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FMC Tech, Statoil in $114M WOS Deal

Zacks Equity Research

Oil drilling equipment maker, FMC Technologies Inc. (FTI) was awarded a contract by the Norwegian oil major Statoil ASA (STO), to manufacture and supply a Workover System (:WOS) for the Snorre B platform, located in the northern part of the Statoil-operated Snorre oil and gas field. The contract is valued at around $114 million in revenues.

The new WOS supplied by FMC Technologies will act as a replacement for the earlier system and will aid Statoil in enhancing the efficiency of the oil recovery process from the subsea wells in the Snorre field. Management at FTI believes that this WOS is aptly suited to Statoil’s standardized subsea equipment and will improve the overall performance of the rig.

Houston, Texas-based FMC Technologies is a leading manufacturer and supplier of technology solutions for the energy industry. The company has a diversified product portfolio, specialty service capabilities and proprietary technological expertise.

As the subsea market bubble is fast expanding, FMC Technologies is expected to benefit from its strong market presence. Also, the company’s long standing relation with energy sectors majors like Royal Dutch Shell (RDS.A) and Petrobras (PBR) acts in its favor.

However, with markets remaining competitive and pricing likely to be weak, we believe FMC Technology shares are fairly valued and will not see much improvement in the near future. Also, a cut in the earnings guidance in October from $2.10–$2.25 to $2.00–$2.10 per share cannot be ignored. Moreover, Oilfield service stocks are extremely volatile and the correlation of their movement with underlying business fundamentals is sometimes difficult to establish.

Taking into consideration such factors, FTI currently holds a Zacks Rank #4 (Sell), implying it is expected to underperform the broader U.S. equity market over the next one to three months.

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