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Technip : Shares Plummet on Restructuring

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07/07/2015 | 06:55am EDT

Shares in French oil-services company Technip SA plummeted Tuesday after it announced a major restructuring plan, including 6,000 job cuts world-wide, as falling energy prices force the company to drastically cut costs.

Technip said reducing its employee base by 16% was required "in anticipation of an even more challenging environment in oil and gas."

The company, which provides project management, engineering and construction services for the energy industry, said it hopes to save ?830 million ($916.5 million) over the next two years with "a significant part" coming from its onshore and offshore business.

Technip, which also booked a one-time charge of ?650 million, said there will be asset sales and closures in some markets "where profitable business is unlikely even in the medium-term, including countries in Europe, Asia and Latin America including Brazil."

Technip shares fell as much as 10% on Tuesday and closed down 8.3% at ?49.30. The shares have fallen almost 40% over the past 12 months as declining energy prices have ravaged its profitability.

The firm, which operates in 43 countries, said new projects continue to be deferred as its clients reassess new oil production in the wake of low commodity prices. It also said rivals engaged in "irrational behavior in bidding" on some of the projects and that some client discussions have stopped altogether. The company said it has engaged lawyers as it renegotiates other contracts.

"These trends have not improved and, in some cases, have actually worsened over the last two months," the company said.

Competition among oil engineering and project management companies like Technip is fierce, and the company's restructuring move could be the first of a new round of job cuts in the oil patch as low energy prices persist.

At least two dozen major global companies including KBR Inc., Bechtel Corp., Fluor Corp. and Daewoo Engineering and Construction Co. do the same kind of work as Technip, designing and building offshore oil platforms, underwater pipeline networks and petrochemical plants.

Energy companies, hammered by low oil and gas prices, are pressuring their suppliers to deliver these services at much cheaper prices. Thierry Pilenko, chairman and chief executive of Technip, said the service firms that help energy companies drill and pump oil have delivered massive cost reductions this year, but clients want more.

"I see clients convinced?notwithstanding the cost reductions they already obtained across the supply chain?they can achieve more by maintaining pressure and delaying projects," he told investors on Monday.

Write to Jason Chow at jason.chow@wsj.com and Lynn Cook at lynn.cook@wsj.com

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Stocks mentioned in the article
ChangeLast1st jan.
EURO / BRAZILIAN REAL (EUR/BRL) 0.59% 4.6111 Delayed Quote.3.60%
TECHNIPFMC 0.14% 20.77 Real-time Quote.17.51%
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P/E ratio 2019 18,6x
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