Market conditions have been brutal for the subsea industry, which is working to recover from the downturn, but activity is gradually improving with more work expected this year, according to the head of one of the largest subsea engineering, construction and services providers.

Subsea 7 CEO Jean Cahuzac expects the subsea market will see more awards coming its way in first-half 2018 for subsea umbilicals, risers and flowlines as well as conventional projects. Tenders on the horizon could include awards for work on projects for fields offshore Angola (Zinia), Australia (Gorgon Phase Two), Brazil (Libra), India (98-2) and Mozambique (Golfinho and Mamba)—to name a few—in the short to medium term.

However, the timing of these awards remains uncertain, Cahuzac cautioned while speaking analysts on the company’s latest earnings call. Forthcoming conventional awards could also come offshore Nigeria, he added. Gearing up for more shallow-water work, the company is already planning to return its Seven Inagha offshore supply vessel to active service this year.

“The oil and gas market has seen a gradual increase in activity with a growing volume assumption in the world. However, at present pricing it’s challenging and we expect margins to remain low until excess capacity is utilized,” Cahuzac said. “We are addressing this through our lower cost solution using our experience and technical expertise to drive out inefficiencies.”

Cahuzac’s market outlook came after the London-headquartered company reported March 1 fourth-quarter 2017 net income of $51 million, up from a loss of $13 million a year ago. Revenue for the quarter was about $1 billion, an improvement from last year’s $932 million.

Subsea 7 called its operational performance for the quarter “good with significant progress made on several projects.” These included the substantial completion of the Atoll project offshore Egypt, completion of the Maria project offshore Norway and progress with the installation of foundations and cable lay operations at the Beatrice wind farm in the North Sea—to name a few.

Other fourth-quarter highlights include:

  • Total vessel utilization rate of 55%, down from 65% in 2016;
  • Net operating income of $28 million included a $32 million impairment charge relating to vessels and operating equipment plus an $11 million loss from associates and joint ventures;
  • An order intake of about $1 billion, mainly related to variation and change orders from a client that experienced some routing issues on projects, according to CFO Ricardo Rosa; and
  • Order backlog of $5.2 billion at year-end 2017. Just more than $3 billion of this work is set to be carried out in 2018.

In addition to the large projects expected to be awarded by oil companies, Subsea 7 see opportunity in smaller projects as well. Rosa said these include making some repairs to platforms in the North Sea. The value is small, but “sometimes they grow. So I think it’s fair to say that we are seeing opportunities for some of the small projects to come into the market quite quickly and Subsea 7 is generally in a good place to pick up its fair share of those.”

Meanwhile, Subsea 7 is strengthening its renewables presence

Strengthening Renewables

Subsea 7 said March 1 it plans to acquire Siem Offshore, which installs subsea inter-array cables and provides repair and maintenance services, along with subsidiary Siem Offshore Rederi’s Siem Aimery and Siem Moxie vessels. The acquisition, which is subject to competition clearance in Germany, is for an initial consideration of $172 million subject to adjustments.

“By adding cable capability to our EPIC service offering we expect to increase our market share and offer the client a more comprehensive service,” Cahuzac said.

The company is no stranger to renewables as it provides engineering, procurement, construction and installation work along with transport and installation services via its subsidiary Seaway Heavy Lifting.

The company remains bullish on renewables and its position in the segment.

“We are seeing growth in the years to come,” Cahuzac said. “It’s also confidence in the business model that we are seeing in renewables.”

The model includes providing integrating services that aim to reduce cost and risk to create a better value proposition, he said. In recent years Subsea 7 has focused on bidding for the foundation of renewable projects, which typically brings along array cable business as part of the package, he added, citing the Beatrice wind farm project in the North Sea as an example. “We see that as part of a longer strategy to strengthen our proposal in renewables and offer a broader package in an integrated manner.”

Integrated Alliance

Subsea 7 also recently expanded its relationship with Schlumberger by forming a joint venture (JV). The JV builds upon a subsea integration alliance Subsea 7 and Schlumberger’s OneSubsea formed in 2015 to deliver integrated SURF.

“This effort has been very successful with a number of awards and good client interest in the lower-risk, lower-cost solution that have been identified,” Cahuzac said.

The new 50-50 JV with Schlumberger aims to strengthen FEED and execution of projects and provide full lifecycle services, he added.

“This joint venture will also simplify our sharing of proprietary information and the creation of new technology, helping us to accelerate our joint innovation and development programs,” Cahuzac said. “We will be both contributing our Life of Field business creating a unique integrated full field lifecycle offering.”

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