Subsea 7 is adjusting its vessel fleet in response to uneven prospects in the oil and gas sector and increasingly robust outlook for offshore wind contracts.
The Oslo-listed company improved its performance in the third quarter, posting a net loss of $43 million compared with a net loss of $992 million in the second quarter.
Third-quarter revenues of $947 million were similar to overall revenues of $951 million in the corresponding period last year, but 26% better than the immediately preceding quarter.
This increase was partly attributed to regional bright spots in traditional oil and gas businesses, such as the North Sea and the Gulf of Mexico, but growth was “mainly driven” by renewables, according to Subsea 7 chief executive John Evans.
The traditional oil and gas division — called SURF and conventional — accounted for $613 million of third-quarter earnings, while the company's renewables and heavy lifting division division generated $269 million.
By comparison, SURF and conventional accounted for $826 million in the third quarter of 2019, and renewables for just $55 million.
Operational highlights from the last quarter included projects such as Snorre and Arran in the North Sea and Mad Dog 2 in the Gulf of Mexico, where engineering for the Anchor, King’s Quay and Jack St Malo projects also began.
The company reported a backlog of $6.8 billion at the end of the quarter, although the extensions for three pipelay service vessels (PLSVs) in Brazil also came with discounted day rates.
While Norway, Brazil and the Gulf of Mexico stood out for utilisation of vessels and engineering and fabrication activity, there was a marked downturn in other regions such as the UK, Africa, Middle East and some parts of Asia, Subsea 7 chief executive John Evans told analysts taking part in an earnings call late last week.
A five-fold increase in revenue handled by the renewables and heavy lifting division was driven by the ramp-up in activity related to Subsea 7's engineering , procurement, construction and installation contract awarded for Seagreen, a large offshore wind project in the North Sea.
"We are fabricating in all three of our yards, the two in China and the one in the Middle East... we passed the 5% completion this quarter," Evans said.
"Our teams are busy on a long list of tenders in each of the three main regions, Europe, Asia, and the US," he added.
Evans said a maturing of the European market was leading to an increase in more integrated and less segmented contracting formats, suiting companies such as Subsea 7.
He suggested the the US — where "changes in the political landscape" could boost interest in wind — could follow the same path toward more combined contracts, both in terms of transport and installation but also in term of lumping projects together.
"Some of the clients are also looking at the US market as to a view now with, probably four or five years of projects coming together. So they might be looking to package some of those together."
Subsea 7’s renewables divisions also faced some setbacks due to Covid-19, with three vessels put on stand-by in Taiwan’s Formosa 2 project.
“While Taiwan has exploded in terms of opportunity, we have to recognise that there will be bumps along the road. But we are in a situation where we're in a good dialogue with our clients about how we can help that situation," Evans said.
The company has responded to the mixed scenario by slashing costs and adjusting its fleet, but sticking to targeted investments, including digitalisation and selective enhancements to vessels and shore facilities.
As part of a net 10-vessel reduction in the size of the overall Subsea 7 fleet, the diving support vessel Seven Pelican and PLSV Seven Mar were retired from the fleet earlier this year.
Current investments include a $25 million project to convert the pipelay vessel Seven Phoenix into a cable lay vessel with a 15-year design life.
Conversion work is taking place in Poland and this vessel is due to join the fleet towards the middle of next year, according to Ricardo Rosa, Subsea 7’s chief financial officer.
The slimmed down fleet also includes the recently completed rigid-reeled, pipe-lay vessel Seven Vega.
The vessel recently finished sea trials and is currently engaged in picking up the BP Manuel EHTF pipeline from Vigra in Norway for transport to the Gulf of Mexico where it has a "good backlog" of project work, Evans said.
The Seven Oceans, another vessel capable of both rigid and flexible pipelay, is currently active on the Total-operated Lapa NE project in Brazil.
For the longer term oil and gas outlook, Subsea 7 referred to the ongoing front-end engineering and design for Equinor's Bacalhau project off Brazil which is expected to mature into a full EPCI deal in the first half of 2021.
Evans also included Norway among the more resilient areas for oil and gas business due to recent changes in the tax regime there.
“The clients are engaging with us, wanting to look at their projects, wanting to accelerate, to make sure that they can sanction those projects in good time, to make sure they are a part of the tax-break system," he said.
Subsea 7's planned capital expenditure for this year has fallen to a range of $210 million to $230 million, some $20 million lower than the guidance given last quarter.
Targeted annualised cash savings of $400 million include reducing the workforce by 3000 by the end of 2021.