Subsea 7 expects its renewables division to deliver a growing share of profits and contracts after supporting the offshore contractor’s traditional business segment through a difficult year.
The Oslo-listed player posted a full-year loss of more than $1 billion in 2020 but, while conventional and subsea umbilicals, risers and flowlines revenues of $2.58 billion were 19% lower than in 2019, renewables revenues grew almost threefold to $631 million.
In the fourth quarter, when the conventional and SURF business was hit by reduced activity the Middle East and Africa, renewables revenues surged to $234 million, up from $54 million in the same period of 2019.
A key driver behind this increase was early-phase execution of a $1.4 billion engineering, procurement, construction and installation contract for Seagreen, an offshore wind project in the UK sector of the North Sea.
The Seagreen project accounted for 23% of the renewables unit's revenues in the final quarter, according to Subsea 7’s chief financial officer Ricardo Rosa.
Seagreen reached 18% completion at year end, with the simultaneous fabrication of 15 jackets taking place at Lamprell shipyard in the United Arab Emirates and two other yards in China, along with fabrication of 300 kilometres of cables at Hellenic Cables in Greece.
“Seagreen is a major undertaking with a complex supply chain, but our successful track record in project and risk management is part of what differentiates us in the renewables sector,” Subsea 7 chief executive John Evans told analysts in an earnings call this week.
The new renewables division registering a small net operating profit in the final quarter, compared to net loss of $26 million in the same period of 2019.
Covid-19 impacts and lower project completions caused net operating income for the conventional and SURF division to decline year-on-year by a third in the fourth quarter, to $37 million, despite a series of cost-cutting measures, including the retirement from the fleet of two chartered vessels.
Evans said profitability from the renewables division will continue to improve in 2021 with advances on wind farm installation projects such as Hornsea in the UK, Kaskasi in Germany and Hollandse Kust Zuid in the Netherlands.
Renewables also accounted for close to a third of Subsea 7’s $6.2 billion contract backlog at the end of 2020. This included 339 wind turbine foundations to be installed between 2021 and 23, and 881 kilometres of cables.
'Replenishing the order book'
Evans added that he expects $1 billion of this renewables backlog to be executed in 2021.
“We are working on replenishing this order book. We are expecting new awards to the market in nine to 12 months,” he said.
“It is our aim to build a sustainable and robust renewables business that can deliver revenues of more than $1 billion and an Ebitda (earnings before interest, tax, depreciation and amortisation) margin of over 10%.”
Evans said Subsea 7 has no immediate plans to spin off its renewables business unit, seeing it as part of a broader business set-up.
"For the moment it is clear that there is value in keeping two business together. We see the benefits of flexing our own workforce back and forth between segments.... We are also redeploying a couple of assets that might have stacked but have re-adapted for offshore wind," he said.
Evans said keeping the units together also makes sense at a time when some of Subsea 7’s traditional clients in the oil and gas sector are expanding rapidly into offshore wind.
He referred to recent moves by BP, Equinor and Total to acquire offshore wind leases in Europe and the USA.
In the shorter term, new wind farm installation contracts in the US are targeted, with companies that acquired leases over the last two years, such as Orsted and Dominion Energy, Evans added.
Tendering for oil and gas projects was seen as picking up in the second half of 2020 and into this year, with the Gulf of Mexico and Brazil standing out due to more resilient projects and also Norway, due to tax relief measures introduced last year.
Opportunities in Brazil will include SURF tenders from Petrobras on projects such as Mero-3, Buzios-6 — later to be followed by Buzios-7 and Buzios-8 — and also in an an going tender for the charter of pipe-lay service vessels, for which bids are due in March.
Evans said SURF opportunities are also expected later this year on the Equinor-operated BM-C-33 licence in Brazil, which includes the Pao de Azucar field.
Evans said Subsea 7 has finished front-end engineering and design on the SURF project for Equinor’s Bacalhau project and expects this to be converted from to full EPCI contract later this year.
Subsea 7 also included in a possible pipeline of projects the SURF contract for ExxonMobil's still-unsanctioned Yellowtail development in Guyana's Stabroek block.
Evans confirmed that Yellowtail has been put to a competitive tender.
The first three SURF contracts for the ExxonMobil-operated Stabroek developments — two for the Liza field and one for Payara— were negotiated directly with Saipem.