Morningstar | TechnipFMC Continues to Lead Peers in Delivering Innovation in Offshore Oil and Gas Development
In 2017, Technip and FMC merged, uniting one of the leading subsea engineering and construction companies with the leading subsea equipment manufacturer. This combination makes TechnipFMC unique in the recent history of offshore oil and gas, as subsea E&C and subsea equipment have been exclusively provisioned by separate companies in the past. This division of scope has probably been a key contributor to ballooning costs in the one-third share of deep-water project costs that come from subsea. A key part of management’s premise for the merger was that the integration of the entire subsea scope would offer large opportunities for cost savings, creating value for TechnipFMC and its customers alike. While we remain cautious about exactly how much value from these savings TechnipFMC will be able to retain, we nevertheless think management is very much correct in its diagnosis of the problem and its proposed remedy.While the potential for value creation is great, we maintain a no-moat rating for TechnipFMC owing to persistent pressures in offshore oil and gas end markets. Spending on offshore oil and gas development will remain constrained versus prior cycle levels, owing to the ascendance of low-cost U.S. shale. Nevertheless, investors should refrain from becoming too pessimistic about subsea E&C players. Owing to a more consolidated industry as well as other factors, we expect subsea E&C to continue to fare much better than some other offshore-leveraged businesses (most notably offshore drilling). Not all of TechnipFMC’s prospects are tied to offshore; the company has an excellent onshore E&C franchise that caters to various midstream and downstream end markets. Most lucratively, TechnipFMC has established a strong presence in liquefied natural gas projects. The prospective dearth of new LNG projects over the next couple of years is casting a shadow on TechnipFMC’s business, but we believe LNG work will eventually pick up once global LNG oversupply clears up (which could occur as soon as 2021).TechnipFMC is global leader in oil and gas projects, technologies, systems, and services. Co. offers subsea, surface, onshore, and offshore solutions for oil and gas projects. Co. serves customers worldwide. With Co.'s technologies and production systems, integrated expertise, and comprehensive solutions, Co. is transforming Co.'s clients' project economics. Co. is uniquely positioned to deliver greater efficiency across project lifecycles from concept to project delivery and beyond. Through innovative technologies and improved efficiencies, Co.'s offering unlocks new possibilities for Co.'s clients in developing their oil and gas resources.
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