TechnipFMC Gains from Gas

UK-registered TechnipFMC had a stronger first half this year than last, with gas and LNG in particular playing a bigger part in its porfolio. it said as it announced its resuls August 9. But factors beyond its control, including oil prices, US shale production and the UK's future relationship with the European Union, pose risks that cannot be dismissed.

TechnipFMC's severe belt-tightening after the oil price drop earlier this decade and improved delivery of projects improved the gross profit as a percentage of revenues to 19.1% in the first six months of 2019, from 18.8% in the prior-year period. Net profit attributable to TechnipFMC was down 59.9% to $75.9mn.

Natural gas continues to take a larger share of global energy demand, and the market conditions for LNG have improved as rising demand continues to rebalance an oversupplied market, it said. This drives "an improved outlook for our business, and we see potential for significant new liquefaction and regasification capacity to be sanctioned in the near and intermediate term." Saipem reported a similar trend in its results in July.

The first project award to materialise in 2019 was the Arctic LNG 2 contract, for nearly 20mn mt/yr of capacity in Russia's far north. "This award further demonstrates our leadership in the delivery of large scale modularised fabrication for harsh environment mega projects," it said.

There are other LNG front-end engineering design studies going on elsewhere, which "provide a platform for early engagement with clients and can significantly de-risk project execution while also supporting our pursuit of the engineering, procurement and construction contract."

Its subsea order backlog has grown by $2.7bn since December to $8.7bn at June 30, 2019 and include gas projects such as Anadarko's Golfinho and Eni's Coral project (Mozambique) and Eni's Merakes project (Indonesia); Equinor's Johan Sverdrup Phase 2 (Norway); and Energean's Karish project (Israel). Its onshore/offshore backlog however doubled, to $16.6bn since December, thanks in part to Novatek-led Arctic LNG 2 and Yamal LNG; the BP Tortue FPSO project off west Africa and Energean's Karish project. On-shore/offshore margins rose while those for subsea and surface dipped.

But it warned of volatility in US shale: "After a period of rapid growth, the North America unconventional market is undergoing near-term volatility. Completions activity was reduced in the second half of 2018, stemming from pipeline take-away capacity constraints and exhaustion of operator capital budgets for exploration and production. Hydraulic fracturing activity slowed, particularly in the Permian basin."

But despite the near-term volatility, "we are continuing to introduce new, innovative commercial models in North America," it said; and "activity in our surface technologies business outside of North America has been more resilient."

And it warned of the risks posed by Brexit from the European Union, due to happen by October 31 according to the UK prime minister, Boris Johnson, with a a no-deal withdrawal being contemplated as a strong possibility. TechnipFMC said this could "eliminate the benefit of certain tax-related EU directives currently applicable to UK companies such as us, including the Parent-Subsidiary Directive and the Interest and Royalties Directive, which could, subject to any relief under an available tax treaty, raise our tax costs."