Despite 'robust' tendering activity, increased vessel utilisation and an uptick in SURF activity, Subsea 7 posts loss for the quarter
Higher vessel utilisation and improved pricing on subsea, umbilical riser and flowline (SURF) projects buoyed modest revenue growth at Subsea 7, but not enough to avoid a net loss of US$19M for Q1 of 2019.
Despite the loss, Subsea 7 chief executive Jean Cahuzac remained upbeat. Commenting on the quarter’s activity, Mr Cahuzac said: “Tendering activity remained robust” and that the company “continued to experience a steady increase in interest from our clients to engage early and create the right solutions for SURF projects on both an integrated and stand-alone basis.” Revenue for the quarter was US$859M, up from US$809M during the same period in 2018.
From the current rate until 2023, energy research consultancy Rystad Energy expects SURF activity to grow 11% annually.
“We are now guiding for 2019 group revenue to be broadly in line with 2018, as we continue to experience a gradual volume-led recovery in integrated and stand-alone SURF projects,” said Mr Cahuzac. He expects adjusted EBITDA to be lower in 2019 compared to the prior year.
“We have started to see increased pricing on tenders for major new projects, but this will take time to materialise in our financial results due to an anticipated two- to three-year time lag, on average, between tender, award and execution,” said Mr Cahuzac.
At 31 March 2019, Subsea 7’s order backlog was US$5.2Bn, of which US$4.2Bn was related to SURF and conventional activity, led by high utilisation of the four pipelay support vessels Seven Rio, Seven Sun, Seven Waves and Seven Cruzeiro on charter to Petrobras in offshore Brazil.
"We continue to experience a gradual volume-led recovery in integrated and stand-alone SURF projects"
Subsea 7’s vessel utilisation jumped to 68% for the quarter, 16% higher than the prior year period, partly due to higher levels of diving support and inspection, maintenance and repair (IMR) activity.
Among the announced awards in the first quarter were a five-year IMR services contract for BP and the Arran project for Shell, both offshore UK, and the Berri-Zuluf project, offshore Saudi Arabia, under a long-term agreement with Saudi Aramco.
In the offshore wind sector, Subsea 7 completed work for Germany’s Borkum 2 offshore windfarm and mobilisation for the transport and installation of foundations for Taiwan’s Yunlin offshore wind project.
Last year, Subsea 7’s Seaway Offshore Cables won its first contract in the US to supply and install array cables for Ørsted’s development of Coastal Offshore Wind Project off of Virginia.
Still, Subsea 7’s revenue from renewable activity dropped to US$53M in Q1 2019, compared to US$173M in Q1 2018.
Additional opportunities in the offshore wind market are emerging. In April, after the close of the quarter, Seaway 7 – Subsea 7’s renewables unit – was selected by Vattenfall for the Hollandse Kust Zuid (HKZ) 1 & 2 offshore windfarm project, about 30 km from the Dutch coast. In the North Sea, Seaway 7's scope of work includes the installation of 76 monopile foundations and the laying of the inter-array cables. There is also an ongoing tender for the HKZ 3 & 4 offshore windfarm, which is awaiting selection by the Dutch government.
Early in 2020, Subsea 7 will add the reel-lay vessel Seven Vega under construction at Dutch yard Royal IHC. Equipped with two reels, one with a storage capacity of 5,600 tonnes and the other with 1,600 tonnes, Seven Vega will be capable of installing rigid flowlines in 3,000 m of water. Once Seven Vega joins the Subsea 7 fleet, Seven Navica will be retired from reel-lay operations.