Offshore recovery is biding its time
The long-struggling offshore energy sector is showing early signs of recovering, but corporate executives’ opinions of how far and how fast the recovery might proceed ranged from dour to optimistic during earnings calls Thursday.
The world’s largest offshore services company, TechnipFMC, which reported a modest profit in the third quarter, expects the market to pick up next year with oil prices hovering above $50 a barrel. Houston-based Oceaneering International, however, eliminated its dividend payments to investors and warned of another tough year in 2018 as oil companies focus on their onshore holdings, which are far less costly and time-consuming than deep-water projects.
While shale fields in West Texas boom, offshore operators have waited far longer for the recovery
to reach them as prices have remained low. Transocean, a Swiss company that operates primarily out of Houston, for example, recently had a deep-water contract canceled by a Chevron subsidiary and said it would retire six floating rigs, about a third of its fleet.
Oceaneering CEO Rod Larson bluntly stated that his subsea engineering and technology company expects significantly lower earnings in 2018 compared with this year and the company would eliminate the 15-cent-per-share quarterly dividend “until we see a significant improvement in the market outlook.”
The closest to optimistic Larson sounded was when he added, “While we anticipate an increase in offshore activity levels during the second half of 2018, we do not expect the shift in momentum to be adequate to offset the nearterm market weakness.”
The company has lost about $7 million through the first nine months of the year. Its stock plunged 18 percent Thursday, to $19.34 a share.
Executives of the recently merged TechnipFMC, however, spoke as if the company is preparing to dominate the offshore sector, offering one-stop-shop integrated services, such as engineering, equipment, installation and more.
TechnipFMC, operating out of Houston and Paris, said its third-quarter revenue jumped 15 percent from the second quarter to $4.14 billion, and it posted a modest $121 million profit. The company was created in January with the merger of the France’s Technip and FMC Technologies of Houston.
CEO Doug Pferdehirt said he expects project orders and contracts to grow in 2018, citing 18 large deep-water projects expected to be authorized during the next 24 months. He conceded, however, that revenues will lag.
Oil prices are strong enough to generate profits, Pferdehirt said, but oil companies are still cautious about committing to riskier offshore projects.
“We recognize the pace of recovery has been tempered by near-term price uncertainty,” he said.
Prepping for an eventual recovery in offshore drilling, London-based Ensco just finished its acquisition of Houston’s Atwood Oceanics. Ensco CEO Carl Trowell more or less brushed off a $25 million quarterly loss, focusing on a consolidating industry and an inevitable rebound.
“We still believe that consolidation within the offshore drilling sector is required and will be good for the sector as a whole,” Trowell said.
Apart from mergers, several offshore drillers like Hercules Offshore, Paragon Offshore, Vantage Drilling, Seadrill and others have filed for bankruptcy, although some have since emerged. Another, Pacific Drilling, is flirting with bankruptcy or some other restructuring.
Ensco’s stock fell by just 4 cents a share Thursday, down to $5.01 per share. TechnipFMC, on the other hand, saw its stock price jump more than 5 percent to $26.58 a share.