2 percent to 74.39 euros and Aker Solutions was up 4 percent to 112.4 Norwegian crowns.

PGS, whose vessels map out the seabed to help find oil and gas deposits, also posted consensus-beating core profits.

But operating profit at Prosafe, which supplies semi-submersible accommodation rigs, missed analysts' expectations with a 31-percent year-on-year decline due to a decline in rig utilisation.

Prosafe, whose business is traditionally affected later in the petroleum industry's cycle, said demand in its core market regions appeared positive, with signs of growing interest in other regions.