Hsbc - Subsea Europe 09 - David Phillips

8/8/2019 Hsbc - Subsea Europe 09 - David Phillips

1/18

Looking forward

in Subsea . . . A view fromfinancial markets

David Phillips* +44 20 7991 2344 [email protected] & Gas Equity Research Analyst, HSBC Bank plc

* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is notregistered/qualified pursuant to NYSE and/or NASD regulations

Subsea Europe, London, 24th

November 2009
mailto:[email protected]:[email protected]


2/18

Are we . . . only

moving out of the

eye of the storm?

Subsea Europe, London, 24th November 2009

Glas

s

half-empty?




3/18

Or are we just

waiting for an

offshore pickup?

Subsea Europe, London, 24th November 2009

G

lass

half-full?




4/18

4

Looking forward in Subsea

A View from Financial Markets

Topics to address

Subsea

seeing the industry in a financial context

Macro views on subsea

what everyone knows, plus our views on oil prices

Subsea bottlenecks

The F-words: Financing and FIDs

Implications

mind the gap in 2010, moderate growth until post 2012

How financial markets view & value the subsea world

Whats on our mind in subsea

key questions for the years ahead

Disclaimer & DisclosuresThis report must be read with the disclosures and the analyst certifications in theDisclosure appendix, and with the Disclaimer, which forms part of it

Issuer of report: HSBC Bank plc


5/18

5

Oilfield services (OFS) in the financial world

Focus on stockmarket listed companies only - but we talk to many more . . .

Total OFS sector

worth around USD425bn

- large well services players make up around 50%

Subsea sector

worth USD30bn, 7% of total

- including all vessel-owning exposure close to 15%

Putting the sector into context in the energy industry

- OFS sector 20% larger than Exxon, 2x Shell, 5x Statoil

Wide value chain coverage but fewer pure-plays

- pure plays make up around 25% of the sector(FMC, Wellstream, Acergy, Subsea 7 . . . . versus

Technip, Saipem, Aker Solutions, Cameron . . . .etc)

Subsea

seeing the industry in a financial context

0

100

200

300

400

500

OFS

Exxon

PetroChina

Shell

BP

C

hevron

G

azprom

Total

Eni

Rosneft

Statoil

P

etrobras

Conoco

marketvalue

(USD

bn)

subsea

7%

well services

47%

FPSO

2%

drillers

24%

engineers

15%

offshore

vessels

2%

seismic

3%

Source: Reuters, HSBC


OFS worth $425bn

market value splitby sub-sector


6/18

6

Macro views on subsea -

what everyone knows

Common perceptions and views

Oil prices are going up (or at least not coming down) - not enough new production- delayed investments

- rising decline rates

Deepwater

is one of the few routes to production growth

- considerable yet to develop & yet to find potential Subsea

is in a long term structural growth trend

Offshore maintenance

is a growing need & challenge

Its all about record, reliability & reputation

- new technology uptake is a race to be secondDo we agree?

Yes -

but there are major bottlenecks!

The B rent fu tu res curve, 2010-2018

60

65

70

75

80

8590

95

100

105

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Brent(USD/bb

l)


Source: IEA


7/18

7

Macro views on subsea

our view on oil prices

The HSBC view on oil prices 3 phases

Some near term concerns remain - high distillate inventories, rising floating storage- need industrial demand recovery to avoid downside risks

Medium term tightening

-

decline rates accelerate (typical effect of investment cuts)

- macro recovery (simple GDP argument)

Long term strength

(our 2010+ assumption is USD75/bbl)

- lack of new supply (especially non-OPEC 2012+)

- growth in NGLs less useful, biofuels marginal

- some changes in consumption but impacts from further delays

Key implications

- oil prices unlikely to be a bottleneck to investment

- but can we avoid a mid-decade supply crunch?

Source: IEA

Source: IEA


8/18

8

Subsea bottlenecks

The F-words: Financing and FIDs

Deepwater projects never die, they just move to the right

Delays & bottlenecks

a consistent feature of the offshore industry

Last few years the bottleneck has been asset availability

- rigs, installation vessels, yard slots for platforms & topsides, etc Credit crunch

added 9-12 months delays into the pipeline

Now -

yards are easing

but delays remain

why?

- financing issues but starting to improve- volatility in commodity prices and raw material costs

Challenges

we think many IOCs

still struggle with deepwater projects

- absolute size & cost, complexity, IOC/NOC partnerships- need lower cost designs, lower installed costs


9/18

9

Project finance bottleneck starting to ease

Tough times for global project finance in H1 this year - value down 50%, deal count down 41%

Oil & Gas worst sector

y-o-y, value down 78% in H1

-

total oil & gas financing USD10bn in H1

- but renewable energy raised USD11bn !

Outlook

-

fewer banks with funds & lower risk appetite

- but growing help from development banks, ECAs*

Deal pipeline is full

but how much will happen?

- signs that the funding machine is starting to work

- but deal deferrals into 2010 increasingly likely

0

10

20

30

40

50

60

H12005

H22005

H12006

H22006

H12007

H22007

H12008

H22008

H12009

funding(U

SD

bn)

0%

10%

20%

30%

40%

50%

60%

oil&gas

as%

ottotal

Oil & Gas (USD bn) (% oil & gas)

Financing

project finance in oil & gas

averagelevel

0

25

50

75

100

125

150

175

H12005

H22005

H12006

H22006

H12007

H22007

H12008

H22008

H12009

funding(

USD

bn)

Oil & Gas (USD bn) global market (USD bn)

Source: Infrastructure Journal

Source: Infrastructure Journal* ECA = export credit agency


10/18

10

0

10,000

20,000

30,000

40,000

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

Jul-09

Aug-09

Sep-09

Oct-09

Nov-09

OFS funds raised (cumulative, USDm) Petrobras funds (cumulative, USDm)

marine finance (cumulative, USDm)

0

2,000

4,000

6,000

8,000

10,000

Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09

OFS funds raised (USDm) marine finance raised (USDm)

Financing

fund-raising in offshore/marine & OFS

(this is equity + debt + convertible issues)

Finance markets not dead for OFS or marine OFS raised ca. USD22bn year-to-date

marine / shipping raised ca. USD19bn year-to-date

But in total only just ahead of Petrobras (

USD38bn)

Access to funds is possible

(and improving) but:

- less leverage available, banking consortiums larger

- new lenders (export credit etc) but higher spreads

Will this funding picture ease?

Perhaps in terms of

availability but not as much in terms of cost?

- Risk has been re-priced- favours large companies; risks for SMEs?

Source: HSBC, Bloomberg

Source: HSBC, Bloomberg, Petrobras

Marine finance YTD = USD19bnOFS fund-raising YTD = USD22bn

Petrobras fund-raising YTDcurrently = USD38bn


11/18

11

-20%

-10%

0%

10%

20%

30%

40%

2001 2002 2003 2004 2005 2006 2007 2008 2009e 2010e

E&Pcapexy-o-ygrowth(%)

y-o-y reported (%) underlying growth (%)

FIDs

waiting for real growth in investment

Unblocking the FID pipeline

Still waiting for incremental new investment

but

we think real growth

could re-emerge in 2010

The good news: volatility is lower

raw materials,

project costs

and commodity prices are higher

The bad news: knock-on effect from credit crisis

lowers investment in 2012 by 10-15%

Also beware the Q4 oil price effect

risk of more

FID delays if oil weakens in the near term?

Challenges

funding, cashflows, costs, volatility

- are costs really going down enough?

- are cashflows & returns good enough?

- did some operators expect a longer downturn?

Source: Statoil

a returnto real

growth?

Source: HSBC

projectcost

volatility


12/18

12

Moving into a long term offshore phase

The classic long cycle dilemma

- short term OK, long term good, but whats in-between?

Delays a consistent feature

mind the gap in 2010

But bidding activity and Brazil

both on the up

Strong technology growth themes

- subsea processing / boosting / ultra-deep installation

- offshore maintenance WI / LWI, IMR, NDT*

Implications for offshore OFS industry evolution - further technology land grabs likely

- also see some heavy asset consolidation

- and for some a grow or get out decision0

10,000

20,000

30,000

40,000

50,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

capex(USDm)byinstallationyr

pipelines subsea completions control lines

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Q105

Q205

Q305

Q405

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

30,000

total backlog growth y-o-y (%) installn backlog (USDm) equipment backlog (USDm)

Implications

subsea growth moderate until post 2012

Source: Infield Systems

Do further delays

raise the risks for2010/2011?

Industryrunningoff this

But2010?

Source: Company data

* WI = well intervention, LWI = light WI, IMR = inspection,maintenance, repair, NDT = non-destructive testing


13/18

13


Trying to please a fickle audience . . .

Financial markets

reward

cyclicality, stability, growth,

value, leverage, cash, dividends

Whatever is in vogue!

Ultimately . financial returns drive company valuations

- reflects many issues value chain coverage, asset heavy / light

But many OFS company valuations highly correlated with oil

price moves -

much more so than with big oil

Current views from financial markets

are glass half full

- downturn looks relatively mild - margins well above trend- backlogs stabilising, recovery in activity on the horizon- financial markets seem happy to look through 2010 risks

Offshore OFS / subsea

will remain an attractive theme

- particularly with re-investment payback to come 0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Sep-97

Sep-98

Sep-99

Sep-00

Sep-01

Sep-02

Sep-03

Sep-04

Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

averageEV/sale

s(x)

0

20

40

60

80

100

120

140

160

WTI(USD/bbl)

average EV/sales (x) WTI (USD/bbl)

Source: Datastream

Technip

Saipem

Aker Solutions

Dril-Quip

OceaneeringSubsea 7

Acergy

FMC Cameron

Wellstream

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0% 5% 10% 15% 20% 25% 30% 35%

EBITDA margins (2010e)

EV/sales(2010e)

Source:Datastream

Higher returns =higher valuations

oilprice

averageOFS

valuation


14/18

14


Subsea in the context of OFS

subsea sector is around 15-20% of OFS revenues

Typical reasons why markets like subsea

- long term growth- strong industry niche, barriers to entry

- clear big contract newsflow

- exposure to Brazil

Typical market concerns about subsea

- project delays (sounds familiar . . .)- new competition risk China/Asia?

- new supply pressures in installation

- technology shifts eg: dry Xt in Brazil, SCRs vs flexibles

0

10000

20000

30000

40000

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

E

2010

E

2011

E

0%

5%

10%

15%

20%

Subsea revenues (USDm) share of OFS (%)

0%

5%

10%

15%

20%

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009E

2010E

2011E

averageEBITDA

ma

rgins(%)

Source: Reuters

Source: Reuters

averageOFS

margins


15/18

15

Subsea

whats on our minds for the years ahead

Whats surprised us so far?

the speed of this cycles development over 2009

both down & up

another contractor rush ahead?

the slow uptake of new offshore tech

eg: subsea processing, composites

weakening natural gas prices (LNG looking long

until 2013, shale gas production in the US)

the balance between risks for 2010 versus potential from 2011 onwards

What are the key themes we see ahead?

increased focus on offshore maintenance -

the opex

side of subsea -

and IOR/EOR

new tech focus on lowering costs SCRs, dry trees, simpler installation investment in next generation assets

ultra-deepwater, Arctic

for drilling & installation

growth of a Brazilian OFS industry . . . Fabricado em Brasil

will become more & more common

M&A focused on adding key tech / key regions

also potential consolidation in some areas


16/18

16

Thank you for your attention


17/18


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Hsbc - Subsea Europe 09 - David Phillips

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