* Shares rise 9 pct
* Guidance now seen easily reachable
* Margins hold up in North Sea, Canada
By Balazs Koranyi
OSLO, Aug 14 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
Guará-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
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 Guará-Lula has moved to the offshore construction
phase, difficult weather continued to hamper the project, the
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.