Subsea 7 Posts Strong Q4, Fuels Recovery Hopes

02 February 2010

Norwegian oilfield engineering group Subsea 7 Inc posted a surprise rise in fourth-quarter core profit and said it saw recovery in North Sea projects, boosting its shares and stoking hope for the battered sector.

Oilfield services companies have been hit hard by the global crisis which triggered sharp cuts in spending by oil and gas producers, although some are starting to see new orders.

Subsea 7's earnings before interest, tax, depreciation and amortisation (EBITDA) rose to $131 million in October-December from $102 million a year earlier, easily beating all forecasts in a Reuters poll of analysts, whose average was $83 million. The first bigger Norwegian offshore services company to report fourth quarter figures, Subsea 7 produced a healthy 24 percent EBITDA margin and lifted hopes for similarly strong results and improving outlook by peer Acergy.

"Absolutely fantastic figures," said Carnegie analyst Frederik Lunde. "There were fears among analysts that margins could come under pressure... (but) they were very high."

Subsea 7 said cost cutting and "strong project execution" was behind its margins but warned that the current project pricing markets were "aggressive" and that short-term markets "remained challenging".

Shares in Subsea were up 4.2 percent to 106.9 crowns at 0827 GMT, while Acergy stock was up 3.5 percent to 97.5 crowns. Oslo's benchmark index .OSEBX was up 0.3 percent while the Dow Jones Stoxx Oil and Gas index .SXEP was off 1.8 percent.

Subsea 7 is a subsea engineering and construction company servicing the oil and gas industry with a focus on the high-value deepwater Subsea Umbilical, Riser and Flowline sector expected to grow as more accessible resources run out.

"Signs of a recovery are starting to appear in the North Sea with a significant number of projects... (with) potential of first production in 2011 and 2012," Subsea said in a statement.

Beyond the North Sea market, projects were also "moving towards sanction", Subsea said but, given their larger scale, their offshore installation was seen in the 2012 to 2013 period.

"The market outlook remains challenging in the short-term but positive for the medium to longer-term," said Subsea 7, repeating sentiment held by many other offshore contractors.

Subsea 7's order backlog fell to $2.8 billion from $3.3 billion a year ago, against analyst forecasts for $2.96 billion.

Last year's capex cuts and project delays by oil and gas producers mean that orderbooks of contractors are falling.

But in the fourth quarter, Subsea said it was awarded a $200 million-plus Brazilian contract by Petrobras a huge and fast growing market for the offshore services sector.