Subsea 7 foresees persistent period of high activity

Subsea 7 S.A. (OSE: SUBC) released its Q1 2012 interim report on Friday. The seabed-to-surface engineering, construction and services contractor grew its revenues close to 1.46 billion USD (~8.5 b NOK). Adjusted EBITDA reached 225 million $ (~1320 m NOK). Net operating income more than doubled to 93 million $ (~545 million NOK) and EPS for current weighted average number of common shares outstanding of 379.1 million printed at 0.25$ (~1.47 NOK).

CEO Jean Cahuzac said he is pleased with the quarter, which went according to internal estimates. He also said that the quality of order backlog has improved. It has also grown overall to now stand close to 8.7 billion USD (~51 b NOK). Mr. Cahuzac says that customers remain very optimistic on most of the markets where the group is active. The company expects annual revenue and adjusted EBITDA to grow from 2011.

Tendering activity in the North and Norwegian Sea remains very strong and prices are climbing. Operations in West Africa are going through a transition period and H2 will see lower activity. More major SURF contract are expected to come to market award in the region. The execution of such EPIC projects is supposed to be in late 2013 and 2014. While there is a sliver of increased activity in the Gulf of Mexico and some contract awards for the following two years expected this year, pricing conditions remain “challenging”. In Brazil the company foresees continued opportunities, not only in traditional deepwater, but also in pre-salt plays. More SURF contract should also be coming to market award offshore Australia.

Out of the existing order backlog, approximately 3.8 billion USD is expected to be executed in 2012 and 3.2 billion next year. Following NKT Flexibles divestiture and SapuraAcergy offshore activity rescheduling, joint venture contributions are expected to be lower for the remainder of the year. Subsea Hydraulic Leads is however expected to perform strongly. The market had been counting for somewhat faster earnings improvement and the stock slid 3% in Friday trading.