Subsea 7 Sees Offshore Sector Hampered By Delays, Costs

OSLO, May 16 (Reuters) – Offshore oil services firm Subsea 7 provided more evidence on Thursday of difficulties this industry faces from project delays, cost pressures and skill shortages even though oil exploration is booming.

The subsea business has been the strongest performer in the global oil services industry but strains have started to show recently as cost inflation and lower oil prices have prompted some customers to rethink big and costly projects.

Subsea 7 Chief Executive Jean Cahuzac said Petrobras was delaying major projects in Brazil, pricing pressures were rising in Asia, and lower vessel utilisation in the North Sea was reducing the impact of price increases.

“There continues to be delays in the awards by Petrobras of projects … There is uncertainty as to when the tenders will be released,” he said.

Subsea 7, which provides surface and subsea engineering and construction services for oil firms around the world, is not alone in highlighting these challenges.

Saipem, Europe’s biggest oil services company, shocked investors with a profit warning earlier this year because of troubles from Brazil to Algeria. Another rival Technip last month reported disappointing earnings while Aker Solutions warned of lower profits due to cost overruns and project delays.

Subsea 7 reported first quarter earnings in line with expectations and said its order backlog grew to a record $10.2 billion in the quarter, which just missed analysts’ expectations for $10.7 billion.

First quarter earnings before interest, taxes, depreciation and amortisation were up 7 percent at $241 million.

“Investors will have to weigh two ‘opposing forces’… strong cash flow generation in Q1 vs the company’s cautious view on the industry,” Societe Generale said.

Subsea 7’s shares are trading at 11 times forecast earnings for 2014, a 20 to 25 percent discount to its long term trend, reflecting uncertainty in the industry.

Rival Technip is trading at 13 times its 2014 earnings while Saipem is at 14.4 times, according to Thomson Reuters data.

Subsea 7 shares traded down 0.8 percent by 1326 GMT, underperforming a 0.4 percent rise in the broader index. (Reporting by Balazs Koranyi; Editing by Greg Mahlich and Jane Merriman)

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