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Technip sees rising cost pressures stopping some industry projects

07.25.2014  | 

With Total, Royal Dutch Shell and Chevron among Technip’s clients that plan to rein in spending, the company's CEO acknowledged contracts could be fewer and harder to win.

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By TARA PATEL
Bloomberg

Technip, Europe’s largest oilfield-services provider by market value, warned that energy companies are “putting pressure” on suppliers to lower costs and said profit margins may be trimmed by Russian sanctions.

“There is greater uncertainty for all players,” CEO Thierry Pilenko said on a conference call after the Paris-based company reported a decline in second-quarter earnings. “Some of our customers are taking a much slower and more combative approach.”

Technip, which supplies equipment and builds installations for oil and natural-gas producers, had until now maintained orders were strong even as some companies reduced investment and pledged to lower costs.

With Total, Royal Dutch Shell and Chevron among Technip’s clients that plan to rein in spending, Pilenko acknowledged contracts could be fewer and harder to win.

Technip changed financial targets for this year, raising the outlook for margins in the subsea division and lowering it for the onshore-offshore section, in part due to uncertainty about how sanctions on Russian companies could affect the Yamal LNG project in Arctic waters.

Second-quarter net income declined to 158 million euros ($213 million) from 162.4 million euros a year earlier, the company said in an earnings statement. That beat the 154.1 million-euro average of 15 analyst estimates compiled by Bloomberg.

Slowing Orders

Order intake was 7.1 billion euros, bringing the contract backlog to a record 19.9 billion euros. Technip won contracts in recent months for projects in Angola, China, Russia and the UK.

The pace of new orders “will slow” over the next year and the backlog may have reached a peak end-June, Bertrand Hodee, an analyst at Raymond James in Paris who has an “underperform” rating on the shares, wrote in a note. Technip could see “limited growth” beyond 2015.

Technip reported operating margins in the subsea division narrowed to 15.3% in the quarter from 15.8% a year earlier and 5.5% in the first quarter. The margin for onshore-offshore operations was 5.3%, compared with 6.7% previously.

Higher Targets

The oil-services provider raised some targets for this year and lowered others. The company retained a goal for the subsea margin to be at least 12% in 2014 and raised the revenue outlook for that division to 4.6 billion euros to 4.9 billion euros, compared with the previous 4.35 billion euros to 4.75 billion euros.

Next year revenue is expected to be “well above” 5 billion euros with an operating margin of 15% to 17%.

The onshore-offshore revenue is expected to be 5.55 billion euros to 5.80 billion euros, compared with 5.4 billion euros to 5.7 billion euros. The outlook for margins within that division was lowered to a “base case” of 5% to 6%, compared with a previous 6% to 7%. Next year, revenue is expected to be “around” 6 billion euros with a stable operating margin.

Risks from “geopolitics including sanctions” on the Yamal LNG project in the Russian Arctic could shave a percentage point from the onshore/offshore margin this year, Technip said.

“At this stage we continue to advance on Yamal LNG,” CEO Pilenko said on a conference call. He declined to speculate on how any further trade restrictions could affect the project.



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