FMC Technologies (FTI): Total launches Pazflor; subsea contract could come soon - Goldman Sachs
News
Total, the operator of Block 17, announced the launch of Pazflor development offshore Angola. Drilling is planned to begin in 2009 and production is scheduled for 2011. As expected, the project will include 49 subsea wells, subsea separation, and FPSO with 200,000 barrels/day processing capacity. Oil services investors have been awaiting the announcement of the subsea equipment contract for Block 17, which at an estimated $800+ million over the life of the contract is one of the largest subsea equipment orders ever. FMC Technologies (FTI), Vetco, and Aker Kvaerner are bidders for the contract.
Analysis
FTI had indicated that the contract was expected to be announced before the end of December, which at this point looks less likely. However, today's announcement shows that the project is on track, and we do not expect a material delay in the timing of the subsea award. FTI management believes that the contract may still be announced in the next few days or in January. It remains unclear which equipment company will be the winner of the subsea contract, but we think that FTI and Vetco are considered the front-runners. "Local content" will be a key in determining the winner. FTI already has assembly in Angola and we are uncertain as to the extent of Vetco's local investment.
Implications
We believe that many investors expect the subsea contract to be awarded to FTI and a win would be supportive for the shares. An award to Vetco would likely by disappointing to FTI investors and could put pressure on FTI shares. We continue to favor long-term fundamentals in subsea, but think that they are fully captured in current valuations and support our Neutral ratings on FTI and Cameron. Our price target is unchanged. |
