The subsea sector has been battered by the downturn as oil and gas companies spend less. However, as market conditions improve, subsea players are seeing the light at the end of the tunnel and eyeing additional areas for potential growth.

For Subsea 7, one of those areas is renewables. Having further diversified its offerings with the acquisition earlier this year of Seaway Heavy Lifting (SHL), a provider of engineering, procurement, construction and installation services for wind farm foundations as well as transportation and installation services, Subsea 7 sees opportunities in the renewables market.

The company partly attributed increased renewables activity, which offset lower revenue from SURF projects, for its $1 billion in third-quarter 2017 revenue—a 15% year-on-year increase.

“We see this market as a growing market for a number of reasons—one being technology. We are seeing on the renewable side the technology playing critical parts in lowering the cost of the projects in particular on the turbine side,” Subsea 7 CEO Jean Cahuzac said during the company’s latest earnings call.

It wouldn’t be a coincidence if the industry saw a number of projects launched without government subsidies, he said, adding the company’s project and engineering expertise, fleet and knowledge brought by SHL leaves it well-positioned to capture opportunities. “I’m optimistic about the growth of this business in the years to come,” Cahuzac said.

Subsea 7 COO John Evans pointed out that the size of turbines is getting bigger, “which means larger foundations, which means the SHL asset base is the right capability for that.”

The company has about 180 km (112 miles) of interarray cables to install at the Beatrice wind farm project in the North Sea offshore Scotland. “So that’s an adjacent part of the market that’s also of interest and sometimes part of our scope,” Evans said, adding the company is tendering work for projects in France, Taiwan and the Vineyard project in the U.S. offshore Massachusetts’ Cape Cod.

“We are seeing what is traditionally a very European-based and successful-based renewable industry starting to spread its wings in a limited way,” Evans said.

Lower commodity prices have led some subsea companies into renewables in an effort to capitalize on possible business opportunities and survive the prolonged downturn as oil and gas companies reduced spending and delayed projects. But steadily improving oil prices, which are giving companies more confidence to move forward on some projects, are adding to the favorable outlook.

A barrel of West Texas Intermediate crude was fetching about $56 on Nov. 14—a big improvement from lows of less than $30/bbl in February 2016.

Better Times For Oil, Gas

Major subsea players are signaling the worst of times may be over as market conditions improve.

Subsea 7 expects the number of awards to the market will increase early next year, if global energy prices maintain recent gains and cost reductions are delivered by the industry. The company identified nine active subsea umbilicals, risers and flowlines project tenders, led by projects offshore Norway where companies are ramping up action at the Snorre, Skarfjell, Snadd and Johan Castberg developments.

“In terms of new awards to market, we believe the worst of the downturn is now behind us and awards will increase gradually as we move through the first half of 2018,” Cahuzac said. “However, in most cases, newly awarded projects take 12 to 18 months in engineering and procurement phases before offshore activity, while most of the revenue and profit is recognized.”

Cahuzac noted that the most active market is Norway, where oil and gas companies are moving ahead with final investment decisions and project sanctions.

“Larger projects offshore Africa are likely to take more time, and the Golfinho, Mamba and Tortue projects are not likely to be awarded before mid-2018,” he said. “Other sizable projects that the market is waiting for includes the first of the ultradeepwater Libra project of Petrobras and the second phase of the Gorgon gas project offshore Australia.”

Cahuzac said the company’s “differentiated service, partnership and alliance” gives it confidence that the company will win its fair share of available work.

Nick Green, senior analyst for Bernstein, pointed out on the earnings call that Subsea 7 “probably has the lowest rolling 12-month book-to-bill at the moment, probably caused by having quite good sales from work won in the last year or so.

“But it does seem on those kinds of metrics that maybe you’re not taking your fair share of work,” Green said, according to a SeekingAlpha transcript.

So what gives Subsea 7 confidence in its ability to land work?

While it’s difficult to evaluate market share on the basis of a quarter or two, Cahuzac said, “what we are seeing today is that the industry is moving toward more technology, more early engagement on the engineering side, clearly a very big momentum on the Reliance side with the SPS [subsea production system],” according to the transcript. “And we see this market starting to pick up first in the North Sea, which is a short-term fuse, where we are very well placed from a competition perspective. So, when I put all that together, I come to the conclusion that I’m comfortable with where we are going.”

Other Thoughts

Beliefs that a subsea recovery has begun also were shared by other subsea players.

Yet some believe the future remains uncertain.

As summarized in a note from Barclays’ analyst, TechnipFMC anticipates 2018 will see orders grow; however, there will be “more competitive pricing” for large tenders; and Oceaneering International anticipates increased activity in second-half 2018, but lower prices will impact profitability.

However, National Oilwell Varco called the recovery narrative “tepid” with limited visibility, while Drill-Quip’s views were that oil prices and the offshore rig environment “will remain uncertain” into 2018, Barclays said.

—Velda Addison