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US$7 billion surge in subsea contracts is coming

Wed 12 Jul 2017 by Martyn Wingrove

US$7 billion surge in subsea contracts is coming

Aker Solutions chief executive Luis Araujo says there are early indications of an upcoming rebound in offshore oil and gas activities. The company has seen a surge in demand for front-end engineering services, which is a strong indication that an increase in offshore activity is coming.

The Norwegian provider of engineering and offshore construction services reported NKr5.4 billion (US$653 million) in sales, of which NKr3 billion were new orders in the second quarter of this year. This boosted its backlog to NKr30.7 billion.

Another good indicator is the healthy tendering activity that Aker Solutions is involved in. It is bidding for contracts with combined values of about NKr60 billion, or US$7.25 billion. The majority of these tenders are for subsea projects and should be awarded in the next 12 months.

“While there is continued uncertainty, the signs of improving brownfield activity and expectations of key subsea projects moving forward bode well for 2018 and beyond,” Aker said.

Improvements in industry efficiency and price control has lowered the breakeven costs of offshore developments, which is expected to spur new investments and project sanctions this year and in 2018.

“We have seen a surge in demand for our front-end engineering services, which typically is an early indication of a pickup in activity ahead,” Mr Araujo said. “We benefited from another quarter of strong execution and operational improvements that supported margins amid continued industrywide challenges.”

Aker Solutions said overall revenues this year are around 10-15 per cent less than last year because of price controls and current weakness in subsea project execution.

In the second quarter, Aker Solutions gained contracts to deliver subsea systems to ENI’s Coral South project and Statoil’s Snefrid Nord development in the Norwegian Sea. It also secured 41 contracts for front-end engineering studies, raising the number to 71 so far this year, compared with 80 for the whole of 2016.

Aker Solutions moved further into providing brownfield services during the second quarter. In April, it acquired Reinertsen, which is Norway’s third-largest offshore maintenance and modifications supplier.

“We are building on our strategy to expand our projects and services businesses in major markets internationally,” said Mr Araujo.

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