The market for subsea equipment likely will slip a bit in 2014 as the oil and gas industry transitions from exploration to development, and the more diversified companies which aren't as subject to niche cycles will be the winners, Credit Suisse says.
Cameron International (CAM) has an edge on peers, the firm believes, noting that 524 subsea trees have been awarded in 2013 YTD with 53% of awards in Q3 going to CAM's OneSubsea; FMC Technologies (FTI) is more exposed.
The long-term outlook for subsea equipment remains strong, but 2014 will likely result in an air pocket due to accelerated orders from the likes of Petrobras (PBR) in 2013, Credit Suisse adds.
CFO Maryann Seaman said during FTI's earnings conference call that the operating margin for the company's largest business unit is expected at 11% this year, down from 12%-13% forecast just last month.
CEO John Gremp blamed a shortfall in the eastern region, which suffered higher project completion costs; backlog in the region encompassing Europe, Africa and Russia is nearly $600M lower than expected. (Q3 earnings)
FMC Technologies (FTI) wins an order with Petrobras (PBR) to deliver 16 subsea manifolds for the Brazilian company’s pre-salt fields, which FMC expects to result in ~$650M in revenues.
The deal marks FMC’s fourth such award for PBR's pre-salt fields following the delivery of three identical manifolds earlier this year, having invested in Brazilian operations to meet local content demands.
FMC Technologies (FTI +0.8%) is upgraded to Buy from Hold with a $65 price target at SocGen, which believes investor fears that subsea equipment manufacturers could experience margin headwinds from a perceived drop in large project awards are overblown.
The robust pace of FTI bookings and continued improvement in margin performance does not support an argument for increased project slippage, the firm says, creating a better entry point to capitalize on growth in the subsea equipment market.
Dresser-Rand's (DRC -5.2%) Q2 earnings rose more than expected, but the equipment maker warned that its new-unit bookings have slowed. J.P. Morgan notes DRC's caution follows recent comments from fellow oil equipment companies FMC Tech (FTI -2%) and Cameron (CAM -4.4%) about delayed orders and project progression hitting the latest and near-term future results (I, II).
FMC Technologies Inc is a provider of technology solutions for the energy industry. It designs, manufactures and services subsea production and processing systems, surface wellhead production systems, measurement solutions and marine loading systems.