Subsea 7 reported a disappointing fourth quarter

We find this potential weakness in project discipline and management more problematic than the actual losses during fourth quarter. 

Stephen Ellis 06.03.2014 | 9.36
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Subsea 7 reported a disappointing fourth quarter, as the Guara-Lula NE project once again negatively affected the firm. Overall revenue was $1.6 billion, flat with last year’s levels, while EBITDA dipped $242 million to $272 million. The primary driver behind the weaker results was an incremental $49 million revision to the full-life project loss for Guara-Lula NE, where the firm recognized an earlier loss of $306 million in 2013. The latest losses were due to Subsea 7’s decision to use an extra vessel to complete more work during the Brazilian summer season, and an additional provision for costs relating to the revised riser installation schedule. We recognize that challenging projects are a fact of life within the industry, but the size of the revisions so soon after the prior round of losses helps illustrate that perhaps Subsea 7 didn’t have a good a grasp on the overall project costs, as it had hoped in 2013. We find this potential weakness in project discipline and management more problematic than the actual losses. Despite the disappointment, we do not plan to change our fair value estimate or moat rating (of none).

Subsea 7 also warned about a difficult near-term outlook. While we acknowledge that the industry continues to struggle with a shortage of highly experienced personnel and the need to manage a very complex supply chain, in the near term other considerations are crowding out these factors. Subsea 7 noted conflicting pressures on the use of capital by majors (primarily between capital investment in projects and returning cash to shareholders), and flat oil prices and cost inflation continue to affect near-term tendering for large EPIC projects. SURF projects are being tendered, but delays in the actual work start dates are common, hurting Subsea 7 as well. A difficult environment and challenges with project discipline suggest that stronger peers such as Technip are our preferred plays within the oil and gas E&C space.

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Verdipapirer nevnt i artikkel

Navn på verdipapirPrisEndring (%)Morningstar Rating
Subsea 7 SA208,80 NOK1,26Rating

Om forfatteren

Stephen Ellis  Stephen Ellis is a senior stock analyst on the Energy Team.

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