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Offshore services providers' backlogs grow as new project sanctioning swells

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Offshore services providers' backlogs grow as new project sanctioning swells

A wave of offshore project commitments is increasing the backlog for equipment and services providers that operate in the space, indicating revenues for these struggling companies should begin to climb.

For the first time in five years, reported contract backlogs for offshore service providers in the subsea and engineering, procurement, construction and installation — or EPCI —sectors grew for three consecutive quarters, Rystad Energy said Aug. 20.

As of June 30, the top players in the subsea and EPCI sectors reported $103 billion in contract backlogs, or the booked future revenues from awarded contracts, Rystad research shows. The number is considerably lower than the record backlog in 2014, which exceeded $197 billion, but better than the combined backlogs of the same group of $84 billion in 2018, Rystad said.

The improved backlog is driven by $56 billion in project commitments so far in 2019, with more expected. Rystad said this year could see the offshore industry sanction $123 billion worth of projects compared with $69 billion in 2018, but still below the level seen at the industry's peak in 2014.

The recovery has been sluggish, Rystad said. Facility fabrication backlogs, at $33 billion, are 28% beneath 2014 levels, while spending in the subsea sector fell 50% to $23 billion in 2018 before demand started rising again, the analysts said.

Despite the struggles, sector leader TechnipFMC PLC landed total contracts during the second quarter valued at a record $11.2 billion, or 22% higher than in all of 2018, Rystad said.

Subsea orders of $2.6 billion were in line with the robust levels experienced in the first quarter, Technip's CEO Douglas Pferdehirt said. During a second quarter earnings call, he said Technip is well-positioned for full year subsea order growth of over 50% compared to the prior year.

Smaller companies Keppel Corp. Ltd. and Dril-Quip Inc. each added 20% to their backlog compared to 2018, Rystad said.

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The lion's share of global market demand is for floating production, storage, and offloading vessels, or FPSOs, Rystad said. Seven contracts have been awarded so far in 2019, with as many as 24 additional FPSO project commitments expected by the end of next year, Rystad said.

But the recovery extends beyond the FPSO market. There is also a growing backlog in the deepwater drilling segment, Rystad data shows.

Rig managers in the first six months received six deliveries of floating drilling rigs, and another eight units are scheduled for delivery in the second half, Rystad said. Eleven more FPSOs are likely to be completed and delivered in 2020, followed by another five in 2021.

"Offshore operators are finding their footing after the downturn of 2014, as a robust rise in free cash flow has fueled a significant uptick in deepwater investments," Rystad wrote.

Oilfield services major Schlumberger Ltd. reported offshore North America revenue in the second quarter up 10% sequentially. CEO Olivier Le Peuch said customer interest in offshore rigs is high, indicating stronger activity coming in the second half of the year.

In international markets, Schlumberger continues to witness broad-based activity growth, the CEO said during a second quarter earnings call. More than half of the global market posted high-single-digit revenue growth or better year-over-year. Rig activity drove the increase, he said.

Technip's onshore/offshore business reported second quarter inbound orders of $8.1 billion, a new record for the business segment, Pferdehirt said. The impact of the active first-half orders to the company's backlog is substantial, he said. Total company backlog is approaching $26 billion, an increase of more than 75% from year-end, the CEO said.

"This remarkable growth in backlog provides us with even greater confidence in our 2019 outlook," Pferdehirt said. The backlog also provides improved visibility as Technip looks to 2020 and beyond, he said.

Contracts in the subsea and fabrication sectors are projected to total $118 billion in 2019 and are predicted to stay above $100 billion per year through 2021, Rystad said.