European Oilfield Services: More Pain to Come ….

[Herman]

Link

http://www.rigzone.com/news/oil_gas/a/141787/European_Oilfield_Services_More_Pain_to_Come_before_Sector_Recovers

When France’s Schlumberger Ltd. reported its third-quarter results in mid-October, the company delivered numbers that looked very robust at the bottom line. But the world’s number one oilfield services provider produced a marginally better-than-expected quarterly profit only because it made deep cost cuts.

Schlumberger is unusual among European oilfield services firms in that a fair chunk of its business comes from the North American onshore drilling market. Unfortunately for the company, analysts expect any pickup in U.S. drilling activity to be delayed until next year, with pricing recovery expected to take even longer.

Consequently, Schlumberger has let 20,000 employees go this year and scaled back its capital expenditure. In spite of this, the firm still posted 3Q net income that halved to less than $1 billion, while its revenue for the quarter fell by a third to $8.5 billion.

In addition, Norway’s Aker Solutions ASA reported at the beginning of November that its 3Q revenue fell to approximately 900 million from $1 billion in 3Q 2014 amid a declining demand for subsea services, particularly in the North Sea. A series of cuts at the firm will see its workforce shrink by 10 percent by the end of December compared to the beginning of 2015, with the majority of jobs going in its Subsea, Engineering and MMO (maintenance, modifications and operation) divisions.

Despite continuing work on Statoil ASA’s Aasta Hansteen development and other offshore projects in northwest Europe, as well as the TEN project offshore Ghana and the completion of the Gorgon project, offshore Australia, UK-based oilfield engineer Subsea 7 S.A. saw its business suffer during the quarter. Its 3Q revenue, at $1.2 billion, was more than $700 million smaller than its revenue for the same period in 2014, attributing the decline to the sustained downturn in oil company expenditure this year.

However, Subsea 7 CEO Jean Cahuzac clearly saw the fact that the firm managed to maintain a profit margin, at the EBITDA level, of 29.2 percent as a sign that the firm was coping with the downturn well, declaring the period as "another quarter of good results… despite the continuation of difficult industry conditions and the resultant decline in market activity".

Meanwhile, French oilfield services company Technip S.A. did well during the third quarter, actually boosting its 3Q 2015 revenue by 10.1 percent to $3.33 billion and delivering an underlying EBITDA profit that was 21.9-percent greater at $398 million.

Technip Chairman and CEO Thierry Pilenko put this success down to the execution of a number of projects in the firm’s backlog as well as successful implementation of a restructuring plan at the business.

OUTLOOK
However, in spite of Technip’s strong performance and an order book that is holding up well ($18.7 billion at the end of September compared with $20.7 billion a year earlier), Pilenko has noted that the expectation of a low oil price for longer means its clients continue to reduce their spending.

"While there are pockets of resilience in offshore and subsea markets, we see more opportunities at the moment in onshore – in North America as well as in Eastern Europe and in Africa/Middle East. Overall, we reiterate our expectations for a prolonged and harsh downturn."

Subsea 7 also noted that oil companies are lowering their capital spending as a result of the sustained low oil price environment, while the timing of contract awards in its market remains uncertain. But the firm insists that "the fundamental long-term outlook for deepwater subsea field developments remains intact despite the challenges facing the industry as a result of the lower oil price".

A market outlook statement that appeared in Aker Solutions’ third-quarter report, suggested that the Norwegian firm holds a similar view to Subsea 7 when it comes to outlook for the offshore sector.

"The long-term fundamentals for growth are still robust as demand for offshore products and services will grow, while output from existing fields declines and new developments become more complex. The company expects to grow in key markets in the medium term and aims to, at least, maintain its market share in all business areas."

So, on the strength of the above statements, it looks like oilfield services can expect to see more pain in the short-to-medium term, at least until 2017 – whether that translates into further job cuts remains to be seen.

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