Offshore installation services company Subsea 7 reported a Q2 net loss of $922 million, compared to a profit of $24 million in Q2 2019, due to impairment charges of $807 million.
The second-quarter revenues of $754 million was 21% lower than in the second quarter of 2018.
Subsea 7 said revenue had been broadly in line with the first quarter of 2020, reflecting continued low activity levels in the North Sea, an absence of conventional activity offshore Africa and the Middle East, and the rephasing of some recently awarded contracts due to low oil prices and Covid-19 restrictions.
Impairment charges totaling $807 million were incurred in the quarter, including $229 million relating to property, plant, and equipment (predominantly vessels) and right-of-use assets, and $578 million relating to the impairment of goodwill.
The net loss for the quarter was $922 million.
3,000 to be laid off
In May Subsea 7 said it would work to reduce cost due to a sharp downturn in oil and gas activity driven by low oil prices. It then said it would cut 3,000 employees, and reduce vessel fleet, as part of cost reduction measures
"The employee consultation process to reduce the Group’s headcount by around 3,000 (approximately 1,000 employees and 2,000 non-permanent personnel) is underway," Subsea 7 said.
"Progress is also being made to reduce our fleet by up to ten vessels. At the end of June, two chartered vessels had been released and two further vessels had been stacked, reducing our active fleet to 28. An additional net reduction of six vessels is currently planned for the coming twelve months, corresponding to the phasing of the projected workload," the company said.
"We remain on track to meet our target to reduce annualized operating costs by $400 million by the end of the second quarter of 2021. As a result of implementation of the cost reduction plan, a restructuring charge of $104 million was recorded in the quarter," the company added.
Orderbook grows
Worth noting, while the oil and gas contracting situation has been depressing in the past few months due to low oil prices and E&P companies delaying or canceling projects to preserve cash, Subsea 7 managed to bring in $2 billion in new orders during the second quarter.
What is interesting to highlight is that out of the $2 billion awarded in the quarter, $1.7 billion came from the offshore renewables sector, mainly the offshore wind space.
New orders recorded in backlog during the quarter included Seagreen, an integrated EPCI offshore wind project offshore Scotland, Kaskasi, an integrated contract offshore Germany, and Hollandse Kust Zuid, an integrated contract for the first planned subsidy-free wind farm project offshore the Netherlands.
In total, Subsea 7 is currently executing contracts for projects representing 4.8 GW of offshore wind power.
John Evans, Chief Executive Officer, said: In the second quarter of 2020 Subsea 7 reported a negative Adjusted EBITDA of $9m, reflecting reduced activity within the SURF and Conventional business unit, the impact of the Covid-19 pandemic, and the recognition of $104 million of restructuring costs related to the Group’s resizing program. Nevertheless, the quarter was marked by several notable achievements including $1.7 billion of new orders in Renewables, strong cash generation, and progress on the previously announced cost reduction measures.
"Each of these played a part in enhancing the Group’s resilience to the current downturn in oil and gas while enabling us to capture opportunities in the offshore wind market and extend our ten-year track record in renewable energy."
Outlook
Providing the outlook for the remainder of the year, Subsea 7 said that the operating environment has stabilized to some extent since March, with a partial recovery in the price of oil and new work practices relating to Covid-19 now well-established.
In SURF and Conventional, Subsea 7 says its clients’ capital expenditure budgets have fallen by 25% to 30% since the beginning of the year and, as a result, some contracts have been rescheduled and tendering activity for new awards remains low.
"To date, we have experienced no contract cancellations. Our plan to resize the fleet and the cost base is progressing and will help to mitigate the impact of the expected reduction in activity levels," the company said.
In its Renewables segment, Subsea 7 said its existing projects "have been largely unaffected" by the challenging environment and tendering activity remains robust.
"Competition for offshore wind turbine foundation installation work remains high, but the Group continues to differentiate itself through its integrated approach encompassing both foundation and inner-array cables, and through a lumpsum turnkey contract offering that leverages our strengths in the management of large, complex projects," Subsea 7 said.