UPDATE 2-Subsea 7 defies oil services gloom despite Brazilian pain

Wed Aug 14, 2013 6:35am EDT

* Shares rise 9 pct

* Guidance now seen easily reachable

* Margins hold up in North Sea, Canada

By Balazs Koranyi

OSLO, Aug 14 (Reuters) - Oil services firm Subsea 7 , one of the top four in its sector, unveiled a record orderbook on Wednesday and predicted strong earnings, sending its shares nine percent higher as investors hoped the worst of its troubles were behind it.

Subsea 7, which has fallen out of investor favour after unveiling a cost blowout at a key Brazilian project in June, said its margins held up well in the second quarter, its orders were soaring and costs were under control, a relief to markets who feared more bad news from the firm.

"The 2013 guidance now looks like an easy target to achieve, and we expect to see consensus upgrades following today's result," JPMorgan said in a note.

Subsea 7 will book a $300 million provision on its GuarĂ¡-Lula project for Brazil's Petrobras, a figure at the upper end of its previous range, but excluding that charge, it predicted its adjusted EBITDA would rise this year, in line with its guidance.

Markets cheered the result, sending Subsea 7 shares up 8.5 percent at 1027 GMT and putting it within striking distance of levels last seen before its unveiling of the Brazilian troubles.

Before Wednesday's rise, it was trading at 10.5 times its expected 2014 earnings, a big discount compared to the average of about 11.3-11.5 of its peers, which include Saipem, Technip and Aker Solutions.

Still, Subsea 7, which provides offshore construction services, is down 15 percent since March as cost pressures, bottlenecks and delays across the entire offshore sector have put pressure on the entire sector.

But the firm's margins beat expectations in every region other than Brazil in the second quarter and its operations in the North Sea and Canada were especially impressive.

"We have achieved a record backlog of $10.4 billion, and with a further $2 billion of contract awards announced so far in the third quarter and tendering activity remaining high, we expect that this backlog will continue to grow," Chief Executive Jean Cahuzac said.

Despite constraints, the oil service industry remains on track for rapid growth as energy firms race to bring new fields into production.

Brokerage Pareto expects global exploration and production spending to rise 6 percent this year and 8 percent in 2014.

"Our view is that with low production growth, organic reserve replacement ratio below 100 percent, marginal cost per barrel at $90, coupled with relatively high and increasing oil prices, spending will continue higher in the foreseeable future," it said.

But the UK-based Subsea 7, which is listed in Norway is not completely out of the woods yet.

Although GuarĂ¡-Lula has moved to the offshore construction phase, difficult weather continued to hamper the project, the firm added.

Its operating profit of $41 million in the quarter may have beat expectations for a $72 million loss, but it was still down 83 percent from a year earlier.

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