Leading energy industry service provider FMC Technologies Inc. (FTI - Analyst Report) entered into double five-year contracts with Island Offshore Management AS. Per the agreement, the former will render Light Well Intervention (LWI) services to be used in the North Sea by Statoil ASA (STO - Analyst Report).
The LWI services – which aid in cutting the costs of operation and enhancing oil recovery rate – will be carried out on the existing subsea wells, leading to higher output from mature oil fields.
The contracts, each of which contains two two-year extension options, will be executed following the approval from Statoil's partners. However, the financial terms of the agreement were not disclosed.
FMC’s contracts with Island Offshore are slated to begin once the existing LWI contracts between the companies terminate in 2015. Two Island Offshore vessels – the Island Frontier and the Island Wellserver – will be involved with the execution of the contract activities.
Houston, Texas-based FMC Technologies is a leading manufacturer and supplier of technology solutions and operates 27 manufacturing facilities in 16 countries. The company conducts its operations in three segments: Subsea Technologies, Surface Technologies and Energy Infrastructure.
We believe that FMC Technologies is one of the leading subsea equipment manufacturers with solid earnings growth potential over the next several years on the back of a favorable industry outlook. Other positives for the company include a strong backlog position, growing international operations, technology leadership and efficient execution skills.
However, we maintain a long-term Neutral rating on the stock, given the uncertain commodity price outlook and a soft global economy that continue to weigh on the company. Additionally, competitive market conditions along with weak pricing also make us apprehensive.
FMC Technologies currently retains a Zacks #3 Rank, which is equivalent to a short-term Hold rating.