Subsea 7 chief executive John Evans says the company’s renewables business is growing, with high levels of tendering activity but offshore wind remains a ‘competitive’ market
In Q3 2020, Subsea 7 reported adjusted EBITDA of US$114M, down 37% year-on-year, reflecting reduced activity within the SURF and conventional business unit, client delays affecting certain renewables projects in Asia and the impact of the Covid-19 pandemic.
The group generated positive net cash flow and ended the quarter with a net cash position of US$53M. “This balance sheet strength provides a solid foundation from which to preserve the competitiveness of our oil and gas businesses through the current downturn, while advancing our strategy of proactive participation in the energy transition,” Mr Evans said.
“Marking a milestone in the growth of our renewables business, in September 2020 we announced an investment of US$25M to convert Seven Phoenix for offshore wind cable-lay work.
“Our existing cable-lay vessel Seaway Aimery is projected to be fully utilised through 2022 and Seven Phoenix will support a backlog of firm work. Conversion is underway and the vessel is due to rejoin the active fleet in Q2 2021, enhancing our position as a leading service provider in the offshore wind market.”
Despite the challenging conditions, in the first nine months of 2020 Subsea 7 generated net cash flow of US$166M, resulting in the net cash position of US$53M after deducting lease liabilities of US$273M.
Liquidity remains strong with US$542M of cash and cash equivalents, alongside a revolving credit facility of US$656M and a Euro Commercial Paper programme equivalent to US$800M, both of which are unutilised.
“Our capital allocation strategy remains unchanged,” Mr Evans said, “and is focused on three objectives: protecting the balance sheet, reinvesting in the business in a disciplined manner, and returning excess cash to shareholders.
“Particularly in today’s uncertain environment, a strong balance sheet provides us with the financial stability to ensure the competitiveness of our oil and gas businesses, while affording us the flexibility to capture growth opportunities in the renewables market. Investment in technology and digitalisation remains a priority."
To address an anticipated reduction in activity in the company’s oil and gas businesses, in April this year Subsea 7 announced plans to cut its active fleet by up to 10 vessels and its headcount by approximately 3,000 people, in order to deliver annualised operating cash savings of US$400M by Q2 2021. The company now anticipates meeting its cost saving target by the end of 2021 due to rephasing project execution.
“As we head into the closing stages of 2020, the global oil and gas industry remains challenging, but in certain key regions the outlook is more positive," Mr Evans said. “Activity levels are increasing in the Gulf of Mexico, underpinned by a solid backlog of projects involving low-cost tie-backs that leverage existing infrastructure.
“In Brazil, the extension of our pipelay support vessels provides visibility while tendering activity for pre-salt work, which benefits from favourable oil price break-evens, is robust. Finally, in Norway, tendering activity is improving following the introduction of fiscal incentives. Outside these areas, particularly in the UK, Africa and Asia, prospects remain less certain. The overall timing of certain projects in Saudi Arabia, including Marjan 2, are under review by our client, but we are actively tendering for projects in Qatar.
“In renewables, the outlook for near-term activity levels is strong, with progress on the US$1.4Bn Seagreen project accelerating into 2021, and high levels of tendering activity for new contracts.
“The offshore wind turbine installation market continues to be competitive but the market dynamics for inner-array cable lay remain stronger. The group continues to differentiate itself through its integrated approach encompassing foundation and inner-array cables, and through a lump-sum turnkey contract offering that leverages our strengths in the management of large, complex projects.”