FMC Technologies Earnings Call Insights: West Africa Opportunities and Expansion of Pure

FMC Technologies, Inc. (NYSE:FTI) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

West Africa Opportunities

Joe Hill – Tudor, Pickering: John, I’m curious as to what you are seeing in West Africa with regards to some of the opportunities you touched on that gives you confidence, we’re going to see some of these things break loose this year. Obviously there has been some issues within NPC and some FPL award changes and maybe a slowdown of development plan. So, just a little curious as to you know what gives you confidence?

John T. Gremp – Chairman, President and CEO: I think I mentioned on the last quarter that one of the big projects that we’re targeting had the potential to slip into 2013 and now it looks like that that’s happened. I would be very surprised if that project was not awarded in the first half of the year. I know there is petroleum law issues in Nigeria and so forth, but it looks like these projects are not really affected. I know there was another project, a Nigerian project, I believe, (indiscernible) where there was an installation contract award which would suggest that these projects are getting pretty close to breaking loose and I think that’s what will happen. If you look at Angola, the list of projects there, we’ll see some activity in Angola this year. So, I think particularly Nigeria where things have stalled for the last couple of years, we’re going to start to see that break loose. And I would be surprised if a couple of those projects weren’t awarded, ones at least we’re targeting in the first half of the year.

Joe Hill – Tudor, Pickering: Then, another question I had was how Pure performed relative to your expectations in the fourth quarter?

John T. Gremp – Chairman, President and CEO: We were pleased with that. The acquisition of Pure is part of our longer terms strategy, and although there is difficulties in North America their Canadian business where they are so strong held up as good as we could have expected. I’ll let Bob Potter make some comments on Pure.

Robert L. Potter – EVP, Energy Systems: Yeah, the integration is going really quite well. We are beginning to see some of the synergies between our surface wellhead, fluid control and flow back services business that we anticipated. We are taking advantage of those things. Now looking at additional expansion opportunities outside of Pure’s historic strength markets which were Canada and the Bakken and we are really pleased with the pace at which those opportunities are being realized.

Joe Hill – Tudor, Pickering: And then just one more for Maryann. Maryann, what are your expectations for the balance sheet over the course of this year. The company has been building debt and I wanted to get a sense for what your comfort level is and what your expectations are for how that debt level carries forward?

Maryann T. Seaman – SVP and CFO: As you know we did over $600 million in acquisitions this year, spent over $400 million. So, we spent $1 billion this year. We’ve had some working capital performance challenges in 2012 and we expect to see good recovery in 2013. So, with my expectation by the end of the year we will look at a net debt position that’s probably somewhere in the neighborhood of 50% improved from where we sit at the end of 2012. We are expecting performance improvement. Clearly, we’ve got strong cash flow expectations as you look at the growth year-on-year and then the working capital improvement that we’ve got forecasted in 2013.

Expansion of Pure

James Wicklund – Credit Suisse: CapEx $400 million for this year and you talked about Norway and Brazil and then you talked about service. And Bob you’re talking about the additional expansion opportunities for Pure and you mentioned international. How much of your CapEx in 2013 will be spent on the businesses that were Pure and that type, I don’t want to be too narrow, but the surface business – the shale business – the service business that you have?

John T. Gremp – Chairman, President and CEO: Jim, most of our CapEx is directed to our high growth businesses in subsea. The first CapEx piece is going to be to make sure that we have enough capacity to support the significant growth coming at us in subsea. CapEx devoted to Pure would be extremely small.

James Wicklund – Credit Suisse: Then my follow-up is the subsea business that’s coming at you and have to be ready. Most of what we’ve seen for the last year and a half or two years has been a consistent push to the right and with everything that’s been going on in Brazil most people think whatever CAGR you’re going to use for Brazil is probably a little bit lower number. Nobody doubts the inevitability of this, but do you see this year as year of acceleration for subsea?

John T. Gremp – Chairman, President and CEO: You are right. If you look over the last three years and (indiscernible) trees as a proxy for activity, over the last three years the number of trees (indiscernible) has been under 300 range, and then this in 2012 it jumps to 414, so have 30% to 40% increase in subsea activity in 2012 which will have to be delivered over the course of the next year or so. And then you look at 2013 and it could jump again by another 30% or 40% and that’s the growth that we’ve been anticipating with our CapEx spend in capacity. So, I think, it’s definitely coming. It arrived in 2012 with 400 trees awarded and there is more to come in 2013.

James Wicklund – Credit Suisse: Well, I understand the growth, but if I go back four years, three years, I thought that most people in the industry would have expected a faster growth rate average than we’ve seen. I’m not arguing ’11 over ’12 or ’12 over ’13, but even that’s lower than we expected three years ago?

John T. Gremp – Chairman, President and CEO: Well, and if you’re using Quest forecast, yes it is lower and the projects moved. You are right project move to the right. So, just, it probably is lower. It still represents for an industry to respond in a couple years to 30% to 40% growth year-over-year.

James Wicklund – Credit Suisse: No question.

John T. Gremp – Chairman, President and CEO: It takes the kind of CapEx investment that we’ve made over the last couple of years to make that happen.

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