Saipem cuts 2014 profit forecast after project delays

Italian oil services group Saipem cut its profit forecast on Tuesday to reflect contract delays and postponements as it tries to complete the low margin deals that left it nursing heavy wounds last year.

Saipem, 43 percent owned by oil company Eni, said it expected net profit for the year to be between 280 million euros and 330 million euros ($375-443 million), compared with a previous range of 280 million and 380 million euros.

“We expected confirmation of the guidance, but they trimmed it,” a Milan-based analyst said.

Saipem used to be Europe’s biggest oil service group before losing about half of its market value last year after two profit warnings, triggered by lower-than-expected margins on ssome contracts and a corruption scandal in Algeria.

But a strong order intake since the start of this year, including the award of the giant South Stream gas pipeline project from Russia’s Gazprom, has warmed investors, helping lift Saipem’s shares some 21 percent.

Saipem said in a statement that completing the low margin legacy contracts it still had in its portfolio remained a key element in achieving its guidance for the year.

“That could mean there’s another profit warning in the pipeline,” a second analyst said.

At 1601 GMT Saipem shares were down 2.8 percent while the European oil and gas index was down 0.15 percent.

Earlier this month, French oil services firm Technip cut operating margin targets for its onshore/offshore unit for this year and next, citing tighter spending budgets among its clients.
Big oil companies, pressured by shareholders demanding bigger cash returns after years of large capital investments, have started to scale back investments.
The second analyst said a lower long-term debt target given by Saipem had dispelled fears among some investors that the company might need a capital increase after its bruising 2013.
Saipem, which sees debt this year at between 4.2 billion and 4.5 billion euros, said it expected its debt pile to come down to 2 billion euros by the end of 2017.
Sources told Reuters last week that Eni’s new management planned to press on with the sale of its stake in Saipem, after taking steps to cut the firm’s debt and get it on an independent footing by securing a credit rating.