Weakening spending by E&P majors, particularly on seismic is being felt in the geoscience sector, with Dutch geoscience and geotechnical services firm Fugro revealing a potential Eur300-350 million non-cash impairment in its geoscience division today.
The firm said majors were slowing down their capital spending, resulting in project delays and increased margin pressures.
Its comments echo those made by geoscience firms including CGG and TGS. Announcing its Q1 results, France’s CGG said the seismic market remained “flattish,” and “less favorable” in marine acquisition, “in a global context of reduced exploration and development spending.”
TGS said there was “some near-term uncertainty in how seismic spending will be impacted by conditions in 2014, “as several energy companies have indicated an intention to reduce exploration spending in the year.”
A particular impact, for Fugro, was being felt in its geoscience division where losses in Seabed Geoolutions were larger than expected, due to underutilization in the ocean bottom node market and some delays on the mobilization of two large ocean bottom cable projects.
“The weakened seismic market is resulting in much lower multi-client sales and consequently will lead to a significantly lower EBIT contribution than in the same period in 2013,” said Fugro.
One area improving area, Subsea Services, had also been hit by an engine room fire on the largest vessel in Fugro’s fleet, resulting in seven weeks non-compensated down time. Further, an ongoing strike by three diving crews in Brazil had had a four-week impact in the quarter, said Fugro.
“The more challenging market outlook, combined with the disappointing developments in the first half-year 2014, have led Fugro to review the valuation of its assets,” the firm said. “This is expected to result in non-cash impairments and one-off write-offs in a range of EUR 300-350 million.”
The majority of the impairments will be in Seabed Geosolutions and Fugro’s multi-client library. In addition there will be smaller impairments in specific other parts of the business and some one-off write-offs.
Paul van Riel, CEO, said: “During the last quarter it has become increasingly clear that the oil and gas market has weakened. We are taking necessary measures to improve profitability, guided by our ‘Growth through Leadership’ strategy. We believe that the long term market fundamentals support our strategy, albeit that the expected growth will be somewhat slower than we originally assumed.”
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