Technip SA (TEC), Europe’s largest oilfield-services provider by market value, expects to report a weaker profit margin in the subsea division next year after an expected “exceptionally low” level for the first quarter.
The subsea operating margin will drop to about 5 percent before recovering to at least 12 percent for the full year, the Paris-based company said today in a statement. Technip has forecast a 14 percent margin in 2013 for the division that makes and installs underwater pipes.
The announcement came as CGG SA (CGG), the world’s largest seismic surveyor of oilfields, today cut its 2013 profit forecast after saying oil explorers deferred orders. More spending on vessel maintenance and a new plant in Brazil will weigh on earnings in the first three months of 2014, Technip said. Gulf of Mexico projects on which the company won’t record a margin will also be a factor, it said.
Concerns that energy companies will rein in spending in the coming years are “a little overplayed,” Technip’s Chief Executive Officer Thierry Pilenko said today on a conference call. Customers are reviewing “certain projects” while tender activity for new contracts is “good,” he said.
West Africa and Brazil will likely have the biggest contract awards in the next year, he said. Another factor likely to hurt earnings early next year is the high proportion of multiyear contracts in which the company’s policy is not to recognize margins in the early phases, Technip said.
“These elements will be much less important” in the second quarter, Technip said. Subsea margins will rise to between 15 percent and 17 percent in 2015.
Technip today forecast onshore/offshore operating margins, which come from the divisions making floating oil platforms and petrochemicals facilities, will be 6 percent to 7 percent next year compared with a forecast of 6.5 percent to 7 percent in 2013.
The division will report “modest” growth in sales and “stability” for margins in 2015, Technip said.
To contact the reporter on this story: Tara Patel in Paris at email@example.com