汇丰银行-全球-能源设备与服务行业-全球离岸油服：油价上涨+订单激增=好日子？-2019.5.8-27页.pdf

Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:HSBC Bank plc View HSBC Global Research at:https:/ THIS CONTENT MAY NOT BE DISTRIBUTED TO THE PEOPLES REPUBLIC OF CHINA(THE PRC)(EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAO)Oil+25%YTD,order wave and first talk of better pricing but we dont think fundamentals have changed much in Q1 Left field developments-Saipem shifts stance on drilling assets,FTIs shale hiccup,Anadarkos uncertain future Maintain Buy TechnipFMC(TP now USD28/EUR25),Hold Saipem(TP EUR4.8),Hold Subsea7(TP NOK100)Order intake strong and 2019 revenue coverage high Q1 average company B2B was around 1.5x and coverage of 2019 revenue estimates from current backlog is now around 85%.We see quarterly financials for the rest of 2019 driven by project execution and contract awards over Q2-Q4 driving sentiment in 2020-21 estimates.Some are sticking their necks out on pricing whilst others talk about deepwater recovery in 2020 and beyond the inevitable range of company outlook messaging saw the first explicit positive comment on offshore pricing trends from Subsea 7.This was somewhat balanced out by Schlumberger and Saipem who pointed to the recovery taking a more substantive step forward in 2020.Our macro offshore view holds at USD70 oil we reiterate our view of a weaker link between oil prices and offshore fundamentals this cycle;however shares are reactive to crude volatility,exposing them to downside risk if oil weakens.Unlike US unconventionals,we do not believe long-cycled investment materially changes on short-term oil price movements(within reason).We view offshore as competing with short-cycled options at a given oil price and see operator capital constraint holding.A busy quarter for read-across and developments outside offshore OFS Recent weeks have seen i)the impacts from the US pressure pumping market spill over into FTIs results,ii)the tug of war over Anadarko raise uncertainties over the prospects for its flagship LNG project and iii)SPM steer the market towards the idea that its offshore drilling rigs may be here to stay longer than people thought.We stick to our guns on stock calls we revise some company B2B assumptions for 2019e and reflect IFRS16 accounting changes in our estimates but do not make significant changes to our company views.We maintain our Buy on TechnipFMC with a slight higher TP of USD28/EUR25,and maintain a Hold rating on Saipem and Subsea7 with slightly lower TPs of EUR4.8 and NOK100,respectively.8 May 2019 Tarek Soliman*,CFA Analyst HSBC Bank plc +44 20 3268 5528 Abhishek Kumar*Analyst HSBC Securities and Capital Markets(India)Private Limited abhishek.kumarhsbc.co.in+91 80 4555 2753 David Phillips*Head of Equity Research,Developed Europe HSBC Bank plc +44 20 7991 7558 Gordon Gray*Global Head of Oil and Gas Equity Research HSBC Bank plc +44 20 7991 6787 Anshak Singhal*Associate Bangalore *Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulations Global Oilfield Services Equities Energy Equipment&Services Europe Global Oilfield Services Key changes to our ratings and estimates Ticker Currency Current price _ TP _ _ Rating _ Implied upside/downside Market cap(USDm)EV/EBITDA 2019e(x)EV/EBITDA 2020e(x)PE 2019e(x)PE 2020e(x)Company Old New Old New TechnipFMC FTI US USD 23.50 27.50 28.00 Buy Buy 19.1%10,531 6.4 5.9 15.5 15.6 TechnipFMC FTI FP EUR 21.09 24.30 25.00 Buy Buy 18.5%9,451 6.4 5.9 15.5 15.6 Saipem SPM IM EUR 4.37 5.00 4.80 Hold Hold 9.8%4,946 5.7 5.3 44.9 31.3 Subsea 7 SUBC NO NOK 111.50 105.00 100.00 Hold Hold-10.3%3,998 6.2 4.8 NM 32.4 Note:Priced as of close at 3 May 2019.Source:Refinitiv,HSBC estimates Offshore OFS:Oil rally+order surge=happy days?Equities Energy Equipment&Services 8 May 2019 2 HSBC Global Oil&Gas Research Library Oil&Gas Macro Fuel for thought:Oil in a multi-asset context(25 April 2019)Oil market outlook:US to halt Iran sanctions waivers(23 April 2019)US Tight Oil Outlook:Little let-up in the growth trend(24 March 2019)Global Commodities:After a roller coaster ride(15 March 2019)Oil Things Considered-February oil data:steeper OPEC cuts,but better US(25 February 2019)Global LNG:on the cusp of a new boom(14 February 2019)Offshore wind:Going global(1 Feb 2019)Oil&Gas Developed markets Aker BP and Lundin Petroleum:Value for the taking post 1Q weakness(7 May 2019)Chevron(CVX US):Set to buy Anadarko(APC US)(12 April 2019)Oil Majors 1Q Preview:A bump in the road after a strong 4Q(9 April 2019)IMO 2020 and Oil majors:less Disruptive,still positive(2 April 2019)ENI:Staying the course,for better or worse(20 March 2019)Major integrated oils:Chevron is in a sweet spot (14 March 2019)ExxonMobil:Can you really afford to be underweight?(20 February 2019)Global LNG:on the cusp of a new boom(14 February 2019)Global Oilfield Services Global Oilfield Services:Why weaker incrementals still support Buy the Big 3(7 May 2019)Korea shipbuilding:Both leading and lagging indicators are improving(2 May 2019)Postcard.from Hammersmith:Big topics driving the debate in subsea oil&gas(10 April 2019)OFS Project Tracker:Our regular round-up of sector bidding activity(10 April 2019)Maersk Drilling(DRLCO DC):Guardian of the North Sea(5 April 2019)Wood Plc(WG/LN):18 months post AFW deal,we take stock(3 April 2019)Borr Drilling(BDRILL NO):Initiate at Buy:Drilling with Odin(25 Mar 2019)Global Oilfield Services:Offshore OFS:Fighting over a smaller subsea pie(22 Mar 2019)Petrofac(PFC LN):Tug of war between competing narratives(8 March 2019)Global Oilfield Services:Merger on track(8 March 2019)Oil&Gas Emerging markets,Russia&CEEMEA ADNOC Distribution(ADNOCDIS UH):Volume trend to improve from 2H 2019(1 May 2019)Gazprom(OGZD LI):Growing dividend flexibility(30 April 2019)EEMEA Oil and Gas:Our views and ideas in over 170 charts(29 March 2019)Grupa Lotos(LTS PW):Strongly diesel-geared,but still overvalued(27 March 2019)Motor Oil(MOH GA):Dividend growth to pause(20 March 2019)Oil&Gas Emerging markets,Asia Castrol India:1Q miss on weakening demand growth(1 May 2019)PetroChina:Quiet improvements while awaiting gas reforms(1 May 2019)HSBC Asia-Pacific Refining&Chemical Chartbook:Still in a depressed mood(30 April 2019)CNOOC:Steady as she goes(26 April 2019)PTTEP:Expect consensus increases from good results+M&A(26 April 2019)Sinopec:Preview-expected good 1Q19 results should stabilise shares(25 April 2019)Asia-Pacific Energy and Industrials:IMO 2020-Wanted,more cleaning capacity(3 April,2019)China Oilfield Services:Upward momentum is building(2 April,2019)Emerging markets,Latin America Ultrapar and BRD-Reviewing near-term catalysts(10 April,2019)YPF:2019 outlook-Value is here,but growth in upstream is deferred(15 March 2019)Petrobras PN Engineering:Rising profitability,near-term catalysts(14 March 2019)Ecopetrol(EC US):2019-21 Strategy Plan-growth and ROCE(7 March 2019)3 Equities Energy Equipment&Services 8 May 2019 Who said what at Q1 “We are seeing some increase in deepwater exploration,but I would say that 2019 will be shallow water.And I think as that continues to mature,I expect that we will see more on deepwater in 2020 and beyond.”“There was about 50 offshore FIDs last year,and we see now,on the horizon,about 80 of this year we do expect that the subsea trees award this year will be north of 300,similar to what we have last year.”Paal Kibsgaard CEO Schlumberger “2019 still will be a year of transition,awaiting for a better 2020”Stefano Cao CEO,Saipem “In 2019,we are confident that iEPCI will exceed 25%,which would also indicate a higher absolute level of integrated projects given our expectations for further order growth the majority of iEPCI awards announced this year will have offshore campaigns beginning in 2020.”Douglas Pferdehirt CEO,TechnipFMC Offshore spending is forecast to increase by up to 5 percent in 2019 and accelerate to 5-15 percent in 2020 according to industry estimates,Luis Araujo CEO,Aker Solutions “We have started to see increased pricing on tenders for major new projects,but this will take time to materialise in our financial results due to an anticipated two to three year time lag,on average,between tender,award and execution.”Jean Cahuzac CEO,Subsea 7 “For the first time in many quarters,Onshore and Offshore Drilling backlogs recorded a slight increase which we are confident will convert into further progress”“We are focusing on other options than a straight sale,such as combination,such as adding some willing shareholders and joining;in any case I think in principle is the fact that we intend to maintain an exposure to the business in order to capture the recovery”Stefano Cao CEO,Saipem “We now expect completions to be down modestly versus the prior year.for the remainder of the year to remain largely unchanged from current level.Douglas Pferdehirt CEO,TechnipFMC “As an industry,the oilfield services sector has displayed a similar pattern of behavior across many cycles:over-investing for a peak cycle scenario;deploying too much capital in undifferentiated assets;and often depressing shareholder returns creating little,if any,shareholder value.Our industry needs to prove to the investment community that it can invest in a disciplined manner,while offering the prospect of financial returns that exceed our cost of capital on a through-cycle basis.”Douglas Pferdehirt CEO,TechnipFMC On the offshore activity and pricing outlook On why SPMs rigs are here to stay for now US onshore hiccups,what does the rest of 2019 look like?On what may define OFS shareholder returns in the coming cycles.Equities Energy Equipment&Services 8 May 2019 4 What are the takeaways from a positive Q1 on paper Orders surprised to the upside Contract award momentum gained noticeable ground in Q1,continuing an improving trend over the last 12-18 months.With average industry offshore book to bill ratios heading towards 1x for consecutive quarters(chart below),company backlogs are stabilising in 2019.Whilst we see this as a positive development when compared to the gradual reductions in backlog levels over recent years,we do not believe order intake to be high enough to sustain the growth ambitions of the industry over the next 2-3 years.The average Q1 offshore book to bill ratio for the SUBC,FTI and SPM was 1.75x(1.5x average when including onshore engineering work),with TechnipFMC as the stand-out performer with over USD2.5bn of subsea orders in the quarter,a company record.On average we assume an offshore B2B(book-to-bill)of 1.2x across SUBC,FTI and SPM in 2019e.We also note that falling revenues during the down cycle have mathematically helped improve B2B ratios.Subsea business line order intake B2B(x)levels Q1 2011 Q1 2019 Source:Company data,HSBC Estimates;NB book-to-bill trends reflect subsea-exposed businesses only The recent order flow has given the companies c.80-85%of 2019 revenue estimates in hand from contracts in their backlogs,providing a solid degree of visibility for the rest of the year.The longer-cycled nature of subsea and onshore E&C awards means that awards over the remainder of 2019 will shape future year P&Ls.0.00.51.01.52.02.53.03.5Q1 11Q3 11Q1 12Q3 12Q1 13Q3 13Q1 14Q3 14Q1 15Q3 15Q1 16Q3 16Q1 17Q3 17Q1 18Q3 18Q1 19Subsea Book-to-BillFTISPMSUBCSector 12m averageNot getting too carried away Oil rally and order intake bounce is fertile ground for rising expectations but with shares up 25+%YTD we pause for thought Fundamentals to remain testing in 2019 as P&Ls hit their weakest point during the drawn out cycle with margins falling YoY this year We think the optimism of the offshore recovery needs to be contextualised with its low base,and long lead time FTI was a stand-out performer in Q1,posting a subsea order B2B of 2.25x but despite a Q1 spike in offshore awards,12m average B2B is closer to 1x Strong industry Q1 order intake has helped raise 2019e revenue visibility to 80-85%5 Equities Energy Equipment&Services 8 May 2019 The first explicit mention of the magic words.pricing improving At its Q1 results,Subsea 7 cited that it was seeing“increased pricing on tenders for major new projects”and whilst this was a caveated statement,it was certainly what many in the market had been waiting to hear.Subsea 7 point out that any benefits from improving margins(from what is a depressed base)will only become visible over a 2-3 year timeframe as current backlogs are more reflective of the pricing environment over 2016-18(see below).We believe that material pricing improvement is still some way away and on average we see offshore EBITDA margins falling in 2019e,and only regaining recently lost ground over 2020e-21e.Subsea 7 backlog by contract award(as of Q3 2018)TechnipFMC backlog by contract award(as of Q3 2018)Source:Company data,HSBC estimates Source:Company data,HSBC estimates Whilst increasing greenfield activity and the prospect of improving vessel capacity utilisation are positive directional drivers of pricing,we also recently explored the prospect of subsea EPC contractors potentially being exposed to reduced capacity from key component sub-suppliers.We would expect subsea service providers to attempt to manage this by reflecting any supplier cost increases in discussions with operators over pricing(See Postcard from Hammersmith,Big topics driving the debate in subsea oil&gas,10 April 2019).Oil price OFS stock move,but how much is operator behaviour changing?With notable exceptions such as ExxonMobil(where planned capex spend is rising significantly),we expect an unchanged message of continued capital discipline from oil&gas operators where spend commitments within previous guidance ranges are maintained.Within this view we see a notable operator preference for shorter-cycled projects(that deliver returns within 1-2 years)over longer-cycled developments.Increasing positions in US shale are also a key driver of recent M&A actions among US oil&gas operators.Our multi-asset team has investigated correlation between oil and proxy securities(Fuel for thought:Oil in a multi-asset context,25 April 2019),with one of the conclusions being that oil proxies tend to have a higher downside Beta than upside.This implies that oil proxy assets fall more sharply when oil prices decrease than corresponding movements to the upside,with such an asymmetry increasing during period of higher volatility.Offshore OFS shares are particularly reactive to crude volatility,exposing the shares to downside risk if oil underperforms.HSBCs 2019 Brent forecast of USD65.2/bbl(2020e/21e USD70/bbl)combines the upside risk of market tightness in the short term with the mitigating effect of US oil supply sensitivity to higher prices.We currently expect 1.9mbd of US tight liquids supply growth in 2019e but if prices stay around current levels this figure could easily exceed 2mbd again(see US to halt Ir