Markets

Acergy SA Cuts Capex Spend for 2009

By David Phillips

Updated on: December 9, 2008 / 11:42 AM EST / MoneyWatch

The Company: Acergy S.A., is a Norwegian-based seabed-to-surface engineering and construction contractor for the offshore oil and gas industry.
The Filing: FORM 6-K filed with the SEC on December 2, 2008.
The Finding: Acergy is expected to end the 2008 fiscal year with a backlog of approximately $2.6 billion, down from $3.3 billion at the end of the third-quarter, resulting from delays in signings of new projects in Nigeria and other offshore global locations due to falling energy prices. Albeit the company has a strong balance sheet, the uncertainty and timing of new project deals will require Acergy to cut back on cash outflows in 2009.

The Upshot: Current backlog for 2008 year-end November 30 represents approximately 55 percent of expected fiscal 2009 revenue. As there is less visibility on vessel fleet activity beyond the completion of existing contracts, management has not committed to any major, new Capex spends. In fiscal 2009, new capital expenditure commitments, including planned dry docks, are expected to be approximately $90 million, down from total Capex of approximately $275 million in fiscal 2008.

At quarter-end, Acergy held $438.6 million in unrestricted cash and borrowings totaled less than 50 percent of equity, putting the company in a good financial position to capitalize on a market turnaround.

Acergy operates the worlds largest semi-submersible pipelay barge, the Acergy Piper. Chief Executive Jean Cahuzac told analysts on the October earnings call that revenue run-rate for Piper in fiscal 2008 is in the $300 million range. Following successful completion of work at the Mexilhao field in the Santos Basin off the coast of Brazil, the company will stack the barge in 2009 to reduce its costs. Given the company has not identified meaningful prospects for Piper in 2009, there is some speculation that management may shop the barge to prospective buyers. The book value of the Piper is an estimated $60 million to $65 million.

Cahuzac remains convinced that large offshore operators in West Africa and Asia are not basing their exploration activities on the current price of oil, as decisions on funding large projects are still biased towards an upward long-term pricing trend for oil, with consensus forecasts for 2010 of at least $90 a barrel.

To date, Acergy has not been adversely impacted by the global financial mess, as more than 90 percent of Acergy's work contracts are with major (Exxon Mobil, BP) or state-owned energy companies (Petrobas). There is some concern, however, that management may be short on assets-not having enough capacity, based on current vessel inventory-should the anticipated rebound in order activities occur going in to 2010 - 2011. "We have the right assets to match customer requirement(s) beyond 2010 without any doubt," responded Cahuzac on the earnings call.

The Question: Going forward, will Acergy be forced to dry dock more vessels if energy prices remain closer to $50 a barrel than $90 a barrel come 2010?