Saipem warning rattles booming oil services sector



REUTERS

Published — Thursday 31 January 2013

Last update 31 January 2013 4:01 am

| نسخة PDF Print News | A A

MILAN: An unexpected profit warning from Europe’s biggest oil services company Saipem sent shockwaves through the buoyant sector on Wednesday and wiped billions off the Italian company’s market value.
Saipem issued a profit warning on 2012 results and offered new 2013 guidance of an 80 percent profit fall to about half the level that had been pencilled in by analysts.
Consternation reigned among analysts during a late night conference call about how a company operating in a business that is basking in the glow of high oil prices and strong demand for rigs and other drilling engineering services could get things so wrong, and so soon after new management had reaffirmed targets.
The company’s shares, already under pressure on Tuesday after talk that a big fund had sold its stake, dropped 34 percent on Wednesday to 19.97 euros, knocking about 4.5 billion euros ($ 6 billion) off its market value.
Shares in Italian integrated oil company Eni, which controls Saipem through a 43 percent stake, were down 4.6 percent. Shares in rivals Subsea 7 and Technip both fell by more than 6 percent.
The Saipem warning was all the more surprising after bumper fourth-quarter results from US service companies, including Schlumberger and Halliburton.
Analysts and industry sources said that the implications for others in the industry should be limited.
Cheuvreux analyst Geoffroy Stern called the news an “unprecedented shock” but said in a research note that the impact of low margins on contracts awarded in 2009 and 2010 “has already been well-flagged by other contractors (Subsea 7, Technip).”
Industry sources also said that the company’s offshore activities in Brazil — a hot sector for the industry, but a place where doing business has proved difficult for many service companies — seemed to be at the heart of its problems.
“It seems many of the reasons are specific to Saipem itself: there have been problems in the way they have dealt with pricing and with the bidding for contracts, especially in Brazil,” said Petter Narvestad, an analyst at Oslo-based Fondsfinans.
“It has long been known that Brazil is difficult — Subsea 7 has struggled with profitability there.
“Saipem has probably competed too aggressively on price and now that they are executing the projects, they see there is not as much money to earn as they thought there would be.”
Norway’s Aker Solutions suffered extensively in 2011 after mishandling its Brazilian subsea operations. It struggled with lengthy delays, cost overruns, quality issues and poor management, which dragged the company briefly into the red.
Analysts say that Brazil is such a hot market that firms are often too eager to get a piece and fail to take note of the difficult local operating conditions, such as the stringent requirements to use local suppliers.
The cut in profit outlook for Europe’s biggest oil services group followed a review of contracts and prospects by a new management team led by Chief Executive Umberto Vergine.
The Italian took over at Saipem after an investigation into alleged corruption in Algeria prompted the resignation of former long-standing CEO Pietro Franco Tali.
In Tuesday’s conference call, Vergine said that a decline in margins on new contracts and fewer high-margin existing contracts would undermine profitability in the year ahead.
Analysts have expressed concern about possible repercussions from the investigation of Saipem’s business in Algeria.
Earlier on Tuesday, traders said that investment fund Fidelity had placed a 2.3 percent stake in Saipem. Last month investment fund Capital Research and Management said that it had reduced its stake in the company to a little more than 1.3 percent from nearly 5 percent.
Fidelity yesterday denied any such move.
“We do not comment on our trading activity, but in light of misinformation in the market place, we would like to clarify that we did not place a 2.3 percent stake this week,” a spokesman said.
Italian regulator CONSOB said that it would investigate Tuesday’s share price moves.

What's happening around Saudi Arabia

JEDDAH: Foreign Minister Adel Al-Jubeir says if the Syrian political process fails, Bashar Assad will have to be removed “by force.”“I believe Assad is weak and I believe Assad is finished,” he told CNN’s Christiane Amanpour in an exclusive interview...
JEDDAH: Employees of the Education Office in Al-Daer governorate, Jazan, where seven people were gunned down on Thursday are in a state of shock and perplexed as to what prompted the attacker — a teacher — to take such an extreme step.The teacher, id...
JEDDAH: The campaign to support Syrian refugees with all their needs is being carried out effectively, as per the directives of Custodian of the Two Holy Mosques King Salman, Crown Prince Mohammed bin Naif and Deputy Crown Prince Mohammed bin Salman....
RIYADH: The Ministry of Municipalities and Rural Affairs has ordered the allocation of separate sections for female members of municipal councils.This was announced by Jedaie Al-Qahtani of the ministry. “This is in implementation of Clause 107 of the...
DAMMAM: The 9th Saudi Student Conference which is being held on Feb. 13-14 is sponsored by Umm Al-Qura University and hosted by the University of Birmingham in the United Kingdom. It was organized by the Scientific Society for Saudi Students in the...
RIYADH: Over the past 10 years, begging in the Kingdom has increased substantially, with the number of organized gangs of expatriate beggars increasing to 85 percent of the total number of beggars, according to Social Affairs Ministry Majed Al-Qassab...
RIYADH: The Ministry of Health said it expects its blood donation drive will received 450,000 milliliters (ml) of blood when the Janadriyah festival ends on Feb. 19.Khalid Ibrahim Zobaie, who supervises the blood donation project, said the drive is i...
JEDDAH: The Shoura Council’s decision to reduce working hours in the private sector from 48 hours to 40 hours per week would result in additional operational costs in the sector due to 30 percent higher wages for expat workers, according to Mansour b...
MADINAH: Madinah Gov. Prince Faisal bin Salman recently visited a number of ongoing developmental project sites in the Holy City, as part of his efforts to ensure that they meet the set standards and deadlines.During the visit, he said that all the s...
RIYADH: The National Guard Ministry is studying the possibility of having two countries as guests of honor each year instead of one at the Janadriyah festival for culture and heritage, the Kingdom’s most prestigious annual festival.This was revealed...
DAMMAM: The Pakistan International School in Alkhobar hosted their 49th annual prize distribution ceremony to honor outstanding students in the presence of Pakistani Ambassador Manzoor Ul Haq and his wife, Nighat Manzoor.Haq appreciated the efforts o...
DAMMAM: The Weaam Association for Family Care in the Eastern Province has succeeded in addressing more than 700 cases of family disputes during the last one year.Abdulrahman Al-Khudair, Weaam’s director of public delations, said: “The association off...
JEDDAH: The Nakheel mall case has continued to grab the limelight, with a number of lawyers now offering their services to the girl who was roughed up by some Haia members in Riyadh. Some people also expressed, through social media, their support to...
RIYADH: Grand Mufti Sheikh Abdulaziz Al-Asheikh inaugurated this week a campaign tosafeguard Saudi society against bad influences.“The campaign seeks to immunize society in the Kingdom from deviant ideas as well as utter lies and heresies that could...
RIYADH: A Filipino nurse who works at a clinic in Riyadh has been missing for a week, her colleagues has said.According to a co-worker at the clinic, the 43-year-old nurse from from Lamitan town in Basilan province, southern Philippines, wa...

Stay Connected

Facebook