The largest provider of subsea equipment to the industry, FMC Technologies, could see its 2016 Subsea revenue slashed by up to $1 billion as analysts forecast a very challenging year for the oilfield service and equipment market.
The Houston-based company estimates its 2016 Subsea revenue at about $3.6 billion versus last year’s revenue of $4.5 billion (71% of the company’s revenue in 2015).
According to Douglas-Westwood report, a further decline in subsea hardware installations is expected in 2017 and 2018. The energy research and consulting service pointed out that subsea hardware manufacturers have been somewhat insulated from the downturn due to record levels of backlog established over the 2011-2014 period.
At the end of 2015, FMC’s backlog stood at $4.4 billion, out of which subsea technologies backlog is $3.8 billion, compared to $6.6 billion ($5.8 billion in subsea) at the end of 2014.
Restructuring to tackle the economic downturn
According to the company’s spokesperson, FMC’s focus in 2016 will be on delivering the backlog of existing projects while restructuring operations to provide sustainable cost savings ahead of an eventual market rebound.
“We believe that improving subsea project economics is critical to moving new subsea projects forward. Project economics have been under pressure for some time, despite the $100 crude price realized in recent years, and achieving the savings required to make these projects economically viable requires a new way of thinking for both operator and supplier.”
Tough times in the oil industry saw FMC Technologies reduce its company-wide headcount by 10 per cent, or some 2000 workers, in 2015. When asked about the future workforce adjustments, the company’s spokesperson said that rather than simply reducing the workforce to match lower activity levels, FMC would restructure its business and change its operating processes. However, the company will continue to adjust headcount as needed in alignment with market conditions.
Difficult market conditions were witnessed when most of the industry players booked either losses or major drop in profits in 2015, including FMC Technologies, whose net income decreased from $700 million or diluted EPS of 2.96 in 2014 to $391 million or diluted EPS of $1.70.
For the year 2016 the company is said to expect lower level of order activity but there are a number of projects it is tracking with award potential.
Facing the challenging year ahead, the subsea major is rethinking how it operates and aims at reshaping the industry through standardization, new business models and innovative technologies.