Subsea ‘fallen down pecking order’ for investors

Mike Beveridge of Simmons Energy.
Mike Beveridge of Simmons Energy.

The subsea sector has “fallen down the pecking order” for investors, according to leading advisor.

Speaking at Subsea Expo, Mike Beveridge, managing director at Simmons Energy, said the sector has gone from being “one of the hottest” industries within oilfield services to becoming “incredibly unprofitable” following the recent downturn.

While things are now once again starting to pick up, making the industry attractive to lenders may prove challenging, Mr Beveridge said.

He said: “Everyone in the subsea world lived in an environment seven to 10 years ago when it was the hottest sector within the oilfield services industry.

“We’ve been through this fundamental shift now where the subsea industry to the world at large is a challenged industry environment that has been incredibly unprofitable for the last few years, hasn’t been attractive to lenders and therefore has fallen down the pecking order in terms of many peoples’ priorities.

“The industry is just not seen as attractive in the eyes of multi-billion dollar lenders that have credit exposure across 50 industries in 120 countries. Where does subsea exposure fit in all of that? The answer is it is not that attractive.

“The only way to overcome that is through performance, and that is going to be a dilemma for the next 18 months for everybody.

“The financing of growth will improve with time. At the end of the day you have to translate activity into profitability before banks will be willing to support activity.”

Addressing the conference during the plenary session at the AECC, Mr Beveridge said the sector is in the first phase of improving profits with activity now picking back up.

He added there was a “disappointing” lack of mergers with tier two firms, at a time when the companies need to consolidate to survive, and that many had not accepted the need to change.

“We just haven’t seen the consolidation in the second tier that we think should have been happening, which is really frustrating,” he said.

“You could look at the emergence in the last upturn of a lot of tier two and tier three players, there was a view five or six years ago that the industry needed a new group of subsea services, IRM-based businesses for example.

“There were quite a few players that led the charge a few years ago, some of them have been casualties of the downturn.

“I look at that sector and think it needs consolidation. Some of those companies should have come together and looked for strength and regional businesses should try to become more global by combining with each other.

“The subsea business is on the road to recovery but I don’t think there’s anything we see to suggest that we’re going to get back to the environment we enjoyed in 2013 and 2014.

“We have to be different to attack the new challenges ahead of us.”