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The IEA published its monthly Oil Market Report this morning, notably lowering its global oil demand forecast for the rest of the year by 400kb/d, resulting in 730kb/d of year-on-year growth in 2025. This comes after tariff-induced increased recessionary risk, with half of the demand downgrade occurring in the US and China, and the remainder in trade-sensitive Asian economies. Despite the weaker demand outlook, Asia remains the driver behind demand in 2025, still accounting for c. 60% of year-on-year growth. Supply growth continued to be led by non-OPEC regions in March, but the IEA has now cut its non-OPEC supply growth by 220kb/d for 2025 due to an expected decrease in US and Venezuelan output for the rest of the year. With the deteriorating economic outlook, the IEA expects US shale to be the crude supply to impacted first, in line with our comments on US onshore breakevens in our note this morning: BIG OIL: Pin the tail on the donkey. Overall, the IEA now sees the global oil market as c. 700kb/d oversupplied in 2025. Demand: . Global oil demand forecast lowered by c. 400kb/d for the remainder of the year, resulting in 730kb/d growth in 2025, much lower than OPEC and EIA which both forecast at least 1.3mb/d year-on-year demand growth. . Oil demand in 2026 is estimated at 104.2mb/d, equivalent to 690kb/d growth in 2026 vs 2025. . The Asia Pacific region still accounts for c. 60% of 2025 demand growth and 75% of 2026 oil demand growth. Supply: . Global supply growth for 2025 has been cut by 260kb/d this month, with 220kb/d coming out of non-OPEC supply due to an expected decrease in US and Venezuelan output for the rest of the year. . OPEC decided to increase its May monthly production target of 138kb/d to 411kb/d, higher than expectations. . On a monthly basis, global oil supply increased by 590kb/d to 103.6mb/d in March, led by the US as production recovered from earlier weather-related outages and other non-OPEC regions (Norway, Brazil,...
SPM SPM BP/ VK VK TTE OMV OMV VIRI REP REP ENI ENI SBMO XOM XOM CVX CVX EQNR EQNR FTI FTI NESTE SHEL SUBC SUBC GALP GALP GTT GTT AKSO AKSO ARAMCO TE ADNOCGAS
At BNPPE''s flagship Transforming Industrials, Materials and Energy (TIME) Conference last week, we hosted management from major oil and gas companies and oil field services companies. In this note we outline the sector themes and key takeaways for each company. Oil and Gas: BP, Eni, Equinor, GALP Energia, Repsol Investors continue to be concerned about downside risk to the macro environment, especially oil demand and the impact of tariffs. However, more positive for investors is the sense that the Oil Companies'' approach to transition is becoming more cautious, disciplined and pragmatic. A conference highlight was our fireside chat with Murray Auchincloss (bp CEO) who conveyed confidence in the company''s ''fundamental reset.'' However, investor sentiment towards bp (=) remained neutral as the market awaits delivery on the company''s strategic objectives. In our view, GALP (+) and ENI (=) provided the most interesting stories. Maria Joao Carioca (Galp co-CEO and CFO) confirmed that a data room will be opened in late April/ early May with 5-10 interested parties for its 10bnboe Mopane asset (Namibia). Claudio Descalzi (ENI CEO) showcased the strong direction of ENI''s satellite model strategy and confidence on delivery was bolstered by the news of it exceeding its 2025 divestment target on the day of the conference. Oil Field Services: GTT, Saipem, Subsea7, TechnipEnergies A recurring theme was the strength of the offshore market, with Saipem and Subsea7 expressing confidence in their project pipelines. GTT and TechnipEnergies both highlighted a positive outlook for LNG demand, with little concern about potential oversupply given the historically supply-led nature of the market. With balance sheets broadly repaired and increased cash generation, capital allocation is emerging as a key topic, with companies considering growth through inorganic spend - GTT in the digital space and TechnipEnergies in its high margin TPS segment. Overall sentiment towards...
SPM SPM BP/ REP REP ENI ENI EQNR EQNR SUBC SUBC GALP GALP GTT GTT TE
What happened?
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The IEA published its monthly Oil Market Report this morning, maintaining its relatively weak global oil demand growth estimate for 2025 at 1mb/d, while downgrading 4Q24 and 1Q25 to 1.2mb/d. This comes after recent demand was below expectations, particularly in emerging markets. The report re-iterates that Asia is the driver behind demand in 2025, accounting for 60% of year-on-year growth, with LPG and Ethane being the most sought-after product, as demand for refined fuels in China stagnates. With the oil price now down to c. $70/bbl, the IEA does see declining oil prices supporting demand to some extent, and notes that this helped to tighten refining margins last month. February saw world oil supply increase by 240kb/d, led by the Tengiz ramp-up in Kazakhstan as well as Iran and Venezuela boosting output ahead of sanctions. More broadly, global oil supply is expected to outweigh demand by 600kb/d in 2025, led by 1.5mb/d non-OPEC supply growth mostly from US, Canada, Brazil and Guyana. Following OPEC''s recent announcement that it will unwind voluntary cuts from April, the IEA comments that the impact on supply might be relatively muted (50kb/d back rather than the nominal 138kb/d) as only Saudi Arabia really has room to raise production, given the non-compliance of the other members. While the IEA states it''s too early to assess the impact of tariffs on the market outlook, the message is clear that the increased volatility does shift the macro risks to the downside. Demand: . Global oil demand forecast is largely unchanged at 1mb/d growth in 2025, up from an annual average increase of 830kb/d in 2024. . Asia Pacific region will account for 60% of 2025 demand growth, 20% of this from China. Demand growth in China alone is expected to be 228kb/d in 2025, up slightly from last month, due to lower oil prices incentivising demand. . Growth in China driven by annual increase in LPG and ethane demand, with petchem capacity builds anticipated to draw in...
What happened? The Trump Administration has, as previously indicated, confirmed that it is to introduce tariffs on Canadian and Mexican crude imports of 10% and 25%, respectively. Accounting for towards 4.5mb/d of US oil imports, (c4mb/d Canda and 0.5mb/d Mexico) the implied cost increases for US refiners (USD12bn p.a.) are likely to encourage them to look to source crude feedstocks elsewhere (assuming that is possible) but will inevitably, in our view, also force increases in US pump prices most especially in the short term as the added costs of tariffs prove impossible to quickly offset. With little likelihood that Canadian production will shut in and challenges for refiners to quickly seek alternatives, oil (raised transport costs) and refined product markets (assumes some shut-ins) may see some initial upside to price and margin given disruption to currently efficient, integrated supply chains. At current price levels oil is however certain to continue to flow and the price upside from disruption is likely to be modest. We assume that Canadian producers will most likely absorb some of the tariff impact passed on to their refining clients (a negative for their margins) and that those refineries that are located in the Mid-West (eg BP''s Whiting and Exxon''s Joliet) will be in a more challenged position to negotiate price reductions to offset the impact of tariffs on their business. As to the c500kb/d that comes from Mexico, the coastal end market bias of its sales and the higher tariff level argues that supplies will quickly be diverted to alternative end markets with its customers likely switching to similar heavy blends, (predominantly from Iraq). BNPP Exane View: Very hard to determine who suffers - outside the consumer To what extent the introduction of tariffs is absorbed by the oil producers, the refiners or passed through to the customer is, we would argue, difficult to judge at this time. Much will come down to location, access to, and...
While Big Oil earnings momentum is likely to remain negative in 2025, later-cycle Oil Services firms are beginning to hit their straps. Those exposed to advantaged offshore capex and durable gas/LNG growth, with record backlog protection, are in the early innings of growing shareholder returns. We have published our slide pack on the Oil Services 2025 outlook: click here to access the link. Renewed optimism on US OCTG pricing After 21 months of consecutive declines, US OCTG pricing has rebounded 8% since the trough in August. With the Trump administration threatening to impose tariffs on the steel sector, including blanket tariffs on Canada and Mexico, there''s room for optimism that lower imports (c40% of supply) will support pricing alongside a more supportive regulatory environment for US drillers. Consensus factors in a 5% y/y decline in Tenaris'' global tubes pricing this year, which appears conservative given the US accounts for c40% of TEN''s sales and US OCTG pricing influences more than half its contracts worldwide. Next drivers of the offshore upcycle With offshore backlogs filling up and utilisation approaching prior peak levels, we''ve had investors question what will drive the next leg up for the offshore installers as order growth slows. We think higher returns on capital, more generous returns of capital, including buybacks, and earnings growth will continue to drive the re-rating back to mid-cycle levels. Lack of conviction on next LNG supply wave The debate on the future of the gas market and the need for another wave of project approvals remains open. On the one hand, a c45% increase in global LNG capacity by 2030 is forecast to tilt the market into oversupply and depress pricing, with potential de-escalation in Ukraine and the return of at least some gas supplies to Europe another negative catalyst for LNG activity. On the other, delays in the current wave of supply under construction and continued momentum in offtake agreements...
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While Big Oil earnings momentum is likely to remain negative in ''25 (see Drilling for Alpha) later-cycle Services firms are beginning to hit their straps. Those exposed to advantaged offshore capex and durable gas/LNG growth, with record backlog protection, are in the early innings of growing shareholder returns. Our top picks SUBC (upgraded to OPF), SPM, SBM, TE, GTT and VK are uniquely poised to benefit, while we remain Neutral on AKSO, FTI and VIRI. Time to favour the late bloomers While Big Oil faces an uncertain commodity backcloth next year, casting attention to the Services may well prove worthwhile. Record offshore installation backlogs underpin positive earnings momentum and improved visibility as the sector begins to pay out investors in earnest. Service tightness and lessons from Covid should allow for better TandC''s, not just pricing, this time round. Our forecasts for offshore FIDs and awards point to a 5th consecutive year of book-to-bills 1.0 while a catch-up year for US LNG approvals presents opportunity for Technip Energies and GTT. Still early in the innings of stepping up shareholder returns as capital discipline holds Despite EU Services'' share price appreciation of 20% in ''24, the sector still trades at a near 40% discount to mid-cycle multiples. We continue to see client and contractor discipline as the defining characteristic of this cycle, elongating its duration into the late 2020s at least. With FCF yields growing from low teens to 15-20%+ on our top picks by 2026, shareholders are set to benefit. Top picks target offshore exposure and gas/LNG growth - SUBC upgraded to O/P We upgrade SUBC to Outperform from Neutral, with the c20% pullback shifting risk/reward favourably, lull in orders likely past and with upside risk to ''25 cash returns despite capex guidance. We also favour SPM (+) and SBMO (+) for offshore exposure and growing cash returns potential. Technip Energies (+) and GTT (+) offer relative protection through...
SPM SPM VK VK VIRI SBMO FTI FTI SUBC SUBC MAIRE GTT GTT AKSO AKSO TE
While Big Oil faces mixed fortunes in ''25, see Drilling for Alpha, we think there''s plenty of running room yet for the later-cycle EU Services sector. Those exposed to advantaged offshore capex and durable gas/LNG growth, offering record backlog protection, are in the early innings of growing shareholder returns. Our top picks SPM, SBMO, TE, GTT and VK are uniquely poised to benefit. Time to favour the late bloomers While Big Oil faces an uncertain commodity backcloth next year, casting attention to the Services may well prove worthwhile. Not all are invulnerable and we don''t think Trump will prove the panacea for US onshore Services that some hope for, but for offshore exposure, where the client-initiated paradigm shift to capital discipline is elongating the upcycle, near-term price volatility matters little with the bulk of future supply breaking even $45/bbl. Record offshore installation backlogs offer superior earnings visibility as the sector begins to pay out investors in earnest, while service tightness and lessons from Covid should allow for better TandC''s, not just pricing, this time round. Still early in the innings of stepping up shareholder returns as capital discipline holds Despite earnings momentum and visibility, EU OFS trades at a nearly 40% discount to mid-cycle multiples, a wider discount than EU producers. With balance sheets repaired across most of the sector, growing free cash flows are increasingly being allocated to shareholders with limited downside risk to commodity prices in the near term. Top picks target offshore exposure and gas/LNG growth SPM (+) remains our top pick amongst the installers on order and earnings momentum, set to pay its first dividend since 2013 next year and offering c20%+ FCF yield in ''26. SBMO (+) is well positioned to increase shareholder returns given recent early FPSO purchases by ExxonMobil whilst operating in an effective duopoly. Technip Energies (+) and GTT (+) offer relative protection...
What happened? TechnipFMC and Saipem have announced major contracts under an integrated Engineering, Procurement, Construction and Installation (iEPCI) format. FTI''s scope ($1bn) includes Subsea 2.0 tree systems, manifolds, connectors, and topside control equipment. The Company will also supply umbilicals, flexible jumpers, and flexible risers. Saipem''s scope ($1.9bn), lasting 5 years, entails the engineering, procurement, supply, construction, installation, pre-commissioning and assistance for the commissioning and start-up of the Subsea Umbilicals, Risers and Flowlines (SURF) package. SPM will use its fleet of J-lay and S-lay vessels with the offshore campaign taking place in 2027/28. BNPP Exane View: Significant positive for SPM and FTI, with GranMorgu the first deepwater development in the emerging Suriname basin. This is also the first major contract to be executed under FTI and SPM''s vessel sharing ecosystem. For SPM, the award alone takes ABS (offshore EandC) order intake a touch above consensus and is larger than we expected, while the low end of FTI''s stated award range (c$1bn) accounts for 40% of Subsea consensus in 4Q.
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What happened? With Trump appearing the likely victor in the US presidential elections what initial approach would we expect the market to take towards the oil and gas names. Several observations in our view are of relevance namely those for oil, gas, currency, taxation, and tariff. Here we briefly lay down our main observations across the different areas and the different names. BNPP Exane View: Oil - both domestic and international: Tump is generally perceived as ''drill baby drill'' and repeal green legislation, with a Republican victory likely to drive a stronger dollar. Whilst we may believe that a Trump presidency will do little if anything to alter the allocation policies of the US onshore industry - which remain firmly fixed on disciplined investment and allocation of capital to shareholder rather than to the drill bit - the simple observation is that Trump is perceived as supportive supply, and therefore NEGATIVE oil pricing. With the USD also seen as strengthening this in our view will very much be the first take on oil and the oil sector outlook. Currency aside, the above observations, however, very much apply to domestic policy. Yet, we believe that it will be the Republican''s approach to foreign policy that proves more important. We would expect Trump to be tougher with Iran, threatening even further its current 1.7mb/d of exports. For Russia we see Trump as perceived to be more likely to encourage an END to hostilities which by contrast would be negative oil, albeit that sanctions will not readily unwind in our view limiting a change in flows, and more importantly perhaps, negative gas which to date has not been sanctioned. It is gas as such that is probably the more affected commodity from a Russia perspective with investors more likely to sensibly worry for elevated flows. That''s not great EU gas sellers (TTE and EQNR). Better for Asian gas exposure with a Brent bias (Shell and to a much lesser extent, bp). On gas and LNG:, after...
Solid execution drives upgrades, with focus turning to February business plan update Saipem''s 3Q results were solid, with EBITDA up nearly 50% y/y and good execution driving revenues above consensus as legacy low-margin contracts reduced to EUR0.5bn / 1.5% of backlog. While guided upgrades to FY24 consensus revenue and EBITDA were relatively modest, FCF generation far exceeded expectations, with management noting that robust market demand is likely to exceed its current 2024-27 business plan targets. Attention now turns to FY24 results and the business plan update in February, where SPM will provide detail on the uses of the cEUR1bn of forecast net cash generation remaining after the cEUR600m dividend commitment in the existing plan. With the shares offering c15% FCF yield in 2025 and a dividend yield 3%, we maintain our Outperform rating. Bid opportunities more than replenished with pipeline less exposed to oil price downside Despite record offshore orders in 3Q, SPM''s near-term bidding pipeline increased q/q to EUR54bn. The opportunity set looks resilient to oil price downside risk given 1) c50% relates to upstream gas; 2) c25% relates to energy transition and downstream activities and 3) 30% relates to upstream oil projects, tilted to brownfield rather than greenfield capacity additions. The EandC fleet is ''fully booked'' in 2025/26 and 50% booked in 2027/28, with SPM expecting to cover the remaining 50% within 1H25. The expected addition of a chartered EandC vessel from early 2025 should further support SPM''s bidding efforts on opportunities in LATAM and West Africa in particular. Changes to estimates We incorporate record 3Q order intake and raise our forecast for ABS inbound over 2024-26, lifting our EBITDA estimates by 8% and 14% in 2025 and 2026 respectively. We raise our target price from EUR2.80/sh to EUR3.25/sh reflecting our estimate changes and as we roll our valuation to 2025. Key conference call takeaways overleaf
Saipem Saipem S.p.A.
Previewing Euro Oil Services Q3s - a brighter picture than recent performance suggests We preview Euro OFS Q3s in this note. With Brent crude prices down c10% in the last 3 months and falling below $70/bbl briefly, the sector is down 12% in absolute terms, underperforming both EU Energy and the broader market by 7% and 14% respectively. This despite exposure to typically longer cycle OandG capex, healthy backlogs and continued recovery in earnings as we wrote about recently in Something''s Gotta Give. Saipem (+): Record offshore order intake masks a slower quarter for others Saipem''s $7bn+ of offshore order intake in Saudi Arabia and Qatar is the highest in the division''s history, driving group book-to-bill 2.0x with 40% of ABS targeted order intake over 2024-27 achieved in 9M24. With SPM''s 2-year ban from contracting with Petrobras annulled in the Brazilian courts this month, subject to an ''administrative counter-appeal phase'', several high value SURF opportunities may soon be added to its EUR53bn tendering pipeline. Following record order intake in 2Q, Subsea 7 (=) had a more subdued quarter for awards though we''d expect the company to be well-positioned for at least one ''super-major'' order prospect in 4Q24, namely Buzios-10 in Brazil. It''s an important quarter for TechnipFMC (=), Vallourec (+) and Aker Solutions (=) TechnipFMC will update 2025 guidance in its Subsea division this week, with consensus factoring in EBITDA growth of 23% y/y and 18.7% margin (vs 18% originally guided). We think Aker Solutions could raise revenue guidance for a 3rd consecutive quarter, while Vallourec (a top pick) may opt to re-initiate returns to shareholders for the first time since 2015 through share or warrant buybacks. Key themes for 3Q24 calls: customer capex, competition and pricing upside, de-risking orders With the IEA''s oil market balances suggesting oversupplied markets next year even before the return of curtailed OPEC+ barrels, we''d look for any signs of...
The IEA''s outlook paints a fragile picture for oil markets, with volatility all but guaranteed The IEA''s latest medium-term outlook presents a conundrum for the sector, calling peak oil demand in 2029 and a major build in global inventories. Against the prospect of OPEC+ returning 2.2mb/d of spare in increments starting in December through 2025, we see risks to the oil sector firmly skewed to the downside. We compare key agency outlooks and supply/demand sensitivities in this report. US shale production in OPEC+ crosshairs, but greenfield offshore far more resilient While short-cycle, US shale oil production is clearly most exposed at the upper end of the industry cost curve, a typical 8-12 month impulse from price to production response means there''s no quick fix to solving a potentially oversupplied market. But will a $60-70/bbl world ''kill'' greenfield offshore capex? We analyse the industry cost curve, shale sensitivity and shifting spending patterns overleaf. What can you own with this outlook? We argue that our mostly offshore-focused, longer-cycle EU OFS coverage stacks up well relative to US onshore OFS and Big Oil. Record offshore backlogs offer superior earnings/cash visibility into the mid-to-late 2020s thanks to continued OFS and customer discipline which has led to a more sustainable upcycle in our view. SPM top offshore pick, O/P reiterated on SBMO, VK, TE and GTT. SUBC lowered to Neutral SPM becomes our top pick amongst the installers on relative H/H order and earnings momentum vs peers. The 50% discount to mid-cycle EV/EBITDA vs 20% for SUBC supports our preference for SPM given more resilient Middle East NOC and gas-focused contract awards over the next few quarters. We lower SUBC to Neutral after a strong 2Q and upgraded mid-term margin outlook. We think SBMO''s new Sale and Operate model (now in our forecasts) will ease perceived complexity and accelerate cash return to shareholders. TE and GTT offer relative protection through gas...
Largely in-line quarter despite softer margins in Energy Carriers and Offshore Drilling Saipem delivered another quarter of revenue and margin growth y/y, with 1H24 net cash flow running c10% ahead of full-year guidance. Divisionally, ABS continues to lead the recovery, legacy onshore contracts dragged EC margins to breakeven and temporary rig suspensions in Saudi Arabia began to weigh in Offshore Drilling. At the halfway mark, revenue guidance now appears conservative while 2H EBITDA needs to step up c30% sequentially to meet the midpoint of guidance. De-risking the backlog... in numbers In a more complex and volatile environment, SPM is actively lowering the level of risk in its contracts. This ''de-risked'' or non-lump-sum proportion within EPC contracts has increased from 6% of pre-2022 awards to 36% of contracts signed YTD, while management does not see a margin trade-off through cycle and continues to target mid-single digit margins over the next 3-4 years. Working down the worry list: Thai Clean Fuels, Courseulles-sur-Mer and Mozambique detail A further ''material'' provision on the Thai Clean Fuels project offset a positive contribution from more recently awarded onshore contracts. Testing of the drilling system on location at the last legacy offshore wind project, Courseulles-sur-Mer, is underway with foundation drilling to commence ''in the next few weeks''. Overall, after burning through a further EUR0.5bn of zero-margin legacy backlog in 2Q, only EUR950m (3% of backlog) remains, pointing to imminent margin improvement in the EC division. On Mozambique LNG, SPM clarified that only 20% of the EUR0.5bn in related backlog scheduled for execution in 2024 is at risk if the project is not restarted this year as planned. Changes to estimates: Small downward EBITDA revisions over 2024-25, TP unchanged We revise our 2024-25 EBITDA forecasts down 3% on lower EC and Offshore Drilling profitability. We raise our ''24E EV/EBITDA target multiple to 6.0x...
We have adjusted our estimates to reflect a slightly more conservative recovery in segment margins whilst incorporating the high level of announced order intake in 2Q24. We do not consider the changes to be material; our rating is unchanged.
What we learned from the quarter: building back trust quarter by quarter Saipem''s 1Q result added another quarter of solid execution to the recovery story, recording a 5th consecutive quarter of y/y EBITDA growth and a 4th of positive net income. Margins in ABS reached 11.0%, the highest level since the onset of Covid, with management revising upward their revenue and EBITDA expectations for the division only a few months after the initial budget was set. With SPM disclosing that it is in advanced negotiations on two ''sizeable'' deepwater projects off West Africa and with a CCUS project in East Asia likely to be awarded in 2Q, order momentum should pick up from a somewhat subdued first quarter. Beyond 2Q, the Middle East is set to sustain momentum. Saudi jack-up suspensions: 3 rigs impacted but financial impact substantially mitigated SPM noted that 3 of 7 jack-ups with Aramco would be affected by the temporary suspensions in 2024, though the financial impact would be substantially mitigated through flexibility afforded by its asset-light strategy. Beyond 2024, management sees its fleet growing in the area. How it changes our investment view: offshore better than expected SPM and peer margin performance and positive outlook commentary in 1Q leave us increasingly optimistic on the pace of the recovery in offshore. Clear-cut results and continued solid execution should continue to rebuild market trust, with Moody''s recent credit rating upgrade a demonstration. Changes to estimates - TP raised to EUR2.8/sh from EUR2.55; Outperform We revise our 2024 and 2025 revenue and EBITDA estimates up by 2% and 1% respectively on ABS revenue scheduling and a 7% increase to our FY24 ABS order forecast. We raise our target price to EUR2.80 from EUR2.55 as we raise our target ''24E EV/EBITDA multiple to 5.75x from 5.5x and lower our WACC to 11.3% from 11.9% reflecting gradual de-risking of legacy backlog. We reiterate our Outperform rating.
Previewing Euro Oil Services Q1s - a slow start to the year, but outlook still upbeat We preview Euro OFS Q1s in this note. After a bullish year-end reporting season the sector is up 19% in the last 3 months. Q1 has been quiet for most on the order front but should improve over the remainder of the year and we''d use any weakness to build positions. Soggy quarter for orders but 2Q looks better already Q1 is likely to be the slowest quarter for orders since 3Q22 amongst our offshore coverage, with TechnipFMC (=) the exception. However, ExxonMobil''s $12.7bn Final Investment Decision (FID) on Whiptail in Guyana last week has kickstarted momentum in 2Q with major awards to SBM Offshore (+), Saipem (+) and TechnipFMC. Elsewhere, SURF contracts for the 3 post-FID Buzios projects in Brazil are overdue for award by Petrobras, TotalEnergies is reportedly in the final stages of negotiations with SPM for its Kaminho project offshore Angola and recent comments by TTE suggest a first project in Namibia could be confirmed this year, opening a new offshore basin for development. US drilling activity stagnant, while international grinds higher The US rig count remained down c20% in Q1 y/y on continued capital discipline from shale EandPs and with gas-directed rigs still falling. However, April data from the EIA showed drilling activity outpaced completions for the first time since Feb-23 with Permian DUC book-to-bill ratios at record lows. With US OCTG pricing down 8% over Q1, commentary on the outlook for drilling activity is highly relevant for Vallourec (+). Internationally, rig counts continue to grind higher. We''re particularly interested in commentary from OFS companies with onshore Saudi exposure, where development of the Jafurah unconventional gas field could drive higher OCTG intensity in the region. Potential catch-up quarter for CGG We think CGG (=) is set for a solid Q1 after slippage in multi-client sales from 4Q and positive read across from peer...
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5 key themes from EU OFS earnings season It has been a strong start to the year with the EU Oil Services sector up 9% YTD, outperforming both EU OandG and the wider market. We see 5 key themes emerging from 4Q earnings calls: 1) the outlook for offshore order intake remains highly constructive with bidding pipelines stable at record levels, suggesting revenue growth at least through 2027; 2) capital discipline is holding both from producers and the supply chain; 3) contractor terms and conditions are improving as the OFS sector turns to a seller''s market, with downside risk better protected particularly in the next wave of offshore wind developments; 4) energy transition project opportunities have matured and should comprise a higher share of total order intake in 2024 and 5) returns to shareholders are stepping up, with 6 out of 10 companies under our coverage initiating or increasing cash distributions and 4 announcing new buyback programs. Top picks unchanged with skew to offshore exposure We still prefer Saipem for offshore exposure along with Subsea 7 and SBM Offshore, all of which trade at a discount to longer term multiples despite stronger performance post-results. For exposure to gas/LNG and high growth potential in the energy transition, Technip Energies remains our top pick with the upcoming CMD in 4Q this year likely to be a major catalyst for the shares. For broad-based exposure to increased OandG drilling activity we favour Vallourec, with last week''s announcement that ArcelorMittal would purchase Apollo''s 28.4% stake in the company removing a key overhang on the shares. MT said it would not buy more shares for 6 months, raising questions about its longer term interest. Changes to estimates and vs consensus On average our 2024 revenue estimates have increased by 4% while our EBITDA estimates have increased by 2%, with Saipem, SBM Offshore and Vallourec seeing the largest upgrades. We remain above consensus EBITDA for SPM, SUBC, TE and...
What happened? Technip Energies, Saipem and TechnipFMC have been awarded letters of intent (LOIs) related to two major low-carbon projects in the UK which have been shortlisted for government funding under the UK''s net-zero programme. The projects are expected to capture and sequestrate up to 4mtpa of CO2 by 2027. Final awards are subject to regulatory clearances and project FIDs, planned for September 2024 or earlier. Overall, LOIs for GBP4bn of awards have been announced to contractors this morning. See: East Coast Cluster packages The Technip Energies-led consortium including GE Vernova and Balfour Beatty as construction partner announced the award of a letter of intent from BP for the execution of the Net Zero Teeside Power (NZT Power) project comprising one of the world''s first commercial gas-fired power plants with carbon capture, expected to capture up to 2mtpa of CO2. The CCS plant will use TE''s proprietary ''Canopy by T.EN'' solution powered by the Shell CANSOLV CO2 capture technology. Saipem has signed a Memorandum of Understanding (MoU) for the development of offshore structures for the transportation and storage of CO2 in respect of the NZT Power and Northern Endurance Partnership (NEP) projects in the ''East Coast Cluster'' in Teeside, UK. SPM''s workscope includes the EPCI of a 28-inch, c145km offshore pipeline with associated landfalls and onshore outlet facilities for the NEP project, and the EPCI of the water outfall for the Net Zero Teesside Power (NZTP) project. SPM''s flagship Castorone vessel will perform the pipelaying operations. TechnipFMC has been awarded a package related to the offshore subsea injection system. BNPP Exane View: Award agreements demonstrate that transition opportunities are reaching material scale Decent positives for TE, SPM and FTI though final award values will only be disclosed upon FID scheduled for later this year. We think this could be a EUR1bn+ project to the TE-led consortium, i.e., the largest...
2024 guidance so far points to flattish spend y/y though overrepresented by majors Midway through 4Q23 reporting, 2024 EandP budgets point to just 1% growth in upstream oil and gas capex. However, with the majors overrepresented amongst those that have reported so far and among the most capital disciplined, we still expect aggregate upstream spending to trend toward mid-single digits amongst all EandPs. Our tracking of NOCs and Independents shows 2024 budgets up 9% and 6% respectively to date. Partly explaining the lacklustre y/y growth in 2024 has been higher spending in 2023 on MandA and the pulling forward of capex into 4Q23. Customers remain disciplined but open to ''advantaged'' developments From 4Q customer commentary, striking to us is the extent to which upstream development opportunities lie near exclusively offshore in deep water, complemented by short-cycle US shale. Messaging on capital discipline remains firm though operators are willing to develop new supply provided it is ''advantaged''. Cost inflation is receding in areas such as OCTG, though in others such as offshore drilling, operators are experimenting with new ways to contain pricing increases with TTE''s entry into a JV with a rig owner a recent example. US onshore - intent to rebuild DUCs signalled, but gas operators starting to drop rigs In US onshore, spending and growth remains tepid amidst continued capital discipline, efficiency gains from faster drilling and completions crews, MandA, lower gas prices and forecasts for modest global oil inventory builds. Large onshore EandPs including ExxonMobil and Chevron have begun signalling the need to rebuild Drilled Uncompleted Wells inventories, positive for our OCTG coverage. Saudi Aramco - focus and spend toward gas and downstream No longer targeting an increase in oil capacity by 2027 as a transition to gas and renewables frees up c1.4mb/d of oil for export, Saudi Arabia is turning its focus to unconventional gas and crude-to-chemicals...
Aramco to drop plans for 1mb/d of oil capacity expansion by 2027 Yesterday morning, Saudi Aramco, the world''s largest oil company, announced that it had received from the Ministry of Energy a directive to maintain its maximum sustainable oil production capacity (MSC) at 12mb/d and to cease increasing its MSC to 13mb/d by 2027. Aramco said it will update its capex guidance with FY23 results in March, where we suspect $5-7.5bn of annual upstream spending on oil expansion projects may be cut. While no rationale was given, the decision by the Kingdom comes at a time when balances suggest even erosion of existing spare may take time to achieve, a net positive for the oil price in our view. Safaniyah expansion likely cancelled alongside Manifa and possibly Zuluf slowdown While nearly 600kb/d of incremental supply from expansions of Marjan, Berri and Dammam is set for start-up in 2024/25, we think given an earlier stage of progress at Zuluf, Aramco may pursue less than the 600kb/d nameplate expansion. Meanwhile at the pre-FID Safaniyah oilfield, where Saipem and Subsea 7/LandT were reportedly amongst the frontrunners for c$10bn+ of offshore EPCI contracts scheduled for award as early as February, the 700kb/d expansion across two phases is likely to be called off entirely. Investment will however still be needed to offset decline, which attracts less attention than greenfield capex. Saipem reaction looks overdone to us, despite general negative read across to the space Hardest hit on the day was Saipem at which also announced what we deem to be a relatively minor operational incident during pipelaying operations offshore west Australia. After the -13% move, cEUR400m of market cap has been erased which we think is unjustified considering order intake from the Safaniyah project likely represents a small proportion of the Middle East and overall offshore opportunity set of cEUR31bn over the next 18-months (cEUR500-600m on our risked 2024 intake estimates),...
Offshore project news: Safaniyah, Buzios and Cameia awards on the horizon Key contracting newsflow this week includes industry news reports that Saipem and the pairing of Subsea 7 and LandT are amongst the frontrunners for the award of up to c.$10bn of offshore EPCI contracts by Aramco for works on its Safaniyah oilfield. In Brazil, SUBC and SPM recently submitted bids for a pair of SURF tenders worth c.$1bn+ for Petrobras'' Buzios 9 and 10 FPSO projects, while in Angola, TotalEnergies'' Cameia project may begin construction in July with SPM the frontrunner for the supply of the FPSO. Elsewhere, Chevron''s Nargis gas project offshore Egypt and Energean''s Katlan offshore Israel appear to be nearing FID this year, with Subsea 7 and TechnipFMC strong contenders for the subsea scopes in our view. Onshore and LNG: Technip Energies well-positioned for multiple LNG workscopes In LNG news, Middle East industry news sources report that Technip Energies has been selected by TotalEnergies as the main EPC contractor for its planned c.$1bn+ Marsa LNG bunkering and export terminal in Oman. The IMF said in a recent report that work is likely to resume on TotalEnergies'' Mozambique LNG project in early 2024 (SPM relevant), while in Nigeria UTM has said it expects to take FID on its $2bn Yoho FLNG project before the end of the quarter, for which we understand a consortium including Technip Energies will construct the vessel. US Big 3 OFS reporting - positive read-across for our offshore focused coverage SLB, Halliburton and Baker Hughes maintained a bullish outlook for growth in international EandP capex this year in the high single-digit to low double-digit range on earnings calls over the past week. With SLB anticipating $100bn of offshore FIDs in both 2024 and 2025, growth in spending beyond the middle of the decade would appear well underpinned, with positive read-across to Subsea 7, Saipem, TechnipFMC, Aker Solutions, SBM Offshore and Vallourec. The grouping''s...
Calmer beneath the surface A year on into the upcycle and we are, if anything, more confident in the outlook for the EU OFS sector into 2024. Shutting out the noise over the past year, from OPEC policy unfathomables and raised geopolitical risk to energy transition speedbumps, the sector continues its self-controlled recovery. OFS capacity has rationalised, discipline is holding and consequently the upcycle''s duration is extending. While previous big spenders exercise restraint, NOC''s are seizing the opportunity to monetise resources at speed, with ramp-up of multi-year capex programs underway. Offshore: the party''s only getting started, and it won''t be an early night Offshore installation backlogs have quietly recovered to prior cycle highs and with lower vessel capacity this time around and no newbuilds in sight, revenue visibility and pricing continues to improve. After 1.6x book-to-bill in 2023, we think SURF intake could be flat next year, securing high levels of activity into 2027 and beyond with average breakevens for ''24 FID prospects at $50/bbl. North America: no fireworks next year... and that''s a good thing for most An increasingly consolidated NAM client base should continue to keep discipline levels in check within the shale patch. We expect modest, mid-single digit increases in drilling activity to replenish the drawdown in DUC wells now back to 2014 levels, absent which forecast US oil production growth will be hard pressed to achieve. Higher activity, normalised distributor inventories and slowing imports provide a positive backdrop for Vallourec, with the NAM pricing headwind clearing. Valuation and ratings changes: sector remains cheap, VK upgraded to Outperform The sector remains cheap, trading at a 40% discount to the historical average. Vs EU EandPs, OFS is set to move from premium to discount on earnings multiples, with FCF yields overtaking the producers for the first time since 2015. We upgrade VK to Outperform on...
What we learned in the quarter Saipem''s renewed focus on cash generation and profitability is starting to bear fruit, with CFO over 9M23 at the highest level in the last four years and net income last at this level in 2014. After another solid quarter for orders in the ABS division, management''s strategy to shift the group''s backlog to higher-margin offshore end-markets has accelerated, reaching 54% of backlog and up from 33% in 2019. Importantly, work on legacy problematic projects in the Energy Carriers and Offshore Wind segments is progressing as planned, with the weighting down to 8% of total backlog with all projects to be completed by the end of 2024. How it changes our investment view We are encouraged by the consistency in the margin and cash performance on legacy backlog review projects as their relative weighting on revenues diminishes from c30% this year into 2024. With margins in ABS gradually increasing despite contracts won in the past 12 months accounting for 10% of group revenues this year, we continue to see upside risk to FY24 EBITDA margins in the division with the zero-margin Courselles-sur-Mer offshore wind project accounting for 5% of revenue. Given a rapidly improving balance sheet, favourable market dynamics and growth in offshore revenues and margins, we are increasingly optimistic that shareholder returns can be reintroduced by the end of next year. Changes to estimates and target price We incorporate 3Q23 actuals, the latest management commentary and the potential for share dilution from the recently issued 2029 convertible bond. We revise our 2023 EBITDA estimate 1% lower mainly due to a less favourable mix in Q3. We increase our 2024 and 2025 EBITDA estimates by 2% and 3% respectively to reflect higher order intake in 2H23 thanks to major recent contract awards (incl. Hail and Ghasha). We lift our TP to EUR2.2/sh (from EUR2.15/sh). Outperform.
Project news updates Oil and gas project news flow this week is dominated by the LATAM and Middle East regions. In Guyana, SBM Offshore announced an exclusive FEED award for the Whiptail FPSO. In Brazil, Petrobras has floated a new subsea equipment tender worth up to $400m with bids due in January, while it has pushed back bidding deadlines on the Sergipe Alagoas project to next year. Aramco has reportedly accepted bids from Saipem and NPCC for a new c$1bn oil terminal project, while QatarEnergy has sought interest for three key EPC packages related to the expansion of its Bul Hanine offshore oilfield. Meanwhile, Adnoc has cancelled a tendering process for CO2 recovery to further optimise the project. In LNG project news, Eni and partners are reportedly planning to take FID on the Coral Norte FLNG project before June next year and TotalEnergies may place EPC awards for Papua LNG in early 2024. Elsewhere, the first ever order by a Chinese shipowner for LNG-fuelled propulsion for its container ships was placed, with GTT to design the fuel tanks. Key green hydrogen regulation officially agreed in the EU, US hub winners to be announced This week saw the European Council sign off on the new Renewable Energy Directive (RED). The regulation mandates ambitious targets for green hydrogen uptake in industry and transport expected to accelerate demand for the fuel. Meanwhile in the US, Joe Biden is expected to announce the winners of the government''s $7bn Hydrogen Hubs program later today, expected to trigger a wave of investment decisions on hydrogen clusters of production projects and demand centres across six to ten winners. We wrote about the opportunities and challenges facing green H2 electrolyser manufacturers in a report published this week: GTT: Taking the shine off Green Hydrogen growth Chart of the week - increasing divergence in 2024 oil market outlooks between IEA and OPEC We highlight the increasing divergence between 2024 oil market...
Project news round-up In contracting news, Saudi Aramco is set to receive bids from its pool of offshore Long-Term Agreement contractors for two c$1bn+ packages related to the Manifa oilfield, meanwhile bids have been received for three packages for the Zuluf incremental program. In the UAE, Adnoc has received technical bids for the EPS-2 project related to the Lower Zakum oilfield, while the larger LTDP-1 tender process is still underway. In Qatar, award of a major $4.5bn+ package related to production sustainability at the North Field is expected by year-end, for which a similar contract was awarded to Saipem and COOEC last year. Elsewhere, Upstream reports that Petrobras is aiming to award a contract for the manufacture and supply of its ''Hi-Sep'' system to TechnipFMC by the end of this month, potentially worth c$700m. In the LNG market, Sempra announced FERC approval for its Port Arthur Phase 2 project this week, whilst Commonwealth LNG announced a further 1mtpa Heads of Agreement with EQT ahead of targeted FID in 1Q24. In LNG shipping, news sources report that QatarEnergy could place orders for 15 Q-Max LNG Carriers at shipyards this year, in addition to an up to 40-vessel fleet expansion previously announced. Seismic: TGS and PGS merger - small positive for the industry TGS'' and PGS'' announcement to merge this week was likely not a major surprise given TGS'' ongoing efforts to consolidate the industry and its bid for PGS'' multi-client library in 2020. For PGS, combination with TGS ensures a firmer financial footing whilst TGS will benefit from a broader multi-client library and access to an increasingly scarce fleet of acquisition assets. We''d view the news as a net positive for the seismic industry/CGG - there''s a greater chance of discipline holding in a more consolidated supply chain, not least given lower client spending levels expected on frontier exploration and greater focus on near-field exploration in the energy transition. Chart...
SPM SPM VK VK CGG VIRI SBMO FTI FTI SUBC SUBC PFC MAIRE GTT GTT AKSO AKSO TE
VK CMD: no game-changer, but clear path to distributions and mid-cycle earnings outlined Vallourec at its CMD earlier this week showcased the mid-cycle earnings power of the business post-transformation, pointing to group EBITDA of EUR850m including 10-15% from geothermal, CCUS and H2 end-markets. A planned second extension phase of the iron-ore mine, further optimisation of assets, potential sales of its newly unveiled underground vertical H2 storage solution and valorisation of a novel charcoal manufacture process could lead to upside. Overall, while there was little on the day to move near-term numbers beyond a small downward adjustment to the mine''s output, we think the mid-cycle scenario should help to inform how management are viewing the shares'' valuation. At 3.5x EV/EBITDA mid-cycle, management believe the shares are significantly undervalued and we''d expect the mechanism to distribute the 80-100% of total cash generation as early as 2025 to include both dividend and buyback. Feedback and key takeaways attached overleaf. Project news: Suriname studies launched, Safaniyah awards nearing and PFC submits low bid In project news this week, TotalEnergies announced the launch of development studies for its c$9bn Block 58 project off Suriname while Upstream reports that initial flow tests at its Venus wildcat off Namibia have ''not disappointed the partners''. Eni has reportedly issued a letter of intent for the mooring system on its planned Coral Norte FLNG project off Mozambique, where a Technip Energies-led consortium is likely to be selected for the EPC of the vessel. In Brazil, Petrobras is in the final stages of selecting contractors to construct two all-electric FPSOs for deployment on the Atapu and Sepia fields. In the Middle East, Aramco is expected to place up to nine major offshore EPCI contracts with LTA partners (including Subsea 7 and Saipem) ''within a month or two'' related to its Safaniyah field, while the bid deadline for works on...
Vallourec CMD: What to look for Vallourec will present at its Capital Markets Day in London on Tuesday 12th, with the shares'' performance essentially flat YTD despite progress on deleveraging and its major industrial footprint reorganisation. Falling US rig counts and normalising OCTG pricing have weighed, offsetting better news on US OCTG imports and a gradual uptick in rig activity ex-US. To win over investors, we think VK needs to outline its view on the normalised EBITDA of the business and what investors need to believe to get there. With management targeting zero net debt by the end of 2025 at the latest (from EUR868m in June), capital allocation priorities leading up to the middle of the decade will be key, not least given the 50% discount to the long-term multiple on which the shares currently trade. Project news round-up This week sees progress on field developments in Saudi Arabia, where bids for c$10bn of offshore EPCI packages have been submitted to Aramco for the Safaniyah incremental oil project after multiple delays, and at Jafurah where Middle East news sources report that the NOC has selected Tecnicas, LandT and Hyundai Engineering for major EPC contracts. In Norway, Equinor is reportedly making progress on a new field development concept at Wisting, with Aker Solutions and Technip Energies carrying out FPSO and CCS studies respectively, while in Nigeria ExxonMobil has recommenced work on the mothballed Owowo tieback project with full tendering set for 2024. Awards and FIDs Adnoc announced this week a final investment decision (FID) to develop a 1.5mtpa CO2 recovery project at Habshan, with Petrofac reportedly the frontrunner for the main $500m+ EPC contract according to Upstream. In the US, Commonwealth LNG announced a 1mtpa heads of agreement, targeting 1Q24 FID supported by Technip Energies, while Tellurian and Baker Hughes signed an equipment supply agreement covering Phase 1 of the Driftwood LNG project. Elsewhere,...
UAE projects progress, awards at Trion and Sparta and Brazil FPSO bids submitted Industry news sources report that the Saipem/NPCC consortium and Tecnimont have again emerged as the frontrunners for the major offshore and onshore EPC packages for Adnoc''s Hail and Ghasha sour gas project, with awards possibly being made as early as October. Adnoc Gas has reportedly awarded a sizeable engineering contract to Wood for the recently launched Project 5.0 in the emirate, while a second expansion phase at the Shah gas field has attracted interest from Saipem, Petrofac and Tecnicas amongst others, according to Upstream. Also in the Middle East, Technip Energies has been selected to carry out pre-FEED studies at the disputed Durra offshore gas field, states Upstream. In the Americas, Seatrium confirmed award of a letter of intent for the FPU at Shell''s Sparta deepwater development ahead of likely 2023 FID, while Woodside announced multiple formal awards to the supply chain for the Trion deepwater development offshore Mexico. In Brazil, FPSO bids were submitted by Asian contractors related to the Sepia and Atapu fields. Exploration/Seismic: date set for next US GoM lease sale in September The US government has set a date for the next lease sale in the Gulf of Mexico, with the auction (''Lease Sale 261'') scheduled for 27th September. Following a successful auction in March, the US BOEM will offer 12,395 blocks across 67m acres in the Western, Central and Eastern Planning Areas in the outer continental shelf. The March round saw $263.8m of winning bids for 313 tracts covering about 1.6m acres, with 32 companies participating. With a sizeable US GoM data library, a successful auction should be supportive for CGG in our view. Chart of the week - US OCTG prices fall 8% in August as rig demand slows further The Pipe Logix report was out last night, showing a sharp drop in US OCTG pricing m/m. Seamless pricing fell 7.8% to $2,954/t (metric) and welded fell 9.5%...
Saipem maintained the upward momentum in the top-line and margins as the management has been reassuring the market for the past year following the capital increase. H1 revenues reached €5.3bn, up by 28% yoy. EBITDA recorded a more impressive increase at 68% and was on track to achieve the company’s FY guidance. The working capital outflow of €121m due to the backlog review weighed on the half-year operating cash flow, which was still strong enough to cover the capex.
2Q results met expectations with FY23 guidance confirmed. Orders far exceeded consensus expectations at 1.4x BTB, mostly in the offshore divisions, confirming the continued shift toward a more favourable backlog mix. Order momentum and restart of Moz LNG remain the key catalysts. What we learned in the quarter Solid operational performance and improving market conditions saw EBITDA margins reaching double-digits in Asset Based Services and 40% in Offshore Drilling in the quarter, while in the longer-cycle Energy Carriers segment profitability will remain limited but positive this year. cEUR3bn of ''project review'' backlog remains (out of EUR25bn total), with the majority of wind projects to be completed by year-end and the proportion of affected backlog in Energy Carriers to diminish through time (40% of revs in 2Q). With a large award in ABS to be announced imminently and a multi-year deepwater drilling contract under negotiation, the offshore divisions will be operating at or close to maximum capacity in 2024 with available capacity for 2025 diminishing rapidly. Timing of the Mozambique LNG restart remains a question mark, with delay to early 2024 increasingly likely. How it changes our investment view Given the de-risking of the offshore wind backlog and strong commercial momentum in the ABS segment (1.9x BTB in 2Q), margins in the division could approach 12% next year, quicker than we''d expected, with the industry remaining disciplined despite capacity constraints. A more selective approach to order intake in EC and delays in the Mozambique LNG project means margin recovery could take longer than we''d previously forecast, though outperformance in the offshore divisions has the potential to more than offset. Changes to estimates and target price We lower our revenue and margin forecast within EC over 2023-24 reflecting Mozambique LNG delays and lower backlog coverage, offset by growth in the offshore divisions. We revise our...
Lower Zakum contractors shortlisted, new Zuluf workscopes offered and Marsa LNG update Industry news sources suggest that Saipem is among at least four shortlisted firms bidding for a key package related to the expansion of Adnoc''s Lower Zakum oilfield, while Aramco has floated two new tenders to its LTA pool of offshore contractors for work on the Zuluf oilfield. SBM Offshore is set to compete with Modec to supply the 7th FPSO off Guyana for ExxonMobil and Petrobras is allowing bidders another month to submit offers on the Sepia-2 and Atapu-2 FPSO vessels. Elsewhere, Vietnam''s long-delayed Block B gas project is said to be making progress toward FID this year, as is TotalEnergies Marsa LNG terminal project, while Nigerian officials remain optimistic on the triggering of up to $20bn of project approvals by the end of 2024 despite independent operators saying more needs to be done to attract investment. Key read-across from Big Three US OFS 2Q23 reporting The big three US OFS companies reported this week, with few surprises or changes in overall messaging. International (ex-US) and offshore activity and pricing continues to improve with long-cycle developments in the Middle East and LATAM leading the way and with signs of promise off West Africa and East Med, while overall activity in NAM is seen softening in 2H23, led by smaller private EandPs as publics and IOCs stick to their plans. Baker Hughes re-iterated a positive outlook for gas and LNG project momentum, seeing 65mtpa of FIDs in 2023 and a similar level in 2024 (vs 27mtpa annually over 2013-22), with a number of opportunities solidifying for 2025-26 as the market moves toward 800mtpa of liquefaction capacity by 2030. Chart of the week - is the upstream industry really under-investing? Consultants at Wood Mackenzie this week released a thought piece challenging the notion of upstream under investment, pointing to a 60% decline in unit development costs since 2014 which will allow current...
Baker Hughes 2Q23 results read-x to EU OFS: International and LNG optimism maintained Baker Hughes 2Q23 conference call has ended, with the company re-iterating its positive outlook for global upstream spending and the LNG outlook despite commodity price volatility and a softening in activity in the NAM market seen in 2H23. 65mtpa of LNG FIDs in 2023 and 2024 seen, with subsea tree orders 300 p.a. over 2023-25 While Baker Hughes'' commentary has not changed tack meaningfully vs 1Q23, we''d highlight regarding LNG that the company still sees 65mtpa of FIDs in 2023 and a similar level in 2024 (vs c27mtpa annually over 2013-22), as well as a number of opportunities ''solidifying'' for 2025-26 as it expects the need for the market to reach 800mtpa by 2030. International activity, particularly offshore, is still seen increasing as a multi-year upcycle unfolds, with BH noting the possibility for 300 subsea tree awards to the industry each year over 2023-25. North America activity and pricing is softening, driven by smaller private EandPs, while New Energies orders have exceeded BH''s FY23 expectations within 1H23 at $440m of intake. Opportunities in CCUS, hydrogen and blue ammonia could see Baker Hughes reaching $600-700m of New Energies awards in 2023, far ahead of the $400m initially targeted. Positive read-x to gas and offshore-levered EU OFS With EU OFS more geared toward International and offshore markets than US peers, read-x is positive particularly for gas-focused names (TE, GTT and to a lesser extent, SPM) as well as the offshore equipment and installation contractors (AKSO, SUBC, SPM and US-listed FTI). Key conference call takeaways attached overleaf
West African upstream projects progress and Trion Subsea awards imminent A cluster of upstream projects off West Africa are making progress towards FID this year according to news sources, with a key hurdle related to tax incentives overcome this week on TotalEnergies'' Cameia-Golfinho project off Angola, acceptance of the revised Pecan field development plan by Ghanaian authorities and the emergence of frontrunners on Shell''s Bonga North tie-back project off Nigeria. Meanwhile, key awards for the production and offloading facilities for Woodside''s recently approved Trion ultra-deepwater development offshore Mexico have been made, with significant subsea equipment and installation tender processes nearing completion. Elsewhere, technical offers have been submitted for the UAE''s Upper Zakum expansion project, with Petrofac seen as a strong contender, with technical and commercial offers also submitted for the second phase of Aramco''s major Jafurah unconventional gas development. Rio Grande LNG FID imminent and MPL''s Saguaro Energia LNG project secures additional offtake agreement With binding financing commitments secured and 92% of Phase 1 capacity of 17.6mtpa committed, FID on NextDecade''s Rio Grande LNG project is expected within days, with Baker Hughes yesterday announcing a major contract to supply the main refrigerant compressors. Mexico Pacific this week announced a 20-year SPA with China''s Zheijang Energy from its 14.1mtpa Saguaro Energia LNG facility, with 80% of the Phase 1 development (9.4mtpa) having been secured, paving the way toward FID in 2023. We count 36mtpa of approved capacity additions YTD, already more than the 32mtpa sanctioned last year. Chart of the week Baker Hughes released the international rig count earlier today, which showed gains of 2 rigs m/m to 967 overall. Overall, international drilling activity is up 17% y/y though remains 8% below pre-Covid levels (Jan ''18 - March ''20 avg). With a typical oil price lag of 9...
Momentum on Buzios and SEAP in Brazil, Qatargas shortlists contractors, seismic award Petrobras is due to receive bids for the SURF workscopes related to the Buzios-9 and Buzios-10 pre-salt projects this month, each likely to be worth c$1bn, while the Brazilian NOC has also launched a new $400m tender for subsea equipment to serving production units in the Sergipe Alagoas basin. Qatargas has prequalified four contracting groups, including Saipem, for a major $4bn+ package to deliver offshore compression facilities for its NFPS project. Contracts for key FEED work to expand Adnoc''s Das Island LNG project are expected to be awarded within a month or two, while commercial proposals for its Meram project are due by the 14th of June. Elsewhere, Chevron this week submitted a revamped all-subsea plan to develop its Aphrodite gas project offshore Cyprus and TotalEnergies announced a key extension to a production license off Nigeria, paving the way for the development of its Preowei tie-back project. Award of mega-crew seismic surveys to BGP by Aramco this week should lead to major equipment orders from CGG''s Sercel, we think. Bay du Nord delayed three years on cost pressures Equinor surprised the market this week after notifying that it had decided to postpone the development of its challenging Bay du Nord project offshore Newfoundland, Canada, by up to three years due to rising costs that have challenged project economics. FID on the c$10bn development had originally been targeted in 2024 and the subsea scopes had been a major prospect for TechnipFMC and Subsea 7 amongst our coverage. With services companies continuing to raise pricing incrementally in a capacity constrained market, we think greenfield projects with marginal economics may be ''pushed to the right'', though equally projects with advantaged resources are likely to be ''pulled to the left''. Note Bay du Nord breaks even at Brent prices of $49-63/bbl at IRR''s of 15-20% according to...
Mozambique LNG progress, MDR leading NFPS contest, Azule Energy issues subsea tenders With the release of a detailed humanitarian report this week, TotalEnergies moved a step closer to the restart of physical activities on its Mozambique LNG project though did not disclose a precise timeline or the status of negotiations with the supply chain on costs where a Saipem consortium is lead onshore contractor. In Angola, Azule Energy has issued new subsea tenders for its Block 31 PAJ FPSO project as well as for an unnamed project on Block 15/06, while in Nigeria TotalEnergies'' long-delayed Preowei tie-back project could soon see FID. In Qatar, McDermott has reportedly emerged as the frontrunner for a key EPCI contract relating to the NFPS project, meanwhile in the UAE expressions of interest for revised Hail and Ghasha EPC packages have been submitted to Adnoc as well as commercial bids for the Habshan gas processing facilities. Elsewhere, PTTEP is set to launch a major offshore tender related to its Lang Lebah gas project off Malaysia, targeting FID in late 2023/early 2024. Announced awards and FIDs TechnipFMC announced last night the award of a ''significant'' ($75-250m) integrated Engineering, Procurement, Construction and Installation (iEPCI) contract by Shell for its Dover deepwater tie-back project in the US GoM. It is FTI''s fourth announced Subsea award in 2Q23, with the overall value of announced intake worth $2.2bn (1.4x book-to-bill) against consensus on Visible Alpha of c$2bn. Key takeaways from the IEA''s World Energy Investment report published this week Yesterday the IEA released the 2023 edition of its annual World Energy Investment report, highlighting that energy sector investment was anticipated to reach a record level of $2.8 trillion in 2023, up 6% y/y and with clean energy investment of $1.7tn outpacing fossil fuel investment of c$1tn. The report sees upstream oil and gas investment increasing 7% y/y in 2023 to $500bn, similar to...
Saipem selected for major Marjan workscope, Tecnimont frontrunner for Amiral work Upstream reports this week that Saipem has been selected for a c$1bn offshore contract relating to Aramco''s Marjan oilfield, while the Saudi Arabian National Oil Company has pushed back the deadline for bid submissions until mid-July on up to $10bn of offshore contracts to further develop the giant Safaniyah oilfield. Middle East media suggest up to $5bn of EPC contracts will be awarded within 2Q23 for the planned Amiral Petrochemicals facility, with Maire Tecnimont understood to be the frontrunner for two major packages, meanwhile QatarEnergy is set to award a delayed c$400m package for its ISND development. Elsewhere, Energean announced this week it had decided to develop its Olympus Area gas resource via subsea tie-backs to the Karish FPSO, with FID targeted before the end of 2023, whilst in Indonesia Eni plans to submit the development concept for its ultra-deepwater Maha gas and liquids project by the end of June. QatarEnergy takes FID on North Field South with $10bn award to Technip Energies/CCC QatarEnergy announced this week the award of a $10bn contract to a joint venture of Technip Energies and Consolidated Contractors Company (CCC) for the engineering, procurement and construction (EPC) of the North Field South (NFS) project. We understand that Technip Energies holds the majority of the interest in the JV with CCC, with the scope of the latter including the construction of the LNG trains and ancillary facilities only and with TE responsible for the engineering, procurement, partial construction and commissioning of the trains, as well as being fully responsible for the EPC of the 1.5mtpa CCS facility. We therefore expect the value to be booked as order intake in 2Q23 to TE to be cEUR6-6.5bn (vs FY23 consensus order intake in PD for EUR6.1bn). Petrofac selected for major downstream project in Algeria Petrofac, leading a JV with HQC, announced...
BM-C-33 FID, new Brazil FPSO tender, NFS winner, SUBC major award, Sparta FEED It''s been a busy week for project related news flow, beginning with Equinor''s decision to sanction the $9bn BM-C-33 gas project offshore Brazil, with TechnipFMC and Modec amongst the recipients of major contract awards. Petrobras is set to tender for yet another FPSO in the Campos basin at Barracuda, while Shell moved to the FEED phase on Sparta in the GoM. In the Middle East, Saipem has reportedly been selected by Aramco for brownfield work along with McDermott and NPCC and Adnoc is moving forward with the tendering process at Lower Zakum. Offshore projects in Angola and the UK have moved closer to FID, meanwhile Subsea 7 announced a ''major'' award this morning for an undisclosed client, though we think this could relate to the next phase of work on the Sakarya project in Turkey. Middle East media report that QatarEnergy has selected a consortium for NFS LNG Middle East media sources have reported today that the consortium of Technip Energies and Greece/Lebanon-based Consolidated Contractors Company (CCC) has been selected by QatarEnergy for the c$10bn EPC contract to construct the two new LNG trains constituting the main package of the North Field South (NFS) LNG project in Qatar. The official signing ceremony is reportedly set to take place ''around mid-May'' (i.e. next week) in Doha. The post-result TE sell-off last week likely partly reflected increased perceived risk around the NFS award. While we still think the market is pricing in award to TE on a balance of probabilities, we think the shares may react more positively to confirmation next week (if the news reports are accurate) than they would have pre-results. Chart of the week: 2Q offshore intake set for another strong quarter vs consensus After a robust 1Q for offshore awards where TechnipFMC, Subsea 7 and Saipem reported a combined c1.6x book-to-bill in the offshore divisions, 2Q is shaping up to be...
Uaru and PNG awards, majors'' project commentary and another opportunity for Petrofac After ExxonMobil took FID on Uaru in Guyana last week, TechnipFMC and Saipem this week confirmed large related orders, while SUBC announced two smaller awards, maintaining commercial momentum after strong 1Q23 intake saw the grouping report a combined 1.6x book-to-bill in the offshore divisions. In other project news, a Saipem-led consortium has reportedly won a major FEED contract for TotalEnergies'' Papua LNG project, Petrofac has submitted a bid for works on the Sahil oilfield in the UAE, while Equinor said this week that it plans to sanction its Rosebank and BM-C-33 projects ''not too far into the future'' as it continues to progress its Bay du Nord mega-project toward FID more likely in 2024. BP moved its Kaskida HP/HT deepwater GoM development to concept select status, with FID targeted next year, though we think Browse will need to be optimised before a potential FID in 2025 at the earliest. Technip Energies declined to comment on press reports that it was the frontrunner for QatarEnergy''s NFS project yesterday. Results round-up this week: TE (+), AKSO (=), CGG (=) CGG, Aker Solutions and Technip Energies reported operating earnings above consensus expectations across the board, though with mixed market reactions yesterday. CGG surprised most, highlighting that in 1Q23 it became clear that the OandG upcycle had begun to reach its exploration-led end markets. We had expected a better reaction to TE''s robust 1Q margin performance, underlying cash conversion and solid levels of backlog coverage, though the market weighed the revenue miss, weak PD order intake and higher corporate cost guidance more heavily yesterday. Chart of the week BH''s count of international rigs was up 17 rigs m/m in April to 947, up 17% y/y though still 10% below pre-Covid levels. As International and Offshore activity continues to recover despite oil prices having declined steadily...
Saipem''s 1Q23 results were nothing but progress, with margins and cash flow better than expected. Incremental pricing gains on new work and gradual progress on execution of legacy backlog review projects should lead to margin uplift and enhanced cash flow over time. Outperform. What did we learn from the quarter? With two key enabler vessels returning from scheduled maintenance, Asset Based Services (ABS) revenue should increase sequentially at EBITDA margins approaching 10% (1Q23:9.8%). De-risking of the Offshore Wind portfolio continues, with Seagreen complete and the remaining backlog review projects on schedule. Energy Carriers margins will remain constrained through the year, with 40% of 1Q23 revenues from backlog review projects. In Offshore Drilling, dayrates are expected to trend upward, with margins likely to remain around the 1Q23 levels (c38%) and revenues to increase as two jack-up rigs and a new drillship join the fleet later in the year. How does it change our investment view? We are increasingly optimistic on the outlook for margins in the ABS segment and see no reason why profitability cannot return to (or exceed) 2016-19 levels of c13-16% from 2025. While we remain cautious on margins in the Energy Carriers segment, a restart of activities on Mozambique LNG in 3Q23, commencing on the Perdaman urea plant project in Australia and completion of the Thai Oil contract as planned should support a gradual increase in margins with improved mix. SPM''s commentary on Offshore Drilling implies upgrades of cEUR40-50m to consensus EBITDA for 2023 in our view, considering higher revenues expected through 2Q-4Q23 at similar margin levels. Earnings and target price changes We increase our EBITDA forecasts for 2023-25 by 3% respectively, reflecting a more optimistic outlook for margins in ABS and Offshore Drilling. As a result, we increase our TP to EUR2.0/sh (from EUR1.9/sh) and remain Outperform.
Net income at breakeven was a welcome development after a long sequence of negative results since Q3 FY19. Annual margins will remain in line with the Q1 (7.4%) as the onshore EPC business will lag. Working capital management positively contributed to cash flow thanks to the sound cash profile of projects. There are no plans to raise new debt currently due to the inauspicious market environment as the available cash covers the debt maturities until FY25 and new facilities worth €860m provide a good buffer.
Another quarter of bullish offshore commentary from the EU Oil Services has passed, but have we seen orders peak? We think it''s just the start of a more structural recovery than appreciated by the market as shale growth cools and offshore responds to the call for increased supply. Offshore outlook: still warming 2022 was a good year for Offshore Oil Services with 38 Final Investment Decisions (FIDs) and the highest level of subsea tree awards to the market since 2013. But with US production growth slowing as shale EandPs maintain discipline, the client base is jostling to secure rationalised International and offshore service capacity for future projects. We still think the market has yet to fully appreciate the increase in the offshore project opportunity set. Project tracker 1Q23 update: Potential for 44 FIDs in 2023, highest since 2013 We have updated our proprietary Offshore Project Tracker post Q1, available for download here. We count the potential for 44 FIDs in 2023 on a risked basis, up by two since our last update in January. We expect the pace of project sanctions to increase through the remainder of the year, with five FIDs taken YTD. LATAM, Africa and the Middle East remain the most active regions for sanctioning activity and near-term award potential. We detail key projects to watch and bidding detail from our bottom-up tracking of project newsflow overleaf. Consensus order forecasts still light of our expectations While consensus for offshore order intake has increased over recent months, we still see upside of 20% to estimates in 2023 for SUBC and SPM which could support a re-rating in the shares alongside confirmation of margin recovery and pricing commentary on the conference calls. Preferred offshore picks: Saipem (+), Subsea 7(+) and TechnipFMC (+) We remain Outperform on Saipem (27% upside), Subsea 7 (43%) and TechnipFMC (45%), with offshore installation and drilling our favoured subsectors given the relatively high...
LNG sanctioning momentum continues with Port Arthur FID this week Following FID on Venture Global''s Plaquemines LNG Ph.2 project last week, sanctioning momentum continued this week with Sempra''s 13mtpa Port Arthur FID taking YTD capacity additions to c20mtpa compared to c28mtpa in the whole of 2022. We continue to see the potential for record LNG sanctions this year, above 2019''s 70mtpa of additions, with a high levels of offtake agreements signed on developer-led projects in the US and strategic equity projects in the Middle East (NFS and Fujairah) and Southern Africa (Rovuma, Coral FLNG 2) nearing the decision phase. In other project news: Saipem has emerged as the frontrunner for a c$1bn EPCI contract for Petrobras (TiPT) according to industry news sources, while Subsea 7 and LandT have reportedly been selected by Aramco for three brownfield workscopes offshore Saudi Arabia. Petrobras has floated another flexibles tender (FTI relevant) and Harbour Energy and partners have finally submitted a development plan for Zama offshore Mexico. Elsewhere, the Browse project partners are close to entering the FEED stage on the giant gas development offshore Australia, with TechnipFMC, Subsea 7/SLB and Saipem likely to compete for multiple engineering contracts on the much-delayed project. We have upgraded Saipem to O/P from Neutral in a new report this week with EUR1.90 TP In case you missed it on Wednesday, we published a new report upgrading Saipem to Outperform from Neutral (EUR1.90 TP, c50% upside) on the back of the recent oil/market sell-off, with the stock down c20% since the beginning of March SAIPEM: De-risking, deleveraging, delivering. A robust updated medium-term business plan, greater risk management controls/bidding governance rules and exposure to spending ''hot spots'' underpin our positive view. Cross-sector research: EU response to IRA -Technip Energies (+) our preferred OFS pick For EU OFS, the main benefit of the EU''s response to the...
After a solid 4Q22, better-than-expected FY23 guidance and robust medium-term outlook, albeit conservative in our view, SPM''s recovery story and shift to more attractive end markets look well underpinned. We upgrade to Outperform on the recent macro-driven pullback with EUR1.9 TP. After a solid start to the recovery, there is more to come Having achieved 35% of the four-year intake target in Offshore EandC in 2022 alone, SPM''s revenue mix is set to shift at an accelerated pace toward a higher-margin revenue mix. Despite elevated intake last year, the targeted level of intake from Offshore EandC (ex-wind) is unchanged and comprises 50% of total additions. With the near-term pipeline of opportunities in Offshore increasing a further 20% q/q as clients look to reserve installation capacity amidst a tightening market, we think there is room for further pricing improvement in both Offshore EandC and Drilling. Learning the hard way, but learning nonetheless One of the few positives to emerge in the wake of the major backlog review is a greater focus on risk management within the organisation, with the creation of the General Manager function headed by CEO Puliti enabling greater control of financial planning and operational controls. With strict new bidding governance rules in place, we are optimistic that a greater share of profits from the upturn will be converted to cash further down the road. Changes to estimates, TP and rating: Upgrade to Outperform, TP raised to EUR1.9 We incorporate 2023 guidance, management''s updated outlook and leased additions to the fleet in Offshore EandC and Drilling. Despite robust share price performance in the past six months, we see the recent pullback in the shares as an attractive entry opportunity with the shares trading on 4.0x ''24 EV/EBITDA and offering c25% FCF yield in 2025 on our estimates. We upgrade to Outperform (from =) and raise our TP to EUR1.9 from EUR1.45 as we upgrade our EBITDA forecast by 16% in FY23 and...
Offshore project momentum continues, signs of Middle East onshore progression Eni is progressing Verus, a very large new integrated offshore/onshore gas project in Australia featuring major opportunities within SURF, SPS, FPSO, trunkline and CCUS, with FEED activities targeted to commence in 2H23 ahead of FID in mid-2024. Offshore Canada, Equinor surprised the market this week by selecting KBR ahead of its compatriot Aker Solutions for the Bay du Nord topsides FEED, while BP has accelerated plans to drill a key wildcat at Ephesus. TotalEnergies is set to take FID on its $6bn+ Cameia-Golfinho project off Angola, six months later than planned, while Petronas has reportedly cancelled (again) the standalone development of Limbayong off Malaysia. In the UAE, Adnoc Gas has received bids from shortlisted contractors, including Petrofac, for the Meram ethane project. In Iraq, tenders for three new refinery projects have been launched with the government''s newly approved three-year budget seen to be accelerating the pace of infrastructure development. Awards and FIDs: Venture Global''s Plaquemines Ph.2 first out of the blocks in 2023 Venture Global this week announced FID on the second phase (8mtpa) of its $21bn Plaquemines LNG project on the US Guld Coast, the first major LNG project to be sanctioned in the US this year. NextDecade is targeting FID on the 17.6mtpa Rio Grande LNG project by the end of 2Q23, while Cedar FLNG has made key progress toward sanctioning this week. In PNG, JGC and Hyundai EandC have been selected by Exxon to construct four all-electric LNG trains. EU Response to the IRA: Positive implications for EU OFS While the proposals published yesterday by the European Commission for the two Acts to increase EU competitiveness within renewables lacks the simplicity, future visibility and incentives as the US IRA, they should help to accelerate permitting processes for renewables developments and kick-start the building out and scale-up...
A booming upstream investment market boosted Saipem’s order intake and revenues by a respective 86% and 53% in FY22. The diluting backlog review, higher net financial expenses, higher taxes paid on revenues, a significant negative contribution from equity investments and the closure of the Russian activities all led to a negative net result, preventing Saipem from enjoying a net profit in an auspicious market environment.
After recent outperformance vs Big Oil and the market, a key results season awaits. With capex increasing in traditional and renewable end-markets, pricing improving on tightening Equipment and Services capacity, and forecasts for declining oil inventories in 2H23 pointing to pricing support for the commodity, we explore what to look for ahead of the conference calls into 4Q22 results. The upcycle is far from over, long live the upcycle! Given the sector''s sensitivity to commodity prices, we think investors are looking for conviction on the upcycle''s durability. Our analysis suggests oil investment will indeed increase, aided by low OPEC spare capacity, stalled US rig and completion growth and declining non-OPEC ex-US supply growth from 2025+, while a 100-150mtpa supply gap in LNG by 2030 provides support for gas. Customers still disciplined, but room to share more of the value We dig into EandP budgets to show how capex discipline will continue to exert pressure and be a hallmark of this upcycle. Nonetheless, there''s room to share more economic value with the supply chain on the ''best'' projects, with Oil Services pricing set to improve further this year. The sector still looks cheap Despite recent outperformance, at 4.4x EV/EBITDA (12m forward) the sector still trades at a discount of over 1x the long-term average, and we do not see earnings peaking until after 2025 (at the earliest). On 1-year forward FCF yields of c10%, the sector still lags the producers on c15%, but the gap is narrowing and we forecast mid-teens FCF yields by 2025, with supportive capex/DandA trends. How to play it? We pick Offshore and LNG We still prefer offshore and selective onshore exposure (LNG/downstream), with Subsea (+), Technip FMC (+) and SBM Offshore (+) our top picks. We remain Outperform on Technip Energies for LNG exposure and Petrofac for exposure to increased Middle East and offshore wind spending. Our target price increases reflect a more optimistic view...
BP targeting fast-track gas project, $5bn of Ruya tendering floated + more It''s been a busy week in terms of OFS project news flow. In Africa, BP is reportedly fast-tracking the Yakaar-Teranga gas project off Senegal with a potential FID this year, while TotalEnergies is assessing the security situation in Mozambique ahead of a potential restart of its Area 1 LNG project (SPM relevant). In the Middle East, Qatar''s NOC has reportedly issued invitations to tender for $5bn of work across four EPCI packages at Al Shaheen, while Aramco has given contractors a three-month extension to submit bids on up to $10bn of offshore tenders related to the expansion of its Safaniyah oilfield. Aramco is also preparing to award eleven offshore contracts to its LTA pool of contractors, with SUBC and SPM reportedly the frontrunners for three workscopes each. Meanwhile in LATAM, Upstream reports that FID on Equinor''s BM-C-33 FPSO project in Brazil has been delayed by at least six months until May (FTI relevant) and SBM Offshore is in final negotiations with a Chinese shipyard to construct the hull and living quarters of its latest FPSO project, which is likely destined for the Whiptail development off Guyana. Our recently updated Offshore Project Tracker is available for download here: OIL SERVICES: Offshore Project Tracker. Awards and FIDs: Technip Energies awarded key low-carbon FEED Technip Energies announced the award of a key FEED contract from ExxonMobil this week for its Baytown low-carbon hydrogen, ammonia and CCS facility, where FID is targeted next year. We think the FEED could lead to a substantial (cEUR500m-1bn) award for the full EPC scope. In Norway, TechnipFMC announced a ''large'' ($500m-1bn) integrated EPCI project from Aker BP for the Utsira High development, previously a Lundin project. Global Capex Tracker: 12% increase y/y as per latest company guidance We provide rolling coverage of announced 2023 capex budgets overleaf. Companies that have...
NFS LNG price bids to be submitted ''within weeks'', Hail and Ghasha PCSA''s awarded + more QatarEnergy''s 16mtpa+ NFS LNG project is set for FID in the coming months following the submission of price bids by rival consortia including Technip Energies and Saipem respectively, with industry news sources now suggesting the contract could be worth up to $10bn. In the UAE, SPM''s JV partner for the offshore scope of Adnoc''s $10bn+ Hail and Ghasha project, NPCC, has confirmed the award of an early engineering agreement, with final offers to be submitted by mid-2023. Aramco has received bids for CRPOs 123 and 125 covering the installation of jackets at various fields, while it is soon expected to embark on a sizeable CCS program. In LATAM, Hess is expecting government approvals for the fifth Guyanese FPSO project, Uaru, by 1Q23, paving the way for FID after (SPM, FTI relevant), while it sees FID on a sixth development at Whiptail in 2024. Offshore Project Tracker update: we forecast 42 ''risked'' FIDs in 2023 following 38 last year We have updated our proprietary Offshore Project Tracker, which is available to download here. We forecast 42 ''risked'' FIDs in 2023 following 38 project sanctions in 2022, which were skewed to the second half. We expect LATAM, Africa and the Middle East to be the most active regions for project sanctioning activity in 2023 and we lay out our expectations for key projects to watch early this year. At these activity levels, we expect continued tightness in offshore service capacity and revenue and margin recovery over the next few years (c10% topline CAGR 2022-25 for the installers). US OFS 4Q22 calls: positive read-x for International and Offshore, 15%+ activity growth y/y SLB, Baker Hughes and Halliburton relayed bullish commentary on 4Q22 conference calls, anticipating a 15%+ increase in international activity y/y focused in the Middle East and LATAM. This is consistent with our tracking of global capex announcements and above our...
Reasons for optimism on margins after major Offshore intake, but shares up with events After solid 3Q22 results, major order wins in the higher-margin Offshore divisions and significant growth in the 18-month EandC project bidding pipeline, Saipem''s recovery is off to a flying start. While we acknowledge the progress made, we think investors will look for proof of good execution and a more disciplined approach to bidding, particularly in Onshore EandC, before the shares can re-rate further after having doubled in the last 3 months. We remain Neutral but materially raise our target price to EUR1.45/sh (from EUR0.7/sh) on upgraded ''22 guidance, major recent orders in Offshore EandC and Drilling and improved potential for margin expansion. Well positioned for spending hot spots - 10% CAGR in Offshore divisions'' top line ''22-25e As outlined in our recent sector note, we saw a positive outlook for offshore OandG development capex driven by comparatively low breakevens and attractive CO2 emissions profiles. We think SPM is well positioned to capture much of the increase in spend, driving 10% CAGR in Offshore EandC topline over 2022-25e and c10% in Offshore Drilling: (1) deepwater oil, e.g. in Guyana with XOM, (2) Middle East conventional, where Aramco and Adnoc have announced multi-year capex increases and (3) offshore gas, with visible prospects in Africa, Turkey, the Black Sea and potential trunkline work. More subdued outlook in Onshore EandC Risks in Onshore EandC remain, with the path back to mid-single digit margins requiring both solid execution and selective order intake. LNG and downstream opportunities offer differentiated margins, but visibility on near-term opportunities is limited. Shares no longer ''stand out cheap'' on 6.4x ''23 EV/EBITDA, with risk reward balanced SPM has outperformed its closest peers SUBC and FTI by 75% in the last three months, with the shares now trading in line at 6.4x ''23E EBITDA and 4.3x ''24E EBITDA. We remain bullish on...
Major FIDs announced in Norway, key awards to alliance members AKSO and SUBC Aker BP and its partners this morning submitted plans to the Norwegian government representing total oil and gas investment of more than $20bn, including FIDs at Yggdrasil (formerly NOAKA), Valhall PWP-Fenris, Skarv Satellite Project and Utsira High. Aker Solutions and Subsea 7 are major beneficiaries through various alliance agreements, highlighting expected order intake of cNOK50bn and c$1.6bn respectively in 4Q22 related to these projects (more detail overleaf). Following these investment decisions and the sanction earlier this week by Wintershall of a smaller tieback project, we count 9 FIDs on the NCS this year and 30 overall in our Offshore Project Tracker, roughly in line with the annual average of 32 over 2017-21. Sanctioned OandG production volumes remain lower than average however, as many projects relate to smaller tie-back work. Project news round-up: SPM awarded Uaru SURF scope, $11bn Petchems FID announced In other project news, Saipem announced this week that it had been awarded c$1.2bn in offshore EandC contracts, including for ExxonMobil''s Uaru development offshore Guyana. OMV Petrom took a step closer to developing the long-delayed Neptun Deep gas project in the Black Sea (mid-''23 FID targeted), while Equinor''s plan to re-issue tender documents to contractors for the Bay du Nord FPSO hull FEED studies early next year suggest FID after 2Q24. In the Middle East, TotalEnergies and Aramco announced FID had been taken on the $11bn Amiral Petchems complex (relevant for Technip Energies), while up to six contractors have submitted bids to Adnoc for a key 5-year framework agreement (SPM, PFC relevant). In Bahrain, we would expect PFC to show interest in a new c$300m tender related to gas compression works on the Awali field. Global capex tracker: NOCs and Independents spending to outpace Majors again We provide rolling coverage of announced 2023 capex budgets...
Qatargas to launch next major NFPS package, new UAE onshore tender, Kelidang rebooted Qatargas is moving swiftly to tender for the next major NFPS compression package ''EPCI 4'' following the recent $4.5bn award for a similar scope to Saipem, with tenders to be issued in 1Q23. In the UAE, Adnoc Onshore has set a Dec-23rd deadline for bidders including Petrofac to submit technical offers for a $200m+ workscope related to the Sahil oilfield. In APAC, Petronas is reportedly looking to reboot the development process of the Kelidang ultra-deepwater gas field offshore Brunei (potentially relevant for PFC and SPM), while Woodside is taking a more optimistic stance toward the planned development of the Sunrise gas field offshore Timor Leste and potential LNG plant. In Australia. the planned Perdaman fertiliser project could see delays following the entry into voluntary administration by SPM''s JV partner Clough. Awards and FIDs Subsea 7 announced this week that Aker BP''s decision to vote for the approval of the NOAKA, Valhall PWP-Fenris and Skarv Satellite projects offshore Norway is expected to lead to major orders to the firm (we think c$1.6bn) following PDO submissions in mid-December. Also in Norway, Equinor submitted the PDO for the Verdande tie-back project, which we designate as FID. In Offshore wind, DEME announced yesterday the award in consortium with LS Cable of an EPCI contract for the export cable at Vattenfall''s Norfolk Vanguard project. 2023 capex budgets: NOCs and Independents spending to outpace Majors again While it is still early in the 2023 capital budgeting process and only a few companies have disclosed guidance so far, early indications for spending next year are encouraging. Key Middle Eastern NOCs Aramco and Adnoc are set to raise capex by 10% and 18% respectively, while Petrobras will see its EandP capex up 50% y/y as major deepwater projects progress. We expect global independents to raise spending by double-digits next year,...
Shell''s Gato do Mato postponed, Exxon examines FLNG options, Adnoc to issue LZ tender This week saw Shell push FID on its Gato do Mato oil and gas project offshore Brazil to the right by 12-24 months, with cost inflation concerns leading to a re-evaluation of the FPSO development. BW Offshore and Saipem had been working on the early stages of the development. Petrobras has allowed bidders including Subsea 7, Saipem and TechnipFMC an additional two months to submit offers for the $1bn Buzios-Tupi titanium riser replacement project (TiPT), while ExxonMobil is understood to be in talks with a trio of contracting groups for the provision of up to two additional FLNG vessels to exploit gas reserves offshore Mozambique in Area 4 (Technip Energies relevant). In the Middle East, Adnoc is preparing to issue new tenders for up to $1.8bn of works in the latest expansion phase at Lower Zakum, while industry news sources report that Technip Energies is the low bidder on an c$800m package for Satorp''s Amiral Petrochemicals Complex in Saudi Arabia. Awards and FIDs: Equinor submits Irpa PDO, Technip Energies signs Project Haber FEED Equinor announced this week that it had submitted a development plan for its $1.5bn Irpa gas project offshore Norway, with Aibel awarded a related platform modifications contract. In Australia, Technip Energies was awarded the FEED contract for Strike Energy''s 1.4mtpa low-carbon urea-fertilizer project, with completion targeted in 2023 ahead of FID. Chart of the week We highlight that production growth from deepwater developments production growth is expected to outstrip all other supply sources this decade, growing 60% to 2030 with ten new countries set to become producers. Advantaged economics and lower emissions are the primary drivers. With offshore OFS demand growing following large cuts in service capacity, pricing continues to improve, as highlighted in recent 3Q results calls. The threat of vessel additions remains low in...
Petrobras'' FPSO push continues, bid processes in the Middle East and Africa advance It''s been a busy week in terms of project news flow across the globe. In Brazil, Petrobras is preparing to launch tenders for another three FPSOs in 2H23 to revitalise operations in the Campos and Santos basins. In Saudi Arabia, Aramco has reportedly received bids for as many as eight offshore workscopes from its list of LTA contractors, while Upstream reports that Aramco awarded Saipem with a brownfield contract this week. Prequalification for Libya''s $3bn Mellitah complex expansion (including Structures A and E) is complete, with bidding invitations to be issued in the coming months, meanwhile Iraq''s BOC has issued invitations to bid for a $1bn offshore oil export infrastructure project (relevant for Saipem). In West Africa, UTM offshore has signed a FEED contract with a consortium including Technip Energies for Nigeria''s first FLNG unit, while TotalEnergies is edging closer to FID on its Preowei tie-back project. Elsewhere, Eni has reportedly selected Saipem as lead contractor to provide an FLNG vessel offshore Congo, with Wison the main subcontractor. Awards announcements and FIDs - $16bn in downstream spend sanctioned this week Subsea 7 and Aker Solutions have announced separate awards this morning relating to BP''s Cypre gas project offshore Trinidad and Tobago and for Equinor''s Johan Sverdrup (maintenance and modification works) respectively; meanwhile Saipem this week announced $800m in Offshore Drilling contracts in the Middle East and Africa, further pivoting the backlog towards offshore end markets. In Downstream, we saw two major FIDs this week - the first by QatarEnergy and CPChem with the sanction of the $8.5bn Golden Triangle Polymers Plant in the US (relevant for TE), and the second relating to Saudi Aramco''s $7bn investment into the Shaheen integrated refinery and petrochemical complex in South Korea. We hosted Technip Energies'' CEO Arnaud Pieton at...
Cost impacts on reduced supply chain capacity evident at challenging Wisting project Our usual weekly round-up of key project news from Upstream is overleaf. The delay by up to four years of Equinor''s challenging Wisting project offshore Norway (AKSO relevant) announced this week highlights the impact of reduced supply chain capacity this cycle on project costs. In Qatar, restrictions on the movement of people during the football World Cup this month is seen delaying bidding schedules for the Ruya, ISND and NFS projects by up to two months. In the UAE, contractors including Saipem and Petrofac are preparing to submit bids to Adnoc for a key framework agreement for works on multiple wellhead towers, while the NOC has also reportedly issued the main tender for its $1.5bn project to upgrade its sales gas pipeline network (PFC relevant). In Brazil, BW Offshore has received a three month extension on its notice to proceed (with Saipem) for the supply of Shell''s Gato do Mato FPSO, while Petrobras has floated a new tender for 67km of umbilicals. Elsewhere, SBM Offshore announced this week that ExxonMobil had signed an exclusivity agreement for its recently ordered Fast4Ward FPSO hull and BP has reportedly relaunched the prequalification stage of an EPCI tender for the next phase of its Tangguh LNG development. Chart of the week We show the downward momentum in 2023 growth estimates of US crude production by the EIA, which has intensified over the past two months driven by OFS tightness, some signs of well productivity starting to inflect marginally downward and continued public producer discipline. Earnings calls of US producers this week highlighted limited ambition to grow output next year, a helpful thematic for International project sanctioning. BNPP Exane MidCap CEO conference We are hosting Technip Energies at our European MidCap CEO Conference in Paris on Tuesday this week. Please let us know if you would like to schedule a call for feedback.
After a successful capital increase thanks to which Saipem reduced its net debt massively, the recovery gained momentum in Q3 with a healthy order intake and the timely execution of projects. With a 9M adjusted EBITDA of €536m already surpassing the previous guidance, Saipem is now guiding for €550m for the year-end.
Tendering momentum on major projects remains elevated, supportive of OFS activity into ''23 Our usual weekly round-up of key project news from Upstream is overleaf. As we head into the final stages of 2022, tendering momentum on major projects worldwide continues to increase. In Brazil, Petrobras alone may soon have up to nine large FPSO vessels under construction, with the NOC reportedly issuing requests for interest in upcoming tenders for the Sepia-2 and Atapu-2 FPSOs. It may have to delay the February submission date in a tender for a further 120kb/d vessel for the Albacora revitalization to give potential bidders more time, despite recently relaxing tender rules to encourage greater competition. At Mero-4, the NOC is said to have cancelled the SURF tender having failed to agree to contracting terms with Saipem, the sole-bidder. In Guyana, Modec is set to break into the market with the award of the Uaru-Mako FPSO FEED. In the Middle East, Adnoc is set to award pre-construction services agreements related to its $10bn+ Hail and Ghasha project ''within weeks'' to consortia including Technip Energies and Saipem, while technical bids submitted for Qatargas'' NFS LNG project are understood to include the engineering design and EPC option for a further two LNG trains, a wider scope than we had originally expected. SLB sees up to 50% increase in Offshore investment in next four years vs 2016-19 SLB outlined at its CMD yesterday its bullish view on Offshore and Middle East activity through 2025 and beyond, which it sees driving double-digit growth in global upstream capex in the years ahead. Notably, SLB sees Offshore activity ''far exceeding'' pre-pandemic levels of activity, with an up to 50% increase in offshore investment in the next four years based on industry FID estimates. SLB''s comments provide positive read-across to much of our Offshore and Middle East-focused OFS coverage, reinforcing our view that increased development of international supply...
After the capital raise and backlog review, it''s all eyes on execution to rebuild interest With the balance sheet in a much healthier position following the EUR2bn rights issue completed in July, review of 88% of the EandC backlog complete and accelerated progress on asset valorisation being made, Saipem looks to have turned the corner. We think management''s four-year plan is focused on the right elements - leaning in to Offshore EandC and drilling, adopting a more cautious approach in wind and Onshore EandC, optimising costs and realising value from assets - and progress so far has been rapid. However, it will take time to rebuild investor enthusiasm after a turbulent period and sentiment toward the company is at a low (c30% of offered rights unsubscribed for). While the pathway toward a more sustainable, cash generative business is clear, we think there are more attractive ways to play the offshore recovery, with TechnipFMC and Subsea 7 our top picks. We resume coverage after an extended period with a Neutral rating and EUR0.7/sh. target price. Reasons for optimism on improved end market outlook As we wrote about in This time it''s different...really, the end market outlook across much of the services space is arguably the most favourable it''s been in years. In Offshore, low breakevens and attractive CO2 emissions profiles are attracting increased activity, while service capacity amongst Tier 1 contractors is down 40%. Offshore drilling rig day rates have spiked as increased demand is met with a much leaner global fleet, and utilisation is already back to 2014/15 levels for certain rig classes. Importantly, contract durations are also lengthening, signalling confidence from customers in the duration of the upcycle. In onshore, an expected wave of LNG sanctions and an acceleration in spending in the Middle East North Africa (MENA) should tighten EandC markets. We are above consensus on Saipem''s orders, revenues and earnings While our order intake...
OPEC spare capacity (kb/d and % of global demand, 1993-2021)/
SPM SPM VK VK CGG VIRI FTI FTI SUBC SUBC PFC GTT GTT AKSO AKSO DRLCO DRLCO TE
