March 6, 2018 / 4:03 PM / a year ago

Saipem sees tough year ahead as oil majors keep purse strings tight

MILAN (Reuters) - Italian oil services company Saipem (SPMI.MI) expects its revenues to fall this year as energy majors keep a tight grip on purse strings and pressure oil contractors’ order books.

FILE PHOTO: A staff member is seen on the Saipem 10000 deepwater drillship in Genoa harbour, Italy, November 19, 2015. Picture taken November 19, 2015. REUTERS/Alessandro Garofalo/File Photo

Saipem, controlled by oil major Eni (ENI.MI) and state lender CDP, said it expected sales to be around 8 billion euros (7.14 billion pounds)this year, a billion euros less than in 2017.

The recent uptick in oil prices has not yet prompted oil service company clients to speed up investments despite a few timid signs of recovery in some segments, it said.

“Most oil companies are keeping their budgets flat in 2018, if not lower,” Chief Executive Stefano Cao told analysts, after the company reported an 80 percent drop in adjusted net profit for 2017.

Production cuts by OPEC have helped crude prices, but recovery for oil contractors is expected to be patchy, with those finding it tougher to cut capacity and costs lagging others with more flexible business models.

“The company’s outlook for the year is below expectations and that could potentially lead to consensus for 2019 coming down,” said Alessandro Pozzi, oil analyst at Mediobanca.

Saipem, a market leader in subsea engineering and construction (E&C), is looking to develop new lines of business to boost order books, including floating wind power farms and dismantling oil and gas platforms, especially in the North Sea.

The company, present in around 65 countries, is looking to expand its footprint in Latin America and is keen to catch opportunities in the Middle East and North Africa.

Cao said he was particularly keen to restore business in Algeria after reaching a deal last month with state energy firm Sonatrach to end a legal dispute that had left it on a blacklist for new orders.

“Saipem is now in a position to access a vital market for our business,” he said.

Asked about alliances and tie-ups, Cao said the company was ready to look at opportunities if they came along, including assessment of its cooperation agreement with Aker Solutions (AKSOL.OL) to develop subsea oil and gas projects.

“We need to decide whether to do something more structural with Aker,” he said.

Adjusted net profit last year fell to 46 million euros, far below company guidance of around 200 million euros. The adjustment strips out writedowns and restructuring and tax charges which resulted in a reported net loss of 328 million euros for the full year.

Analysts, however, pointed to a good downward trend in debt which is seen at about 1.1 billion euros at the end of this year, from 1.3 billion euros at the end of last December.

Saipem shares, which hit a six-month low on Monday after it said it would re-publish its 2016 accounts, fell after Tuesday’s results but later recovered to trade up 3.4 percent at 1526 GMT.

Reporting by Stephen Jewkes; Editing by Valentina Za/Mark Potter/Susan Fenton

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