FMC, Technip seek to reinvent offshore industry
FMC Technologies and Technip want to transform the offshore business by combining
FMC Technologies’ $13 billion merger with Technip SA is the latest deal hoping to reinvent an undersea drilling business crippled by high costs and low oil prices.
FMC Technologies’ proposed $13 billion merger with France’s Technip is the oil industry’s latest bid to reinvent an offshore drilling business crippled by high costs and low oil prices.
The all-stock deal, announced Thursday, would wrap FMC, a Houston oil equipment maker, with Technip to create the secondlargest oil services company by revenue, ahead of Houston’s Halliburton and Baker Hughes, and behind only international giant Schlumberger, according to Rystad Energy, a Norwegian consulting firm. The proposed merger, which would cut up to $400 million a year in costs, brings additional worries for employees, already seeing layoffs since oil prices collapsed in late 2014. FMC employs 3,100 in Houston, and Technip
employs 2,200 here, including in offices along Interstate 10’s Energy Corridor.
“The first thought for employees is always: How does this affect me? Is my job safe?” said Keith Wolf, an executive at Houston staffing firm Murray Resources. “In a relatively down market, it’s a scary thing to be looking for a job when opportunities
are more limited.”
Oil field contractors, which manufacture equipment and provide services ranging from drilling to well cementing, have culled thousands of jobs from payrolls over the past two years as low prices have forced producers to stop drilling and cut spending.
In Houston, the energy services sector has lost one
out of three jobs, according to an economic analysis by the Greater Houston Partnership. The jobs that remain could be cut further as oil languishes under $50 per barrel. At FMC Thursday, employees, none willing to be identified, said they feared their jobs could be the next to go.
“We were all worried about layoffs, even before the merger,” one worker said.
FMC and Technip said they expect to shed $200 million in annual costs in 2018 and $400 million in 2019. In an interview, top executives with both companies
stressed that the objective of the merger wasn’t simply to slash costs and payrolls, but instead to take the combined company in a new direction by integrating FMC’s expertise in manufacturing equipment with Technip’s installing it.
“This is not a consolidation play,” said Doug Pferdehirt, the chief operating officer of FMC and the future CEO of the new company. “This is about redefining and reshaping our industry.”
The most compelling reason for FMC and Technip’s marriage lies on the seafloor.
FMC Technologies is best known for making the equipment that helps drillers manage oil and gas flowing from underwater wells. Technip, headquartered in Paris, is among the world’s best in planning how that equipment will fit together and installing it under hundreds of feet of water.
The maze of pipes and equipment on the seafloor, which can represent onethird of an offshore well’s price, is a major focus for an industry that has become obsessed with cost savings since oil prices began to fall in 2014. In particular, analysts have noted, the lack of standardization among equipment has made assembling undersea wells prohibitively expensive, eating into profit margins for drillers and manufacturers.
Services companies have recently sought to lower costs by consolidating design, manufacturing and installation under one roof. Combining would help
achieve that, said Technip’s chief executive, Thierry Pilenko, who would become executive chairman of the new company.
“We’re going to work in a much more integrated manner,” he said.
The two companies have experience working together. In early 2015, they launched Forsys Subsea, a joint venture that set the ambitious goal of cutting offshore project costs by up to a third. Executives said the merger should held drive costs even lower.
A similar larger-ischeaper rationale has already driven a number of other deals across the oil field services industry. In August 2015, the largest services company, Schlumberger, paid $12.7 billion in cash and stock to buy Houston manufacturer Cameron International Corp. And the same thinking was part of Halliburton’s $34.6 billion offer for Baker Hughes in November 2014.
The Halliburton-Baker
Hughes deal was scrapped at the end of April because of strong opposition of antitrust regulators.
FMC and Technip executives said they didn’t expect antitrust problems, noting that their joint venture, a precursor to the deal, won regulatory approval. Analysts said this merger would likely be less troublesome to regulators because, unlike Halliburton and Baker Hughes, FMC and Technip have few overlapping businesses.
Had the HalliburtonBaker Hughes merger gone through, the combined company would have controlled 70 percent shares in four markets, according to the U.S. Justice Department. This merger would make TechnipFMC the largest player in underwater services, but it would still only have about 27 percent of the underwater equipment and services market, according to Rystad.
FMC and Technip also run businesses onshore.
Technip, for example, designs and builds refineries, and FMC builds the movable arms that help load liquefied natural gas and other products onto tankers.
Analysts said that much of the merger’s success will come down to how the companies are stitched together. The company will keep three headquarters, in Paris, Houston and London, and organize its activities into five businesses. Two of those, surface operations and underwater services, will be headquartered in Houston, and the others in Paris.
“They’re pursuing the holy grail of integration,” said Bill Herbert, an analyst who tracks the companies for investment bank Piper Jaffray. “They’re trying to drive simplification, standardization. It’s an ambitious agenda.”
The deal is expected to close in early 2017.