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TechnipFMC (FTI) Secures Subsea Contract for Lapa Field

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3.2% was well ahead of the consensus 2.3% estimated, which itself had been cranked up from the sub-1% expectations many analysts had been expecting prior to Q1 earnings season.

TechnipFMC plc FTI recently received a subsea contract for the development of the Lapa field, located in the pre-salt Santos Basin, offshore Brazil. Notably, the Lapa field is jointly owned by TOTAL TOT, Shell RDS.A, Repsol Sinopec Brasil and Petrobras PBR, holding 35%, 30%, 25% and 10% stakes, respectively. The field will be connected to the Floating Production Storage and Offloading (FPSO) vessel Cidade de Caraguatatuba, which is already functional.

Per the contract, TechnipFMC will provide flexible pipes and other related equipment for producing oil, and lifting and injecting gas. The company expects the contract value in the range of $75 million to $250 million. The contract will be reflected in the firm’s first-quarter 2019 backlog. The deal fortifies TechnipFMC’s presence in Brazil (where it is operating for more than 60 years) and strengthens its total backlog, which was $14.6 billion at the end of 2018, reflecting steady demand from customers.

Just a week ago, the company won an iEPCI contract from Neptune Energy for the delivery and installation of subsea machinery. The contract, estimated in the band of $250-$500 million, will aid the development of Duva and Gjøa P1 projects, located in the North Sea. The award will enhance TechnipFMC’s relationship with Neptune Energy, as the company is currently executing the IEPCI contract for the latter’s Fenja project.

While TechnipFMC is winning new subsea contracts and expects revenues from the segment to increase y/y to $5.4-$5.7 billion, reduced EBITDA margin dampens investors’ sentiments. Reduced dayrates, lower vessel utilization and stiff competition are reducing the company’s pricing power. TechnipFMC expects adjusted EBITDA margin to be 11% for its subsea unit in 2019 compared with 12% and 18.9% in 2018 and 2017, respectively.

The Zacks Rank #3 (Hold) company also expects 2019 EBITDA margin from the Offshore/Onshore segment to decline to 12% from 13% and 14.6% in 2018 and 2019, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nevertheless, the oilfield services provider expects margins from its Surface Technologies segment to improve to 17% from the prior year’s 15.6%. Unfortunately, TechnipFMC's best-performing segment, Surface Technologies, is its smallest unit that accounts for just around 12% of the total revenues.

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