Fugro hit hard by oil and gas downturnNews // February 27, 2017
Fugro says it expects a further significant decline in revenue in the first half of 2017, although it believes the decline will be less severe than in 2016, with ongoing margin pressure. It says it believes its revenue decline will bottom out towards the latter part of the year and it will have positive cashflow for the full year.
Paul van Riel, Fugro's CEO, said: “The downturn in our largest market, oil and gas services, continued unabated in 2016. We had to take the painful decision to cut yet more staff positions. We reduced capacity and cost and at the same time we succeeded in strengthening our market positions. This could however not offset increased price pressure. Our focus on cashflow again paid off. We generated substantial cash flow resulting in a significant reduction of net debt.
"We took an important step forward in our strategy and regrouped our geotechnical, survey and subsea services activities into a marine and a land division with two business lines per division: site characterisation and asset integrity. This strongly improves our ability to deliver large, integrated service offerings to our clients across all markets, and positively impacts the efficiency of our organisation and utilisation of our assets.
"We anticipate that, for the first half of 2017, the offshore oil and gas market will continue to decline significantly. Both the stabilisation of our backlog over the last few months and clear signs that pressure on the oil supply side is beginning to build, indicate that our market may bottom out towards year end.”
The company's cost reduction and performance improvement measures have resulted in a reduction in head count of 1,430 employees in 2016. Third party expenses related to vessel charters, subcontractors and other operational costs were reduced by 27.0 per cent. Fugro's active fleet was reduced by five vessels. Capital expenditure was also reduced.
The company reviewed its portfolio based on the scope of the new business lines and divisions and the current difficult oil and gas services market, and has decided to retain the inspection, repair and maintenance services across the Subsea Services division to integrate into the new asset integrity business line within the marine division.
For installation and construction activities Fugro will continue to pursue partnerships or divestment, as these do not fit its strategy of providing asset integrity solutions. it will retain Fugro Synergy and optimise her for geotechnical operations.
Fugro said it continues to be open to opportunities to reduce its stake in Seabed Geosolutions or enter into an extended partnership. Seabed is investing to benefit from a growing seabed geophysical market mainly focused on oil and gas development and production. At the same time, Fugro is leveraging synergies with its marine activities related to the deployment of nodes from remotely operated vehicles.
As part of forming the new divisions, Fugro is merging operating companies into country organisations. This supports organisational and legal entity simplification by reducing the number of legal entities and consolidation of support functions into shared service centres. This is resulting in cost efficiencies and improves the quality of internal processes.