The rating agency said it expects very weak conditions in offshore drilling to continue for several years and a challenging environment to win new orders in engineering and construction for the oil and gas industry, with some evidence that demand is weakening even in the Middle East.
While acknowledging Saipem’s upsides such as substantial fleet, revenues of $12 billion, strong market position as one of the world’s leading engineering and construction companies in the oil and gas industry, long term customer relationship with major oil companies such as Eni and Saudi Aramco, and wide geographic diversity, Moody’s also highlighted potential downsides.
Namely, the credit rating agency said Saipem was exposed to lump sum turnkey E&C contracts, which accounted for approximately 75% of contracts in the backlog and recent execution challenges, including large losses in several ongoing projects; exposure to the highly cyclical oil and gas end market, where continued low oil and gas prices have led to reductions in offshore spend on deep and ultra-deepwater projects, leading to pricing pressure and a lack of new awards in both the E&C and drilling space.
Furthermore, Moody’s pointed to the likely strong competition from existing players in the onshore E&C division, as well as new entrants in offshore, pressuring margins for new awards.
Also, the agency sees the potential that Saipem will have to scrap several of its older floaters as it will be difficult to re-contract them in a market where strong negative trends are expected to remain deeply entrenched through 2017.
As mentioned above, Saipem is doing business with some large and stable oil companies, however Moody’s also expects there will be challenges of dealing with companies under financial pressure such as Petrobras and Venezuela’s PDVSA.
The stable outlook, the agency said, reflects Moody’s expectation that Saipem will refinance the $1.6 billion bridge-to-bond facility well in advance of its 18 month maturity date, although there is a six-month extension option to January, 2018.
Saipem S.p.A. (Società Anonima Italiana Perforazioni E Montaggi) is an Italian oil and gas industry contractor. It is a subsidiary of Italian energy company Eni, which owns approximately 43% of Saipem's shares. Saipem has contracted for designing and constructing several pipelines, including Blue Stream, Greenstream, Nord Stream and South Stream. (Source: Wikipedia)
Saipem was originally founded in 1957 as a service provider for the Eni group, through the merger of Snam Montaggi and a drilling contractor SAIP. In 1960s it started providing services outside the Eni group, and in 1969 it started operating autonomously. While initially Saipem specialized on onshore pipelaying, plant construction and drilling, in the early 1960s it commenced also offshore operations. Offshore operations started in the Mediterranean and were expanded to the North Sea in 1972.
Since 1984, Saipem is listed at the Milan Stock Exchange. In 2001, Saipem started a number of acquisitions, culminating in the acquisition of Bouygues Offshore s.a. in 2002. Responding to the recent industry trend towards large onshore EPC and EPCI projects, including those related to gas monetisation, exploitation of difficult oil (heavy oil, oil sands, etc.), and in order to strengthen its position in the Middle East and its national oil company client base, in 2006 Saipem has acquired and in 2008 has incorporated Snamprogetti.
Saipem is one of the largest turnkey contractors in the oil and gas industry, owning over 50 vessels that deal with all aspects of offshore construction and services activities including drilling and pipe laying. The company has a number of high profile contracts and works with most major NOCs including Saudi Aramco, ADNOC, and Sonatrach.
Saipem operates a unit in Nigeria. In 2010, Saipem agreed to pay a penalty of US$30 million to settle a Nigerian investigation into a bribery case involving the construction of Nigeria LNG facilities. Saipem is also under trial in Italy over charges relating to the same case.
On 8 February 2015, Saipem won a $1.8 billion contract to engineer and construct two pipelines at the Kashagan field project in the Caspian Sea.
Source: Offshore Energy Today