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MarketScreener Homepage  >  Equities  >  Nyse  >  TechnipFMC    FTI   GB00BDSFG982

TECHNIPFMC

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TECHNIPFMC : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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11/12/2019 | 04:24pm EST
BUSINESS OUTLOOK
Overall Outlook - The price of crude oil has been on a gradual upward trend
since the cyclical trough experienced in early 2016, although with continued
price volatility. The sustainability of the price recovery and business activity
levels is dependent on several variables, including geopolitical stability,
OPEC's actions to regulate its production capacity, changes in demand patterns,
and international sanctions and tariffs. However, as long-term demand is
forecast to rise and base production continues to naturally decline, we believe
the macroeconomic backdrop will provide our customers with greater confidence to
increase their investments in new sources of oil and natural gas production.
Subsea - The impact of the crude oil price decline earlier this decade and the
subsequent low price environment led many of our customers to reduce their
capital spending plans and defer new offshore projects. During this period, we
lowered our cost base through reductions in both workforce and physical
manufacturing capacity. These actions led to improved cost efficiency and helped
mitigate some of the negative impacts to our operating profit caused by the
lower activity and reduced pricing. However, we remain committed to further
developing and investing in our people and assets to ensure we have the core
competencies and capabilities necessary for continued success during the market
recovery.
Our lowered cost base combined with the aggressive cost reductions taken by our
customers has caused project economics to improve. Many current and future
offshore projects are deemed to be economic at current oil pricing level. While
customer investment decisions can be delayed for a variety of reasons, we
continue to work closely with our customers through early engagement in front
end engineering and design (FEED) studies and the use of our unique integrated
approach to subsea development (iEPCI™) to allow more project final investment
decisions through the cycle. iEPCI™ can support clients' initiatives to improve
subsea project economics by helping to reduce cost and accelerate time to first
oil. In the long term, we continue to believe that offshore and deepwater
developments will remain a significant part of our customers' portfolios.
The outlook for the subsea industry continues to improve. We remain encouraged
by the increased level of client engagement and project tendering. We have
experienced growth in both the volume and value of subsea projects that have the
potential for sanctioning over the intermediate term. Increased activity will
also benefit the industry's underutilized manufacturing and vessel capacity that
has contributed to the pricing pressure.
Onshore/Offshore - Onshore market activity continues to provide a tangible set
of opportunities, particularly for natural gas monetization projects, as natural
gas continues to take a larger share of global energy demand. Market conditions
for liquefied natural gas ("LNG") have improved as rising demand continues to
rebalance an oversupplied market, which is driving an improved outlook.
We are engaged in LNG FEED studies across multiple geographies. These FEED
studies provide a platform for early engagement with clients and can
significantly de-risk project execution while also supporting our pursuit of the
engineering, procurement and construction contract.
Since June of 2019, a total of five LNG projects have been sanctioned or awarded
initial scope ahead of final investment decision. Two of these projects - Arctic
LNG 2 and Rovuma LNG - were awarded to TechnipFMC and our partners. We see
potential for additional liquefaction and regasification capacity to be
sanctioned in the near and intermediate term. As an industry leader, we are well
positioned for this growth and are actively pursuing several opportunities.
Additionally, we continue to selectively pursue refining, petrochemical, and
fertilizer project opportunities in the Middle East, Africa, Asia, and North
American markets.
Surface Technologies - After a period of rapid growth, the North America
unconventional market is undergoing near-term volatility. Completions activity
was reduced in the second half of 2018, stemming from pipeline take-away
capacity constraints and exhaustion of operator capital budgets for exploration
and production. Hydraulic fracturing activity slowed, particularly in the
Permian basin.

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North American activity continued to decline in the first nine months of 2019 in both drilling and completions-related activities. Reduced operator spending, mainly driven by increased capital discipline and by oil-price volatility, has also negatively impacted equipment and services pricing as the market adjusts to the excess capacity created by the lower activity. Despite the near-term volatility, we are continuing to introduce new, innovative commercial models in North America.

Activity in our Surface Technologies business outside of North America has been more resilient. Activity has increased in the first nine months of 2019 compared with first nine months of 2018 and we expect activity to continue to be strong throughout the remainder of 2019.


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© Edgar Online, source Glimpses

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