Forward-looking statements
This release contains 'forward-looking statements' as defined in Section 27A of the
All of our forward-looking statements involve risks and uncertainties (some of which are significant or beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those set forth in the forward-looking statements. There can be no guarantee that we will be able to realize any of the potential strategic benefits or opportunities of the Spin-off, that we or our business will be commercially successful in the future, or achieve any particular credit rating or financial results, or that the Spin-off will be successful.
For information regarding known material factors that could cause actual results to differ from projected results, please see our risk factors set forth in our filings with the
Risks related to our business and industry
Demand for our products and services depends on oil and gas industry activity and expenditure levels, which are directly affected by trends in the demand for and price of crude oil and natural gas.
We operate in a highly competitive environment and unanticipated changes relating to competitive factors in our industry, including ongoing industry consolidation, may impact our results of operations.
The COVID-19 pandemic ('COVID-19') has significantly reduced demand for our products and services, and has had, and may continue to have, an adverse impact on our financial condition, results of operations, and cash flows.
Our success depends on our ability to develop, implement, and protect new technologies and services and the intellectual property related thereto.
Due to the types of contracts we enter into and the markets in which we operate, the cumulative loss of several major contracts, customers, or alliances may have an adverse effect on our results of operations.
Disruptions in the political, regulatory, economic, and social conditions of the countries in which we conduct business could adversely affect our business or results of operations.
The
Our existing and future debt may limit cash flow available to invest in the ongoing needs of our business and could prevent us from fulfilling our obligations under our outstanding debt.
A downgrade in our debt rating could restrict our ability to access the capital markets.
Our acquisition and divestiture activities involve substantial risks.
Risks related to our operations
We may lose money on fixed-price contracts.
Our failure to timely deliver our backlog could affect future sales, profitability, and relationships with our customers.
We face risks relating to our reliance on subcontractors, suppliers, and our joint venture partners.
A failure of our IT infrastructure, including as a result of cyber attacks, could adversely impact our business and results of operations.
Risks relating to legal proceedings, tax, and regulatory matters
The industries in which we operate or have operated expose us to potential liabilities, including the installation or use of our products, which may not be covered by insurance or may be in excess of policy limits, or for which expected recoveries may not be realized.
Our operations require us to comply with numerous regulations, violations of which could have a material adverse effect on our financial condition, results of operations, or cash flows.
Compliance with environmental and climate change-related laws and regulations may adversely affect our business and results of operations.
Existing or future laws and regulations relating to greenhouse gas emissions and climate change may adversely affect our business.
As an English public limited company, we must meet certain additional financial requirements before we may declare dividends or repurchase shares and certain capital structure decisions may require stockholder approval which may limit our flexibility to manage our capital structure. We may not be able to pay dividends or repurchase shares of our ordinary shares in accordance with our announced intent, or at all.
Uninsured claims and litigation against us, including intellectual property litigation, could adversely impact our financial condition, results of operations, or cash flows.
We are subject to governmental regulation and other legal obligations related to privacy, data protection, and data security. Our actual or perceived failure to comply with such obligations could harm our business.
The
We are subject to the tax laws of numerous jurisdictions; challenges to the interpretation of, or future changes to, such laws could adversely affect us.
We may not qualify for benefits under tax treaties entered into between the
We intend to be treated exclusively as a resident of the
Risks related to the Spin-off and the other Transactions
The proposed Spin-off, the resumption of which was announced on
General risk factors
Our businesses are dependent on the continuing services of certain of our key managers and employees.
Seasonal and weather conditions could adversely affect demand for our services and operations.
Currency exchange rate fluctuations could adversely affect our financial condition, results of operations, or cash flows.
We are exposed to risks in connection with our defined benefit pension plan commitments.
We caution you not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any of our forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, except to the extent required by law.
Summary
This summary highlights selected information appearing elsewhere in this Offering Memorandum and the documents incorporated herein by reference. This summary may not contain all of the information that may be important to you. You should read this summary together with this entire Offering Memorandum and the documents that we have incorporated herein by reference, including the 'Risk factors' section of this Offering Memorandum, the Issuer's Annual Report on Form 10-K for the year ended
In this Offering Memorandum, unless otherwise indicated or the context otherwise requires, (i) the 'Issuer' or '
Company overview
We are a global leader in the energy industry, delivering products, technologies and services to companies that produce and transport oil and natural gas. Through innovative technologies and improved efficiencies, our offerings unlock new possibilities for our customers in developing their energy resources and increasingly help position them to meet the ongoing energy transition to lower carbon energy alternatives.
After giving effect to the Spin-off described below, our Company will be organized in two business segments,
Our customers include major integrated oil companies, national oil companies, and independent exploration and production companies. For the twelve months ended
The Spin-off
On
Technip Energies will be a leading engineering and technology company positioned to play a critical role for the energy transition, offering a robust project delivery model, strong technical capabilities, and proven track record. Technip Energies will continue to deploy its core capabilities to meet today's and tomorrow's energy challenges, whether in LNG (onshore and offshore liquefaction), in sustainable chemistry (biofuels, biochemicals, circular economy), for decarbonization (energy efficiency, blue hydrogen, carbon capture, utilization and storage) and for carbon free solutions (green hydrogen, offshore wind and nuclear).
At the completion of the Spin-off, we will own 49.9% of Technip Energies' outstanding shares, and the sale of shares to BPI pursuant to the Share Purchase Agreement will further reduce our ownership in Technip Energies. We intend to significantly reduce our shareholding in Technip Energies over the two years following the Spin-off. We intend to use the proceeds from the sale of our remaining interest in Technip Energies to further delever our balance sheet.
The Spin-off builds on the results of the successful merger (the 'Merger') of
Segment overview
We are focused on transforming subsea by safely delivering innovative solutions that improve economics, enhance performance and reduce emissions. As a fully-integrated technology and services provider, we continue to drive responsible energy development.
Our
We are an industry leader in front-end engineering and design ('FEED'), subsea production systems ('SPS'), subsea flexible pipe, and subsea umbilicals, risers, and flowlines ('SURF'), and subsea robotics. We also have the capability to install these products and related subsea infrastructure with our fleet of highly specialized vessels. By integrating the SPS and SURF work scopes, we are able to drive greater value to our clients through more efficient field layout and execution of the installation campaign. This capability, in conjunction with our strong commercial focus, has enabled the successful market introduction of an integrated subsea business model, iEPCI ('iEPCI'), which spans a project's early phase design through the life of field.
Our integrated business model is unlocking incremental opportunities and materially expanding the deepwater opportunity set. Since the first iEPCI project was awarded in 2016, market adoption of the business model has accelerated each year, and in 2019 we secured more than 70% of the industry's integrated project awards.
Through integrated FEED studies, or iFEED ('iFEED'), we are uniquely positioned to influence project concept and design. Using innovative solutions for field architecture, including standardized equipment, new technologies, and simplified installation, we can significantly reduce subsea development costs and accelerate time to first production.
Our first-mover advantage and ability to convert iFEED studies into iEPCI contracts, often as a direct award, creates a unique set of opportunities for the Company that are not available to our peers. This allows us to deliver a fully integrated - and technologically differentiated - subsea system, and to better manage the complete work scope through a single contracting mechanism and a single interface, yielding meaningful improvements in project economics and time to first oil.
We continue to support our clients following project delivery by offering aftermarket and life of field services. Our wide range of capabilities and solutions, including integrated life of field, or iLOF ('iLOF'), allows us to help clients increase oil and gas recovery and equipment uptime while reducing overall cost. Our iLOF offering is designed to unlock the full potential of subsea infrastructures during operations by transforming the way subsea services are delivered and proactively addressing the challenges operators face over the life of subsea fields. We provide production optimization, asset life extension insight, proactive de-bottlenecking, and condition-based maintenance.
Our
We actively pursue alliances with companies that are engaged in the subsea development of oil and natural gas to promote our integrated systems for subsea production. These alliances are typically related to the procurement of subsea production equipment, although some alliances are related to engineering, procurement, construction and engineer ('EPCI') services.
Generally, our customers in the
Our subsea production systems and products include subsea trees, chokes and flow modules, manifold pipeline systems, controls and automation systems, well access systems, multiphase and wet-gas meters, and additional technologies. The design and manufacture of our subsea systems requires a high degree of technical expertise and innovation. Some of our systems are designed to withstand exposure to the extreme hydrostatic pressure of deepwater environments, as well as internal pressures of up to 20,000 pounds per square inch ('psi') and temperatures of up to 400 F. The development of our integrated subsea production systems includes initial engineering design studies and field development planning and considers all relevant aspects and project requirements, including optimization of drilling programs and subsea architecture.
Rigid Pipe. We design and fabricate rigid pipes for production and service applications at our spoolbases. Rigid pipes are installed from our fleet of differentiated rigid pipelay vessels. Our pipelines optimize flow assurance through innovative insulation coatings, electric trace heating, plastic liners, and pipe-in-pipe systems.
Flexible pipe and umbilicals. We design and manufacture flexible pipes as well as steel tube, thermoplastic hose, power, communication and hybrid (a combination of steel tube, thermoplastic hose, and electrical cables) umbilicals.
Vessels. We operate a fleet of 18 vessels that are used for the installation and servicing of our products. We have sole ownership of ten vessels, ownership of six vessels as part of joint ventures, and two vessels operated under long-term charters.
Key drivers of subsea services market activity are the services linked to subsea wells in greenfield development and brownfield subsea tiebacks, or infill developments.
Additionally, with our extensive experience in subsea equipment, our leading installed base of subsea production equipment, our broad range of services, and our historical technical design and manufacturing leadership, we are in a unique position to offer integrated solutions across the 'life of field' services. These combine asset light solutions (e.g. RLWI), digital services (e.g. data driven monitoring, surveillance and production management suite of applications), and leading edge automated and robotic systems (e.g. Schilling ROVs) to enhance the economics of producing fields through maximization of asset uptime, higher production volumes, and lower operating expense.
Robotics, controls and automation. We design and manufacture ROVs and manipulator arms that are used in subsea drilling, construction, IMR, and life of field services. Our product offering includes hydraulic work-class ROVs, tether-management systems, launch and recovery systems, remote manipulator arms, and modular control systems. We also provide support and services such as product training, pilot simulator training, spare parts, and technical assistance.
We also provide electro-hydraulic and electric production and intervention control systems, allowing accurate control and monitoring of subsea installations to ensure the highest production availability that can ensure safe and environmentally friendly field operations. These include the sensors, multiphase flow meters, digital infrastructure, integrity monitoring, control functionality, and automation features needed for subsea systems. Robotics capabilities are now being used in the control of manifold valves during production, which demonstrates a convergence of our technologies in order to provide better systems for our customers.
Subsea Studio Digital Platform.
Research, engineering, manufacturing and supply chain ('REMS'). REMS is an organization formed in September of 2019 to support accelerated technology innovation, and product delivery improvements. We accomplish this by reducing the cycle-time of engineering and manufacturing our products, including working with our suppliers to reduce their costs, and optimizing our processes and how we manage workflow. Through REMS, we are focused on challenging existing technologies and implementing world-class manufacturing practices, including LEAN and process automation, to improve reliability while reducing total product cost and lead time to delivery. Our REMS organization primarily supports our
Product Management. In 2019, we established a Product Management function to expand our capabilities to assess, define and deliver the technologies and products of the future. This function enables REMS, and the
Surface Technologies segment
Our Surface Technologies segment designs, manufactures, and services products and systems used by companies involved in land and shallow water exploration and production of crude oil and natural gas. Our Surface Technologies product families include (i) drilling, (ii) stimulation, (iii) production, (iv) measurement, and (v) services. We manufacture most of our products internally in facilities located worldwide.
For the twelve months ended
Principal products and services
Drilling. We provide a full range of drilling and completion systems for both standard and custom engineered applications. The customer base of our drilling and completion offerings is oil and gas exploration and production companies.
Surface wellheads and production trees. Our products are used to control and regulate the flow of crude oil and natural gas from the well. The wellhead is a system of spools and sealing devices from which the entire downhole well string hangs and provides the structural support for surface production trees. Production trees are comprised of valves, actuators and chokes which can be combined in both vertical and horizontal configurations, depending on customer-specific requirements.
Surface wellheads and production trees are 'per-well' systems which are designed for onshore shale, onshore conventional, and offshore shallow water platform applications, and are typically sold directly to exploration and production operators during the drilling and completion phases of the well lifecycle. Our surface wellhead and production tree systems are used worldwide, and we are one of the few companies that provide global coverage and a full range of system configurations, including (i) conventional wellheads, (ii) Unihead drill-thru wellheads designed for faster installation and drill-time optimization, and (iii) high-pressure, high-temperature ('HPHT') systems for extreme production applications.
We also provide services associated to our surface wellhead and production tree portfolio, including service personnel and rental tooling for wellhead and production tree installation and life of field repair, refurbishment, and general maintenance. Our wellhead and production tree business relies on our ability to successfully provide the necessary field operations coverage, responsiveness, and reliability to prevent downtime and non-productive time during the drilling and completion phases.
Stimulation. Our iComplete ('iComplete') offering is the first integrated pressure containment kit for the onshore conventional stimulation market. Its CyberFrac digital platform reduces manpower in the red zone and enables efficiencies that significantly reduce GHG emissions, lower downtime, and eliminate the integration burden for operators.
We are one of the few oilfield service providers that can offer an integrated solution covering the fracturing through flowback phases. iComplete provides our exploration and production customers with an integrated rental and service offering, including fracturing tree and manifold systems, as well as pressure control flowlines, flowback and well testing equipment, and field services.
Fracturing tree and manifold systems. During the completion of a shale well, the well undergoes hydraulic fracturing. During this phase, durable and wear-resistant wellsite equipment is temporarily deployed. Our equipment is designed to sustain the high pressure and highly erosive fracturing fluid which is pumped through the well into the formation.
Our equipment (fracturing tree systems, fracturing valve greasing systems, hydraulic control units, fracturing manifold systems, and rigid and flexible flowlines) is temporarily laid out between the wellhead and the fracturing pump truck during hydraulic fracturing. These products are typically supplied to exploration and production operators who rent this equipment directly from us during the hydraulic fracturing activities. Associated with our fracturing equipment rental is fracturing rig-up / rig-down field service personnel as well as oversight and operation of the equipment during the multiple fracturing stages for a shale well.
Our Ground Level Fracturing System is an essential tool for unconventional operators who use simultaneous operations to efficiently run completions in multi-well pads. The innovative system design uses various lengths of trunkline to align the SuperFrac Manifold and fracturing tree at ground level, which minimizes the number of flowline connections for safer operation. We are a significant supplier of flowline pipework (rigid and flexible) that is used to move the fracturing product from the pump truck, via the manifold and into the fracturing trees.
Pressure pumping. We design and manufacture equipment used in well completion and stimulation activities by major oilfield service and drilling companies, as well as by oil and gas exploration and production operators directly.
Flexibles. We have been a leading supplier of flexible lines since the 1970s and have successfully introduced a portfolio of flexible solutions for the onshore stimulation market. Our PumpFlex and WellFlex products can be incorporated into most Shale operations and are an integral part of our iComplete system.
Well service pumps. We offer a diverse line of well service pumps for use in high-pressure pumping operations such as hydraulic fracturing and stimulation, including triplex and quintuplex pumps, each with its own industry-leading features, including: (i) heavy-duty power ends, paired with main journal roller bearings and heavy-duty rod journal bearings, (ii) heavy-duty crankshafts, (iii) fluid cylinders, with accessible packing and valves, and (iv) made-to-order pumps. Our pumps can withstand some of the harshest operating conditions, with pressure ranges up to 20,000 psi and flow rates up to 1,500 gallons per minute.
Production. Our upstream production offering includes well control, safety and integrity systems, multiphase meter modules, in-line separation and processing systems, and standard pumps. These offerings are differentiated by our comprehensive portfolio of in-house compact, modular, and digital technologies, and are designed to enhance field project economics and reduce operating expenditures with an integrated system that spans from wellhead to pipeline.
Our iProduction system ('iProduction') is the first automated integrated production platform for onshore unconventional. Our digital interface enables operators to manage their production operations remotely, leveraging Insitex and UCOS data-monitoring technology. Our separation portfolio and measurement technologies, combined with our expertise in modularization, enable our customers to achieve first production faster with fully optimized and environmentally conscious, compact systems.
Flowback and well testing services. After a shale well is hydraulically fractured, the well moves to the flowback phase in which much of the fracturing fluid pumped into the well flows back out through the wellhead and fracturing tree system. This phase lasts until the wellbore flow is adequate for flow through the production facilities downstream of the wellsite. Our flowback and well testing offering includes chokes, de-sanders, and advanced well testing equipment and related services which are provided to exploration and production operators during the flowback phase.
Well control and integrity systems. We supply control components and safety systems designed to safely and efficiently run a wellpad, modules on an offshore platform, or a production facility. Our systems are based on standard, field-proven building blocks and designed for minimal maintenance during life of field operations.
Surface multiphase meter. Our multiphase meters ('MPMs') are a collection of technologically advanced innovations that provide a differentiated approach to multiphase measurement. The patented technology in our MPMs offers many unique features that provide a step change in allocation measurement and allows for continuous surveillance of wells across a full range of operating conditions. Our MPMs provide real-time data to a central facility, or our cloud portal, for production reporting and remote notification and system troubleshooting.
Separation and processing systems. We provide industry-leading technology for the separation of oil, gas, sand, and water. These solutions are used in onshore production facilities and on offshore platforms worldwide. Our family of separation products delivers client success by increasing efficiency and throughput and reducing the footprint of processing facilities. Our separation systems offering includes internal components for oil and gas multiphase separation, in-line deliquidisers, and solids removal, as well as fully assembled separation modules and packages designed and fabricated for oil and gas separation, fracturing flowback treatment, solids removal, and primary produced water treatment.
Standard pumps and skid systems. We provide complete skid solutions, from design consultation through startup and commissioning. We offer a diverse line of reciprocating pumps, customized according to the application with pressure ranges available up to 10,000 psi and flow rates up to 1,500 gallons per minute.
Automation and digital systems. We provide hardware and software solutions to automate and provide simple human interfaces for a number of our critical products. These digital offerings help enable the removal of personnel from critical zones either offshore or onshore. In addition, the digital signatures from our products can then be interpreted and used via condition performance monitoring to eliminate unplanned downtime.
Measurement. We design, manufacture, and service measurement products for the oil and gas industry. Our flow computers and control systems manage and monitor liquid and gas measurement for applications such as custody transfer, fiscal measurement, and batch loading and deliveries. Our FPSO metering systems provide the precision and reliability required for measuring large flow rates of marine loading operations. Our gas and liquid measurement systems are utilized in multiple energy-related applications, including crude oil and natural gas production and transportation, refined product transportation, petroleum refining, and petroleum marketing and distribution. We combine advanced measurement technology with state-of-the-art electronics and supervisory control systems to provide the measurement of both liquids and gases. This ensures processes operate efficiently while reducing operating costs and minimizing the risks associated with custody transfer.
Services. We offer our customers a comprehensive suite of service packages to ensure optimal performance and reliability of our equipment. These service packages include all phases of the asset's life cycle: from the early planning stages through testing and installation, commissioning and operations, replacement and upgrade, maintenance, storage, preservation, intervention, integrity, decommissioning and abandonment.
Competitive strengths
Leading fully-integrated provider of technology and services that improve efficiencies and reduce cost for our customers . We are the largest provider of subsea products and services and believe that our proprietary integrated model has benefitted our customers and differentiated us from our competitors. We believe that our integrated offering, iEPCI, and related life-of-field solution, iLOF, materially benefit our customers in numerous ways including (i) rationalizing subsea architecture, (ii) improving field performance, (iii) reducing project interfaces and contingencies, (iv) shortening time for offshore installation and time to first oil through better planning and execution, (v) realizing procurement savings, (vi) enabling maximized reliability and uptime, and (vii) improving performance of the life of field.
We believe our integrated model has been a strong success. Beginning in 2018, we delivered the industry's first three full-cycle iEPCI projects and realized considerable growth in
Comprehensive product and service offering that benefits from a large installed equipment base . We manufacture a large array of products for both onshore and offshore, as well as upstream and midstream, oil and gas applications. This large product offering helps buffer our exposure to the volatile oil and gas industry, as different products have varied, or counter-cyclical, sales cycles. For example, many of the systems and products we supply for subsea applications are highly engineered to meet the unique demands of our customers' field properties and typically ordered one to two years prior to installation, while other products have a shorter sales cycle and more closely follow real-time levels of oil and gas activity. Additionally, our large and growing installed base of more than 6,500 managed wells is expected to drive continued growth in demand for our subsea services as we continue to support our clients post-project delivery by offering aftermarket and life of field services. Our wide range of capabilities and solutions, including iLOF, allows us to help clients increase oil and gas recovery and equipment uptime while reducing overall cost. Our services are more production focused, and less sensitive to commodity prices or other drivers of industry volatility.
High quality and diverse customer base, with strong connectivity via alliances . Our customers are typically major integrated oil companies, national oil companies, and independent exploration and production companies. These customers are generally large, well-capitalized, and have active development programs in all market environments. Further, we actively pursue alliances with companies that are engaged in the subsea development of oil and natural gas to promote our integrated systems for subsea production. These alliances are typically related to the procurement of subsea production equipment, although some alliances are related to EPCI services. Our alliances establish important ongoing relationships with our customers. While these alliances do not contractually commit our customers to purchase our systems and services, they have historically led to, and we expect that they would continue to result in, such purchases.
Global footprint with exposure to substantially all oil and gas markets . We provide our products and services in over 40 countries worldwide, encompassing substantially all active oil and gas basins, and approximately 90% of our revenues for the twelve months ended
Strong financial profile, capital discipline, and contract backlog . Upon completion of the Offering and Spin-off, we expect to have available liquidity of more than
Experienced management team and employees . Our experienced management team will be supported by a skilled workforce of approximately 21,000 with significant project execution capabilities, many of who are experts with recognized technical skills in their respective industrial fields. Our management team's understanding of the markets in which we operate, combined with our project management experience, global perspectives, and committed engineering and project execution workforce, give us the flexibility to adapt to the needs of our clients and anticipate the execution challenges to meet those needs.
Our strategy
Our core values of realizing possibilities, achieving together, and building trust are the drivers that guide how we act in a distinctly
Continue to enhance the performance of the world's energy industry . Our success has been built on our proprietary technologies and innovation, integration expertise, focus on digitalization, and strong collaboration with major energy companies to expand market opportunities. We believe our Company's future success and competitiveness will derive from our continued application of innovative solutions and seamless execution, as a result of integration to improve economics, enhance performance and reduce emissions. We are targeting profitable and sustainable growth through new market opportunities and expanding our range of services. We are also managing our assets to optimize operations across geographies and better align with and leverage the benefits of our differentiated offerings across the portfolio. Additionally, we expect to capture growing service opportunities, driven by (i) higher levels of project activity, (ii) increased asset integrity and production management activities focused on improving uptime and production volume and lowering emissions, and (iii) increased maintenance and intervention activity resulting from an expanding and aging installed equipment base.
Replicate the success of our
Transform the energy industry by providing new, more sustainable solutions .We believe corporate responsibility and sustainability is a key element of our Company's long-term success, and therefore, sustainability is one of our foundational beliefs. The increasing demands for sustainability and reduced greenhouse gas emissions are creating new opportunities for us to transform the energy industry. We believe that field electrification and automation of equipment is a current priority, as our customers seek to reduce their on-site GHG emissions as well as reduce or eliminate the amount of employee travel time required to manage facilities. Such automation reduces both emissions from work travel, as well as improving worker safety, real-time decision making ability and well economics. In our
To further drive upstream decarbonization, we are working with clients and key partners to develop
Focus on safety, sustainability, and equality for our employees, customers and suppliers . People and culture are at the heart of our Company, and people are our wealth and strength. Our foundational beliefs of safety and respect help us foster a culture not only of safety, but of inclusion, respect, diversity, leadership and personal empowerment. The safety and physical and mental well-being of our employees and customers will always be top priority. Moreover, we further strive to recruit, train and develop our employees such that the organization reflects the diversity of the communities in which we operate. Additionally, we have taken identifiable steps to protect human rights, including those of our suppliers, by implementing a Human Rights Standard setting forth recognized human rights principles to ensure our operations are executed in compliance with the same, and to ensure everyone with whom we work is treated with, respect and dignity. Our human rights standard codifies the worker welfare principles outlined in the guidance notes published by
Our industry
Market environment and outlook
While economic activity continues to be impacted by the pandemic, the short-term outlook for crude oil has improved as the OPEC+ countries better manage the oversupplied market. Long-term demand for energy is still forecast to rise, and we believe this outlook will ultimately provide our customers with the confidence to increase investments in new sources of oil and natural gas production.
The trajectory and pace of further recovery and expansion in the subsea market is subject to the allocation of capital our clients dedicate to developing offshore oil and gas fields amongst their entire portfolio of projects and drivers of capital expansion or discipline. The risk of project sanctioning delays is still present in the current environment; however, innovative approaches to subsea projects, like our iEPCI solution, have improved project economics, and many offshore discoveries can be developed economically at today's crude oil prices. In the long-term, deepwater development is expected to remain a significant part of many of our customers' portfolios.
As the subsea industry continues to evolve, we have taken actions to further streamline our organization, achieve standardization, and reduce cycle times. The rationalization of our global footprint will also further leverage the benefits of our integrated offering. We aim to continuously align our operations with activity levels, while preserving our core capacity in order to deliver current projects in backlog and future order activity.
Surface Technologies. Surface Technologies' performance is typically driven by variations in global drilling activity, creating a dynamic environment. Operating results can be further impacted by stimulation activity and the completions intensity of shale applications in the
The
Drilling activity in international markets is less cyclical than
Sources and Uses
In this Offering Memorandum, the term 'Transactions' refers to the Spin-off and the other transactions to be effected pursuant to and concurrently with the Spin-off on its effective date, including the entry into the New Senior Secured Revolving Credit Facility and the refinancing of the indebtedness to be repaid and terminated in connection with the Spin-off and the repayment of the Issuer's Synthetic Convertible Bonds at maturity in
Summary unaudited pro forma financial and other data
The following summary unaudited pro forma consolidated financial data consists of summary unaudited pro forma condensed consolidated statements of income (loss) for the years ended
The summary unaudited pro forma condensed consolidated statements of income (loss) data for the twelve months ended
The following summary unaudited pro forma condensed consolidated financial data is subject to assumptions and adjustments described more fully in 'Unaudited pro forma condensed consolidated financial information.' The unaudited pro forma condensed consolidated financial information have been prepared based upon available information and management estimates; actual amounts may differ from these estimated amounts. Management believes these assumptions and adjustments are reasonable under the circumstances, given the information available at this time. Any of the factors underlying these estimates and assumptions may change or prove to be materially different. The unaudited pro forma condensed consolidated financial information is not intended to represent or be indicative of the financial condition or results of operations that might have occurred had the Transactions occurred as of the dates stated below, and further should not be taken as representative of future financial condition or results of operations.
The unaudited pro forma condensed consolidated financial data includes adjustments to reflect the following: the deconsolidation of Technip Energies' assets and liabilities at their carrying amounts, the elimination of revenues and direct expenses associated with Technip Energies, and to record the equity method investment associated with the Issuer's retained 49.9% ownership in
The summary unaudited pro forma condensed consolidated financial data below should be read in conjunction with 'Unaudited pro forma condensed consolidated financial information' and 'Management's discussion and analysis of financial condition and results of operations of pro forma condensed consolidated financial information' included elsewhere in this Offering Memorandum, as well as 'Management's discussion and analysis of financial condition and results of operations' and 'Selected financial data' and the consolidated financial statements and corresponding notes incorporated herein by reference, which have been prepared in accordance with GAAP.
Risk factors
An investment in the Notes is subject to a number of risks. You should carefully consider the following risk factors as well as the other information and data included in or incorporated by reference into this Offering Memorandum prior to making an investment in the Notes. The risks and uncertainties described below and in the incorporated documents are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, cash flows, financial condition or results of operations. Any of the following risks could materially and adversely affect our business, cash flows, financial condition or results of operations. In such case, you may lose all or part of your original investment. Along with the risks and uncertainties described below, you should carefully consider the risks and uncertainties described in the sections entitled 'Forward-looking statements' and 'Management's discussion and analysis of financial condition and results of operations of pro forma condensed consolidated financial information' included in this Offering Memorandum.
Demand for our products and services depends on oil and gas industry activity and expenditure levels, which are directly affected by trends in the demand for and price of crude oil and natural gas.
We are substantially dependent on conditions in the oil and gas industry, including (i) the level of exploration, development and production activity and (ii) capital spending. Any substantial or extended decline in these expenditures may result in the reduced pace of discovery and development of new reserves of oil and gas and the reduced exploration of existing wells, which could adversely affect demand for our products and services and, in certain instances, result in the cancellation, modification, or re-scheduling of existing orders in our backlog. These factors could have an adverse effect on our revenue and profitability. The level of exploration, development, and production activity is directly affected by trends in oil and natural gas prices, which historically have been volatile and are likely to continue to be volatile in the future.
Factors affecting the prices of oil and natural gas include, but are not limited to, the following: demand for hydrocarbons, which is affected by worldwide population growth, economic growth rates, and general economic and business conditions, including reductions in travel and commerce relating to the COVID-19 pandemic; costs of exploring for, producing, and delivering oil and natural gas; political and economic uncertainty, and socio-political unrest; governmental laws, policies, regulations and subsidies related to or affecting the production, use, and exportation/importation of oil and natural gas; the ability or willingness of the
The oil and gas industry has historically experienced periodic downturns, which have been characterized by diminished demand for oilfield services and downward pressure on the prices we charge. While oil and natural gas prices have partially rebounded from a downturn that began in 2014, the market remains quite volatile and the sustainability of the price recovery and business activity levels is dependent on variables beyond our control, such as geopolitical stability, increasing attention to global climate change resulting in pressure upon shareholders, financial institutions and/or financial markets to modify their relationships with oil and gas companies and to limit investments and/or funding to such companies, increasing likelihood of governmental investigations and private litigation due to increasing attention to global climate change, OPEC+'s actions to regulate its production capacity, changes in demand patterns, and international sanctions and tariffs. Continued volatility or any future reduction in demand for oilfield services could further adversely affect our financial condition, results of operations, or cash flows.
The
We are based in the
These developments could have a material adverse effect on global economic conditions and the stability of the global financial markets and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency exchange rates, and credit ratings may be especially subject to increased market volatility. In addition, there is a lack of clarity about the future
Any of these factors could have a material adverse effect on our business, financial condition, or results of operations.
Compliance with environmental and climate change-related laws and regulations may adversely affect our business and results of operations.
Environmental laws and regulations in various countries affect the equipment, systems, and services we design, market, and sell, as well as the facilities where we manufacture our equipment and systems, and any other operations we undertake. We are required to invest financial and managerial resources to comply with environmental laws and regulations, and believe that we will continue to be required to do so in the future. Failure to comply with these laws and regulations may result in the assessment of administrative, civil, and criminal penalties, the imposition of remedial obligations, the issuance of orders enjoining our operations, or other claims and complaints. Additionally, our insurance and compliance costs may increase as a result of changes in environmental laws and regulations or changes in enforcement. These laws and regulations, as well as any new laws and regulations affecting exploration and development of drilling for crude oil and natural gas, are becoming increasingly strict and could adversely affect our business and operating results by increasing our costs, limiting the demand for our products and services, or restricting our operations.
Regulatory requirements related to Environmental, Social and Governance (ESG) (including sustainability) matters have been, and are being, implemented in the
We are subject to governmental regulation and other legal obligations related to privacy, data protection, and data security. Our actual or perceived failure to comply with such obligations could harm our business.
We are subject to international data protection laws, such as the General Data Protection Regulation ('GDPR'), in the European Economic Area ('EEA'), and the
Failure to comply with the requirements of GDPR and the local laws implementing or supplementing the GDPR could result in fines of up to
We are likely to be required to expend significant capital and other resources to ensure ongoing compliance with the GDPR and
Seasonal and weather conditions could adversely affect demand for our services and operations.
Our business may be materially affected by variation from normal weather patterns, such as cooler or warmer summers and winters. Adverse weather conditions, such as hurricanes in the
We are exposed to risks in connection with our defined benefit pension plan commitments.
We have funded and unfunded defined benefit pension plans, which provide defined benefits based on years of service and salary. We are required to recognize the funded status of defined benefit post-retirement plans as an asset or liability in the consolidated balance sheet and recognize changes in that funded status in comprehensive income in the year in which the changes occur. Further, we are required to measure each plan's assets and its obligations that determine its funded status as of the date of the consolidated balance sheet. Each defined benefit pension plan's assets are invested in different asset classes and their value may fluctuate in accordance with market conditions. Any deterioration in the value of the defined benefit pension plan assets could therefore increase our obligations. Any such increases in our net pension obligations could adversely affect our financial condition due to increased additional outflow of funds to finance the pension obligations.In addition, applicable law and/or the terms of the relevant defined benefit pension plan may require us to make cash contributions or provide financial support upon the occurrence of certain events. We cannot predict whether, or to what extent, changing market or economic conditions, regulatory changes or other factors will further increase our pension expense or funding obligations.
Risks related to the Spin-off and the other Transactions
The proposed Spin-off, the resumption of which was announced on
The Spin-off is contingent upon, among other things, the final approval of our Board of Directors, market conditions and the receipt of regulatory approvals, which are beyond our control, and consultation of employee representatives, where applicable. We may also choose to abandon the Spin-off at any time. For these and other reasons, the Spin-off may not be completed in the expected timeframe or at all. Additionally, the execution of the proposed Spin-off will likely continue to require significant time and attention of our management, which could impact other strategic initiatives. Our employees may also be uncertain about their future roles within the separate companies pending the completion of the separation, which could lead to departures. Furthermore, completion of the Spin-off may require certain management and procedural redundancies as we prepare for the Spin-off, which may result in operating inefficiencies.
In connection with the Spin-off, we will indemnify Technip Energies for certain liabilities and Technip Energies will indemnify us for certain liabilities. If we are required to act on these indemnities to Technip Energies, our financial results could be negatively impacted. Additionally, any indemnity from Technip Energies may not be sufficient to insure us against the full amount of liabilities for which we are responsible and Technip Energies may not be able to satisfy its indemnification obligations in the future.
In addition, other events outside of our control, including, but not limited to, political climate, the severity and duration of the pandemic, and regulatory or legislative changes, could also adversely affect our ability to complete and realize the anticipated benefits from the Spin-off. Any such difficulties could have an adverse effect on our business, financial condition, or results of operations, and cause the combined market value of us and Technip Energies after the Spin-off to fall short of the market value of our shares prior to the separation.
We have incurred and will continue to incur significant transaction costs in connection with the Spin-off that could adversely affect our results of operations.
We have incurred, and will continue to incur, significant transaction costs in connection with the Spin-off, including payment of certain fees and expenses incurred in connection with the Spin-off and related financing transactions. Additional unanticipated costs may be incurred in the separation process. These could adversely affect our results of operations in the period in which such expenses are recorded or our cash flow in the period in which any related costs are actually paid. Furthermore, we may incur material restructuring charges in connection with the Spin-off, which may adversely affect our operating results following the closing of the Spin-off in the period in which such expenses are recorded or our cash flow in the period in which any related costs are actually paid. A delay in closing or a failure to complete the Spin-off could have a negative impact on our business.
The Spin-off and subsequent sales by us of Technip Energies' shares, including in the
The Spin-off is not structured as a tax free transaction to
The pro forma financial information presented in this Offering Memorandum has been formulated subject to significant assumptions and limitations and may not reflect what our actual results of operations and financial condition would have been had the Transactions accounted for therein actually occurred as of and for the periods presented, and such financial information may not be indicative of our future operating performance.
The unaudited pro forma condensed consolidated financial information and the unaudited pro forma non-GAAP financial information presented in this Offering Memorandum have all been formulated to give effect to the Spin-off and related transactions as if the Transactions had happened at the periods presented. The pro forma financial statements do not fully reflect what the Company's actual results of operations and financial condition would have been had the Company not held the assets and conducted the operations of the Technip Energies business during the periods presented, or what the Company's results of operations and financial condition will be in the future.
The unaudited pro forma condensed consolidated balance sheet is presented as if the Transactions were completed as of
The unaudited pro forma condensed consolidated financial information adjusts the historical financial statements to give effect to (i) the deconsolidation of Technip Energies' assets and liabilities at their carrying amounts, the elimination of revenues and direct expenses associated with Technip Energies, and to record the equity method investment associated with
Unaudited pro forma condensed consolidated financial information
The following unaudited pro forma consolidated financial information consists of unaudited pro forma condensed consolidated statements of income (loss) for the years ended
The following unaudited pro forma condensed consolidated financial information is subject to assumptions and adjustments described below and in the accompanying notes. The unaudited pro forma condensed consolidated financial information have been prepared based upon available information and management estimates; actual amounts may differ from these estimated amounts. Management believes these assumptions and adjustments are reasonable under the circumstances, given the information available at this time. The unaudited pro forma condensed consolidated financial information is not intended to represent or be indicative of the financial condition or results of operations that might have occurred had the Transactions occurred as of the dates stated below, and further should not be taken as representative of future financial condition or results of operations.
The unaudited pro forma condensed consolidated balance sheet is presented as if the Transactions were completed as of
The unaudited pro forma condensed consolidated financial information includes adjustments to reflect the following:
the deconsolidation of Technip Energies' assets and liabilities at their carrying amounts, the elimination of revenues and direct expenses associated with Technip Energies, and to record the equity method investment associated with the Issuer's retained 49.9% ownership in
cash received from BPI, for its investment in
Management's discussion and analysis of financial condition and results of operations of pro forma condensed consolidated financial information
The following discussion and analysis should be read in conjunction with the unaudited pro forma condensed consolidated financial information, the related notes and other financial information included elsewhere in this Offering Memorandum, as well as the historical condensed consolidated financial information in the section titled 'Management's discussion and analysis of financial condition and results of operations' included in the Issuer's Form 10-K for the year ended
General
We are a global leader in the energy industry, delivering products, technologies and services to companies that produce and transport oil and natural gas. Through innovative technologies and improved efficiencies, our offerings unlock new possibilities for our customers in developing their energy resources and increasingly help position them to meet the ongoing energy transition to lower carbon energy alternatives.
After giving effect to the Spin-off, our Company will be organized in two business segments,
Revenue
Revenue decreased
Gross profit
Gross profit (revenue less cost of sales) as a percentage of sales decreased to 11.5% during the nine months ended
Selling, general and administrative expense
Selling, general and administrative expense decreased
Impairment, restructuring and other expense
We incurred
Merger transaction and integration costs
We incurred merger transaction and integration costs of
Other income (expense), net
Other income (expense), net, primarily reflects foreign currency gains and losses, including gains and losses associated with the remeasurement of net cash positions, gains and losses on sales of property, plant and equipment and other non-operating gains and losses. During the nine months ended
Net interest expense
Net interest expense increased
Provision for income taxes
Our provision for income taxes for the nine months ended
Pro forma segment results of operations for the nine months ended
Segment operating profit is defined as total segment revenue less segment operating expenses. Certain items, such as corporate staff expenses, share-based compensation expense and other employee benefits expenses, have been excluded in computing segment operating profit and are included in corporate items.
Surface Technologies
Surface Technologies revenue decreased
Surface Technologies operating loss was primarily due to impairment and other non-recurring restructuring charges. The operating loss included
Surface Technologies capital expenditures decreased
Corporate expenses
Corporate expenses decreased by
Inbound orders and order backlog
Inbound orders - Inbound orders represent the estimated sales value of confirmed customer orders received during the reporting period. COVID-19 has had a minimal impact on our ability to finalize sales contracts required to recognize new inbound orders in the quarter. However, the significant decline in commodity prices, due in part to the lower demand resulting from COVID-19, is expected to negatively impact the near-term outlook for inbound orders.
Order backlog - Order backlog is calculated as the estimated sales value of unfilled, confirmed customer orders at the reporting date. Backlog reflects the current expectations for the timing of project execution. The scheduling of some future work included in our order backlog has been impacted by COVID-19 related disruptions and remains subject to future adjustment.
Surface Technologies - Order backlog for Surface Technologies at
Non-consolidated backlog - Non-consolidated order backlog reflects the proportional share of backlog related to joint ventures that is not consolidated due to our minority ownership position.
Revenue
Revenue increased
Gross profit
Gross profit (revenue less cost of sales) as a percentage of sales decreased marginally to 15.4% in 2019 and 19.0% in the prior-year period. The decrease was primarily driven by lower gross profit due to a more competitively priced
Contacts
Tel: +1 281 260 3665
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