Elevated Demand for Subsea’s Offshore Services Likely to Persist Into 2025

Subsea 7 SUBC concluded 2022 on solid footing as annual revenue and adjusted EBITDA increased 3% and 7%, respectively. Offshore production activity has started to pick up speed around the world and will likely continue to gain momentum over the next several quarters. We’re raising our fair value estimate to NOK 153 per share from NOK 136 following results. We maintain our no-moat rating.

Elevated demand for offshore oilfield services garnered order intake exceeding $7 billion, the firm’s highest level since 2013. We expect order intake will remain strong, as a perpetually tight vessels market encourages customers to contract services further in advance. We’re therefore confident the firm will realize steady revenue through at least 2025 (and likely beyond) as it works through a substantial backlog.

Operating margins will continue to expand, especially as Subsea 7 rolls over contracts to reflect elevated prices (leading-edge offshore rig rates currently exceed $400,000 per day). The favorable pricing environment will very likely persist as the supply/demand balance remains tight, evidenced by customers negotiating vessel contracts commencing in 2025. We estimate firmwide operating margins to average 5% through 2027, compared to 2% over the last five years.

Subsea 7 continued its foray into the offshore wind space, partnering with Saipem to target large integrated projects. We expect the partnership will prove symbiotic—their fleets are complementary, and the firms can leverage their combined expertise to ascend the steep learning curve in the industry. Revenue should remain volatile over the next few years since contracting activity tends to be lumpy, however, underlying demand remains robust. Analysis from Rystad Energy implies global offshore wind capacity could nearly quintuple by 2030. This, coupled with strength in the offshore oil and gas market, imply very favorable prospects for Subsea 7 over the next several years.