SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☒ ANNUALLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-37983
(Exact name of registrant as specified in its charter)
|(State or other jurisdiction of incorporation or organization)||(I.R.S. Employer Identification No.)|
|One St. Paul’s Churchyard|
|United Kingdom||EC4M 8AP|
|(Address of principal executive offices)||(Zip Code)|
(Registrant’s telephone number, including area code)
|Securities registered pursuant to Section 12(b) of the Act:|
|Title of Each Class||Trading Symbol||Name of Each Exchange on Which Registered|
|Ordinary shares, $1.00 par value per share||FTI||New York Stock Exchange|
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|Large accelerated filer||☒||Accelerated filer||☐|
|Non-accelerated filer||☐||Smaller reporting company||☐|
|Emerging growth company||☐|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ý
The aggregate market value of the registrant’s ordinary shares held by non-affiliates of the registrant, determined by multiplying the outstanding shares on June 30, 2020, by the closing price on such day of $6.80 as reported on the New York Stock Exchange, was $2.7 billion.
|Class||Outstanding at February 24, 2021|
|Ordinary shares, $1.00 par value per share||450,433,770|
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement relating to its 2021 Annual General Meeting of Shareholders are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The 2021 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” as defined in Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Act of 1934, as amended (the “Exchange Act”). Forward-looking statements usually relate to future events and anticipated revenues, earnings, cash flows or other aspects of our operations or operating results. Forward-looking statements are often identified by the words “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could,” “may,” “estimate,” “outlook” and similar expressions, including the negative thereof. The absence of these words, however, does not mean that the statements are not forward-looking. These forward-looking statements are based on our current expectations, beliefs and assumptions concerning future developments and business conditions and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate.
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. Known material factors that could cause actual results to differ materially from those contemplated in the forward-looking statements include unpredictable trends in the demand for and price of crude oil and natural gas; competition and unanticipated changes relating to competitive factors in our industry, including ongoing industry consolidation; the COVID-19 pandemic and its impact on the demand for our products and services; our inability to develop, implement, and protect new technologies and services; the cumulative loss of major contracts, customers, or alliances; disruptions in the political, regulatory, economic, and social conditions of the countries in which we conduct business; the refusal of DTC and Euroclear to act as depository and clearing agencies for our shares; the United Kingdom’s withdrawal from the European Union; the impact of our existing and future indebtedness and the restrictions on our operations by terms of the agreements governing our existing indebtedness; the risks caused by our acquisition and divestiture activities; the risks caused by fixed-price contracts; any delays and cost overruns of new capital asset construction projects for vessels and manufacturing facilities; our failure to deliver our backlog; our reliance on subcontractors, suppliers, and our joint venture partners; a failure of our IT infrastructure, including as a result of cyber-attacks; the risks of pirates endangering our maritime employees and assets; potential liabilities inherent in the industries in which we operate or have operated; our failure to comply with numerous laws and regulations, including those related to environmental protection, health and safety, labor and employment, import/export controls, currency exchange, bribery and corruption, taxation, privacy, data protection and data security; the additional restrictions on dividend payouts or share repurchases as an English public limited company; uninsured claims and litigation against us, including intellectual property litigation; tax laws, treaties and regulations and any unfavorable findings by relevant tax authorities; the uncertainties related to the anticipated benefits or our future liabilities in connection with the spin-off of our Technip Energies business segment (the “Spin-off”); any negative changes in Technip Energies’s results of operations, cash flows and financial position, which impact the value of our remaining investment therein and our obligations under the share purchase agreement, dated January 7, 2021 (the “Share Purchase Agreement”), with Bpifrance Participations SA, a société anonyme incorporated under the laws of the Republic of France (‘‘BPI”); potential departure of our key managers and employees; adverse seasonable and weather conditions and unfavorable currency exchange rate; risk in connection with our defined benefit pension plan commitments, as well as those set forth in Part I, Item 1A, “Risk Factors” and elsewhere of this Annual Report on Form 10-K. 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.
ITEM 1. BUSINESS
TechnipFMC plc, a public limited company incorporated and organized under the laws of England and Wales, with registered number 09909709, and with its registered office at One St. Paul’s Churchyard, London EC4M 8AP, United Kingdom (“TechnipFMC,” the “Company,” “we,” or “our”) is a global leader in the energy industry; delivering projects, products, technologies, and services. With our proprietary technologies and production systems, integrated expertise, and comprehensive solutions, we are transforming our customers’ project economics.
We have operational headquarters in Paris, France, and Houston, Texas, United States, and operate across three business segments: Subsea, Technip Energies, and Surface Technologies. We are uniquely positioned to deliver greater efficiency across project lifecycles from concept to project delivery and beyond. Through innovative technologies and improved efficiencies, our offering unlocks new possibilities for our customers in developing their energy resources and in their positioning to meet the energy transition challenge. On February 16, 2021, the Company completed the Spin-off. Subsequent to the Spin-off, the Company will operate under two reporting segments: Subsea and Surface Technologies, for further details see section “The Spin-off” below.
Enhancing our performance and competitiveness is a key component of this strategy, which is achieved through
technology and innovation differentiation, seamless execution, and reliance on simplification to drive costs down. We are targeting profitable and sustainable growth by seizing market growth opportunities and expanding our range of services. We are managing our assets efficiently to ensure we are well-prepared to drive and benefit from the opportunities in many of the segments we serve.
Each of our more than 35,000 employees is driven by a steady commitment to clients and a culture of project execution, purposeful innovation, challenging industry conventions, and rethinking how the best results are achieved. This leads to fresh thinking, streamlined decisions, and smarter results, enabling us to achieve our vision of enhancing the performance of the world’s energy industry.
In March 2015, FMC Technologies, Inc., a U.S. Delaware corporation (“FMC Technologies”), and Technip S.A., a French société anonyme (“Technip”), signed an agreement to form an exclusive alliance and to launch Forsys Subsea, a 50/50 joint venture, that would unite the subsea skills and capabilities of two industry leaders. This alliance, which became operational on June 1, 2015, was established to identify new and innovative approaches to the design, delivery, and maintenance of subsea fields.
Forsys Subsea brought the industry’s most-talented subsea professionals together early in operators’ project concept phase with the technical capabilities to design and integrate products, systems, and installation to significantly reduce the cost of subsea field development and enhance overall project economics.
Based on the success of the Forsys Subsea joint venture and its innovative approach to integrated solutions, Technip and FMC Technologies announced in May 2016 that the companies would combine through a merger of equals to create a global subsea leader, TechnipFMC, that would drive change by redefining the production of oil and gas. The business combination was completed on January 16, 2017 (the “Merger”), and on January 17, 2017, TechnipFMC began operating as a unified, combined company trading on the New York Stock Exchange (“NYSE”) and on the Euronext Paris Stock Exchange (“Euronext Paris”) under the symbol “FTI.”
In 2017, our first year as a merged company, TechnipFMC secured several project awards as many operators moved forward with final investment decisions for major onshore projects and subsea developments. Several of the subsea awards incorporated the use of our integrated approach to project delivery, validating our unique business model aimed at lowering project costs and accelerating the delivery of initial hydrocarbon production. This was made possible by bringing together the complimentary subsea work scopes of the merged companies.
In 2018, TechnipFMC delivered the industry’s first three full-cycle, integrated projects and realized considerable growth in Subsea order inbound, driven in part by its unique integrated offering, iEPCI™ (“iEPCI”). For all of 2019, the value of integrated subsea awards to TechnipFMC more than doubled versus the prior year, representing more than 50% of all Subsea project order inbound. The increase was driven by a wider adoption of the integrated
business model, particularly by those clients where we have unique alliances. With the industry’s most comprehensive and only truly integrated subsea market offering, we have continued to expand the deepwater opportunity set for our clients.
TechnipFMC’s expertise does not end with the production of hydrocarbons. Because of its best-in-class Engineering and Construction (“E&C”) project design and execution capabilities, enabled by a portfolio of proprietary technologies, TechnipFMC continues to secure and deliver projects that further enable our clients to monetize resources – from liquefaction of gas, both onshore and on floating vessels, through refining and product facilities and with green chemistry and renewables.
On August 26, 2019, we announced our intention to separate into two diversified pure-play market leaders – TechnipFMC, focused on subsea and surface hydrocarbon production, and Technip Energies, focused on downstream engineering, procurement, and construction (”EPC”) project execution. Due to the COVID-19 pandemic, a significant decline in commodity prices, and the heightened volatility in global equity markets, on March 15, 2020, we announced the postponement of the completion of the transaction until the markets sufficiently recover. On January 7, 2021, we announced the resumption of activity toward completion of the transaction based on increased clarity in the market outlook and our demonstrated ability to successfully execute projects.
On February 16, 2021, we completed the separation of the Technip Energies business segment. The transaction was structured as a spin-off (the “Spin-off”), which occurred by way of a pro rata dividend (the “Distribution”) to our shareholders of 50.1 percent of the outstanding shares in Technip Energies N.V. Each of our shareholders received one ordinary share of Technip Energies N.V. for every five ordinary shares of TechnipFMC held at 5:00 p.m., New York City time on the record date, February 17, 2021. Technip Energies N.V. is now an independent public company and its shares trade under the ticker symbol “TE” on the Euronext Paris stock exchange.
In connection with the Spin-off, on January 7, 2021, BPI, which has been one of our substantial shareholders since 2009, entered into a Share Purchase Agreement pursuant to which BPI agreed to purchase a portion of our retained stake in Technip Energies N.V. (the “BPI Investment”) for $200.0 million (the “Purchase Price”). On February 25, 2021, BPI paid $200.0 million in connection with the Share Purchase Agreement. The Purchase Price is subject to adjustments, and BPI’s ownership stake will be determined based upon a thirty day volume-weighted average price of Technip Energies N.V.’ s shares (with BPI’s ownership collared between an 11.82 percentage floor and a 17.25 percentage cap), less a six percent discount. The BPI Investment is subject to customary conditions and regulatory approval. We intend to significantly reduce our shareholding in Technip Energies N.V. over the 18 months following the Spin-off, including in connection with the sale of shares to BPI pursuant to the BPI Investment.
Beginning in the first quarter of 2021, Technip Energies’ historical financial results for periods prior to the Distribution will be reflected in our consolidated financial statements as discontinued operations.
The Spin-off enables both companies to benefit from distinct and compelling market opportunities across the energy value chain; dedicated focus of management, resources, and capital; and unique value propositions with differentiated investment appeal.
•TechnipFMC is a fully-integrated technology and services provider, driving energy development across deepwater, conventional, and unconventional resources. TechnipFMC continues to successfully demonstrate leadership in integrated subsea project delivery and is focused on replicating this success through the development of integrated production models for the surface market. TechnipFMC is also poised to benefit from service opportunities resulting from the world’s largest installed base of subsea production equipment, umbilicals, risers, and flowlines, and in the supply of surface integrated systems in the drilling, frac, production and measurement markets.
•Technip Energies is a leading engineering and construction player, with a robust project delivery model, strong technical capabilities, and proven track record as demonstrated by the successful execution of some of the world’s most iconic EPC projects. Technip Energies will continue to leverage its industry-leading process technology portfolio, particularly in the areas of ethylene and hydrogen, while pursuing further opportunities to enhance and differentiate this portfolio, and to accelerate the journey to a low-carbon future.
On February 16, 2021, we completed the Spin-off. Subsequent to the Spin-off, we will operate under two reporting segments: Subsea and Surface Technologies.
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 Subsea segment provides integrated design, engineering, procurement, manufacturing, fabrication, installation, and life of field services for subsea systems, subsea field infrastructure, and subsea pipe systems used in oil and gas production and transportation.
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, 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.
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 us 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 Subsea business depends on our ability to maintain a cost-effective and efficient production system, achieve planned equipment production targets, successfully develop new products, and meet or exceed stringent performance and reliability standards.
Subsea segment products and services
Subsea Production Systems. Our systems are used in the offshore production of crude oil and natural gas. Subsea systems are placed on the seafloor and are used to control the flow of crude oil and natural gas from the reservoir to a host processing facility, such as a floating production facility, a fixed platform, or an onshore facility.
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 400º 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.
Subsea Processing Systems. Our subsea processing systems, which include subsea boosting, subsea gas compression, and subsea separation, are designed to accelerate production, increase recovery, extend field life, and/or lower operators’ production costs for greenfield, subsea tie-back and brownfield applications. To provide these products, systems, and services, we utilize our engineering, project management, procurement, manufacturing, and assembly and test capabilities.
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. TechnipFMC vessels will typically perform the installation of the flexible pipes and umbilicals, but we also sell these products directly to oil companies or to other vessel operators.
Vessels. We have 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.
Subsea Services. We provide a portfolio of well and asset services that improve economics and enhance performance over the life of our clients' subsea development cycle. Well services include all service offerings: (i) provision of exploration and production wellhead systems and services; (ii) remotely operated vehicle (“ROV”) drill support services; (iii) well completion installation services; (iv) well access and intervention services, both rig-based and vessel-based (riserless light well intervention or “RLWI”); and (v) well plug and abandonment. Asset Services include all service offerings, such as (i) maintenance services for test, modification, refurbishment, and upgrade of subsea equipment and tooling; (ii) integrity services based on product and field data to optimize the performance of the subsea asset, including proactive inspection, maintenance, and repair (“IMR”) of subsea infrastructure; and (iii) production metering services to enhance well and field production, including real time virtual metering services and flow assurance services.
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” (“LOF”) 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. Subsea Studio™ is our portfolio of digital solutions to increase performance, transform experience, and enable innovation. Subsea Studio™ FD is our front-end field development tool,
transforming conventional concept, FEED and tender phases into ultra-fast digital field development. Subsea Studio™ Ex is our project execution digital application that increases the efficiency and speed of project execution with a data-centric approach. Subsea Studio™ LOF uses our digitally enabled operations and advanced data driven services to enhance performance and production targets.
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 Subsea segment but is also integrated across our Surface Technologies segment.
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 Subsea and Surface Technologies businesses to drive the understanding of customer requirements, competitive landscape, and investment prioritization.
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 are typically ordered one to two years before installation. We often receive advance payments and progress billings from our customers to fund initial development and working capital requirements.
Dependence on Key Customers
Generally, our customers in the Subsea segment are major integrated oil companies, national oil companies, and independent exploration and production companies.
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. Development of subsea fields, particularly in deepwater environments, involves substantial capital investments. Operators have also sought the security of alliances with us to ensure timely and cost-effective delivery of subsea and other energy-related systems that provide integrated solutions to meet their needs.
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.
The commitment to our customers goes beyond project delivery, and we nurture these alliances with transparency and collaboration to better understand their needs to ensure customer success.
No single Subsea customer accounted for 10% or more of our 2020 consolidated revenue.
We are the only fully integrated company that can provide the complete suite of subsea production equipment, umbilicals, and flowlines with the complete portfolio of installation and LOF services enabling us to develop a subsea field as a single company. We compete with companies that supply some of the components as well as installation companies. Our competitors include Aker Solutions ASA, Baker Hughes Company (“Baker Hughes”), Dril-Quip, Inc., McDermott International, Inc. (“McDermott”), National Oilwell Varco, Oceaneering International, Inc., Saipem S.p.A. (“Saipem”), Schlumberger, Ltd. (“Schlumberger”), and Subsea 7 S.A.
In the North Sea, winter weather generally subdues drilling activity, reducing vessel utilization and demand for subsea services as certain activities cannot be performed. As a result, the level of offshore activity in our Subsea segment is negatively impacted in the first quarter of each year.
The volatile, and generally low, crude oil price environment of the last several years led many of our customers to reduce their capital spending plans and defer new deepwater projects. Order activity in 2020 was particularly impacted by the sharp decline in commodity prices in April, driven in part by the reduced economic activity, and the general uncertainty related to the COVID-19 pandemic. The reduction and deferral of new projects resulted in delayed subsea projects inbound for the industry.
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 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.
With our proprietary technologies and production systems, and integration expertise, we are transforming subsea by safely delivering innovative solutions that improve economics, enhance performance, and reduce emissions. We have used these capabilities to develop a new subsea commercial model that is transforming the way we interact with our customers and create value with them.
Our strategy includes the following priorities:
•Engagement in the conceptual design and integrated front-end engineering of subsea development projects to create value through technology and integration of scopes by simplifying field architecture and accelerating both delivery schedules and time to first production.
•Innovative research and development (“R&D”), often in collaboration with clients and partners, to develop leading products and technologies that deliver greater efficiency to the client, lower development costs, unlock stranded and/or marginal fields, and enable frontier developments.
•Focus on selecting the right projects to ensure a strong and healthy backlog.
•Superior project execution capabilities allowing us to mobilize the right teams, assets, and facilities to capture and profitably execute complex subsea projects and services.
•Capitalize on combined competencies coming from alliances and partnerships with both clients and suppliers.
•Leverage supplier relationships to optimize supply chain market dynamics and implement greater simplification and standardization in products and processes.
TechnipFMC is a clear leader in the subsea industry. Our success has been built on our technological strength, innovation, focus on digitalization, and strong partnerships with major oil companies to expand market opportunities.
Recent and Future Developments
We continue to focus on performance improvement and optimization strategies that will improve our profitability. Our investments decisions fully support our business with technologies that will differentiate our portfolio.
Subsea StudioTM is transforming the conventional concept, FEED and tendering phases of subsea projects. Working with our clients, we are now able to develop ultra-fast, digital field architectures that bring together decades of engineering knowledge with artificial intelligence and machine learning to optimize product configurations, accelerate execution, and maximize value.
Subsea StudioTM has an open architecture that allows integration with other engineering and manufacturing systems, eliminating the need for multiple hand-offs, and resulting in as much as a 50% reduction in the time required for front-end engineering. We are extending the platform beyond subsea system design to incorporate the execution and field management phases of a project. Once fully implemented, we will have a complete digital thread from concept design, all the way through to the life of the field.
To further our commitment to meaningfully contribute to the energy transition, we formed New Energy Ventures to define a detailed business plan and identify and develop business opportunities and investment cases. We seek to make energy more sustainable through electrification of offshore fields through renewable sources. Offshore floating wind, wave energy, and green hydrogen will be main contributors to our subsea energy transition vision. Our core competencies in systems engineering, safety control and systems, high pressure gas pipelines and risers, connection systems, and subsea tank systems are easily transferable from oil and gas to alternative energy solutions.
We have set a target to reduce up to 50 percent of CO2 emissions from offshore upstream life of field. Subsea is a field development solution that is uniquely positioned to minimize carbon footprint and drive simplification in field design, product design and offshore operations to enable a platform-less future.
Subsea all-electric field developments enable longer step-out and tiebacks as well as unmanned platforms and operations. Subsea processing and power solutions move technology from topside to seabed. Automation and robotics such as the Gemini ROV represent a step change towards autonomous operations.
Our subsea products and infrastructure help our clients' businesses be less carbon intensive across activities by reducing CO2 emissions.
We expect our iEPCI capabilities to provide a competitive advantage as we deliver comprehensive and differentiated solutions. In addition, we anticipate the following longer-term trends in the subsea market:
•Increased market adoption of integrated subsea projects, leading to further penetration of our integrated business model and higher levels of iEPCI order activity for our Company.
•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.
•Smaller projects (less than $75 million) and direct awards will continue to contribute meaningfully to our order mix. In 2020, these awards collectively represented more than half of our total subsea inbound orders, with the remainder being publicly announced projects and subsea service activities. Subsea tiebacks are often part of this mix, and these shorter cycle brownfield expansions provide operators with faster paybacks and higher returns.
•There is a growing trend towards independent operators and new entrants undertaking subsea developments; we are a natural partner for this customer group because of our ability to offer fully integrated solutions.
•Natural gas developments are growing in prominence. We believe that more than 20 percent of offshore capital expenditures could be directed at natural gas developments by early next decade. We also anticipate that 45 percent of gas production will come from offshore, with significant growth in the Middle East (shallow water) followed by Australia (deep water) in the next five years.
We continue to work closely with our customers and believe that, in the context of lower oil prices, with our unique business model we can further reduce their project break-even levels by offering cost-effective approaches to their project developments and accelerating time to first oil and gas.
Technology development progressed on our Subsea 2.0™ (“Subsea 2.0”) product platform, the next generation of subsea equipment, using designs that are significantly simpler, leaner, and smarter than current designs. These products incorporate a modular product architecture and component level standardization to enable a flexible configure-to-order approach, reducing hardware delivery time for clients. The products are expected to deliver breakthroughs in the way subsea products are manufactured, assembled, installed, and maintained over the life of the field. Incorporating our Subsea 2.0 platform can greatly simplify the subsea infrastructure, while reducing greenhouse gas emissions. When combined with iEPCI, it also simplifies vessel installation campaigns by providing an even greater environmental and economic benefit and unlocks first oil and gas faster. In 2020, we installed Subsea 2.0 trees on two projects, with production under way offshore in Brazil. Additionally, we were awarded our latest iEPCI project with Shell in Malaysia. It incorporates our Subsea 2.0 technology as well as a diverse set of other projects in some of the most active basins in the world.
Our Joint Industry Program for electrification of the field progressed well this year. This system solution will drive reduced emissions, enable more digitally enabled intelligent field operations, improve economics for long step-out and subsea tie-back to short field developments, and contribute to a more sustainable way to develop oil and gas resources.
In a partnership with Halliburton, we introduced Odassea™, the first distributed acoustic sensing solution for subsea wells. This technology platform enables operators to execute intervention-less seismic imaging and reservoir diagnostics to reduce total cost of ownership while improving reservoir knowledge. This project expands our unique integrated subsea solution and leverages the competencies and know-how to drive a higher level of sustainability. In the field, we are delivering solutions with the technology to multiple subsea projects at all stages from conceptual design to execution and installation.
This year, we have also advanced on our journey towards more autonomous operations with the launch of the Gemini™® (“Gemini”) ROV system, featuring advanced automation and precision robotics to increase offshore productivity. Gemini is the next generation of advanced 250 horse power work class ROV system providing unprecedented subsea productivity. The integration of ROV, manipulators and tooling enables a transition to highly automated subsea robotics, which reduces task time from hours to minutes, ensuring predictable results every time. Featuring a significant advancement in manipulator design, the Gemini manipulators provide integrated hydraulics, electric power, communications, and force compliance. Additionally, the ROV has access to more than 30 subsea exchangeable tools and a comprehensive fluid intervention system to support the most demanding deepwater drilling and completion operations. With a depth rating of up to 4,000 meters, Gemini can remain subsea for one month, enabling 24/7 operations without recovery for tooling reconfiguration. Its combination of system availability, capability and productivity reduces operational costs and delivers unequaled performance.
In addition to investments to develop lower-cost production solutions, we also invest in the development of technology to expand our service portfolio. As an example, we have simultaneously launched a suite of new ROV services for drill rigs alongside Gemini to drive even greater efficiency.
Acquisitions and Investments
We did not make any material acquisitions or corporate investments in 2020. We have focused on business transformation to mitigate the adverse effects of the rapidly changing market environment and to ensure the long-term viability of our subsea business.
Going forward, we will need fewer assets to deliver more comprehensive solutions:
•We are optimizing our operations across geographies, and if economic returns don’t make sense, we will look to exit.
•We continue to right-size our assets to better align with and leverage the benefits of our differentiated offering and the advantages of new technologies – such as Subsea 2.0 – and integrated project delivery.
•We continue to partner with others, providing us access to unique assets in a more capital efficient manner.
As the subsea industry continues to evolve, we are accelerating actions to further streamline our organization, achieve standardization, and reduce cycle times. 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.
Technip Energies offers a full range of design, project management, and construction services to our customers spanning the entire downstream value chain, including technical consulting, concept selection, and final acceptance test. With the drive of the energy transition, we are increasingly deploying low-carbon solutions. We have been successful in meeting our clients’ needs given our proven skills in managing large engineering, procurement, and construction projects.
Technip Energies’ onshore business combines the study, engineering, procurement, construction, and project management of the entire range of facilities related to the production, treatment, and transportation of gas, oil and renewables, the transformation of petrochemicals such as ethylene, polymers, and fertilizers, as well as other major activities including refining and hydrogen.
Technip Energies conducts large-scale, complex, and challenging projects that involve extreme climatic conditions and non-conventional resources and are subject to increasing environmental and regulatory performance standards. Technip Energies relies on technological know-how for process design and engineering, either through the integration of technologies from leading alliance partners or through its own technologies. Technip Energies seeks to integrate and develop advanced technologies and reinforce its strong project execution capabilities in each of its onshore activities.
Technip Energies’ offshore business combines the study, engineering, procurement, construction, and project management within the entire range of fixed and floating offshore facilities, many of which were the first of their kind, including the development of floating liquefied natural gas (“FLNG”) facilities.
Principal Products and Services
Onshore Engineering & Construction. Technip Energies designs and builds different types of facilities for the development of onshore gas, oil, and renewables, processing facilities, and product export systems. In addition, Technip Energies renovates existing facilities by modernizing production equipment and control systems, in accordance with applicable environmental standards.
Natural Gas Treatment and Liquefaction. Technip Energies offers a complete range of services across the gas value chain to support its clients’ capital projects from concept to delivery. Technip Energies’ capabilities include the design and construction of facilities for liquefied natural gas (“LNG”), gas-to-liquids (“GTL”), natural gas liquids (“NGL”) recovery, and gas treatment.
In the field of LNG, Technip Energies pioneered base-load LNG plant construction through the first-ever facility in Arzew, Algeria. Working with its partners, Technip Energies has constructed facilities that can deliver more than 105 million metric tonnes per annum (“Mtpa”), which is a significant portion of the global liquefaction capacity in operation today. Technip Energies brings knowledge and conceptual design capabilities that are unique among engineering and construction companies involved in LNG. Technip Energies has engineered and delivered a broad range of LNG plants, including mid-scale and very large-scale plants, both onshore and offshore, and plants in remote locations. Technip Energies has experience in the complete range of services for LNG, receiving terminals from conceptual design studies to EPC. Reference projects include LNG trains in Qatar (the sixth largest ever constructed), Yemen, and a series of mid-scale LNG plants in China. Together with its joint venture partners,
Technip Energies delivered the first phase of the Yamal LNG plant (“Yamal”) in the Russian Arctic with all three trains put in production before the end of 2018. During 2019, the Arctic LNG 2 project for Novatek was sanctioned following award of the EPC contract to Technip Energies, together with its joint venture partners. Technip Energies combines its capabilities with its technology and know-how to develop new solutions that supports the energy transition in reducing LNG plant emissions and improving their energy efficiency.
Technip Energies is also well-positioned in the GTL market and are one of the few contractors with experience in large GTL facilities. Technip Energies has unique experience in delivering plants using Sasol’s “Slurry Phase Distillate” technology, and it has provided front-end engineering design for the Fischer-Tropsch section of more than 60 percent of commercial liquids conversion capacity worldwide. Technip Energies’ clients also benefit from its development of environmental protection measures, including low nitrogen oxide and sulfur oxide emissions, waste-water treatment, and waste management.
Technip Energies specializes in the design and construction of large-scale gas treatment complexes as well as existing facility upgrades. Gas treatment includes the removal of carbon dioxide and sulfur components from natural gas using chemical or physical solvents, sulfur recovery, and gas sweetening processes based on the use of an amine solvent. Technip Energies ranks among the top contractors in the field in relation to sulfur recovery units installed in refineries or natural gas processing plants. Given its long-term experience in the field of sour gas processing, Technip Energies can provide support to clients for the overall evaluation of the gas sweetening/sulfur recovery chain and the selection of optimum technologies.
Refining. Technip Energies is a leader in the design and construction of refineries. Technip Energies manages many aspects of these projects, including the preparation of concept and feasibility studies, and the design, construction, and start-up of complex refineries or single refinery units. Technip Energies has been involved in the design and construction of more than 30 new refineries or major refinery expansions and are one of the few contractors in the world to have built seven new refineries since 2000. Technip Energies has extensive experience with technologies related to refining and have completed more than 840 individual process units within major expansion or refurbishment projects, implemented in more than 75 countries. As a result of its cooperation with the most highly renowned technology licensors and catalyst suppliers, and its strong technological expertise and refinery consulting services, Technip Energies is able to provide an independent selection of appropriate technologies to meet specific project and client targets. These technologies result in direct benefits to the client, such as energy efficiency, emission control and environmental protection, including hydrogen and carbon dioxide management, sulfur recovery units, water treatment, and zero flaring. With a strong record of accomplishment in refinery optimization and performance improvement projects, Technip Energies has experience and competence in relevant technological fields in the refining sector. Transition to a low-carbon economy is a strategic trend driving the refining industry today for which Technip Energies offers significant experience, technological skills, solid project development, and delivery references.
Biofuels. Biofuels are a renewable alternative to fossil fuels and an advanced solution to meet stringent, medium-term climate targets. In this domain, Technip Energies is one of the global leaders and delivers a wide range of biofuel plants utilizing various technologies. Technip Energies has end-to-end project management expertise, delivering projects from feasibility studies to full EPC project execution. Opportunities lie in expansions or revamps of existing refineries, as well as stand-alone projects. As an example, Technip Energies is a partner of choice for Neste’s NEXBTL projects, being involved in its facilities in Singapore and Rotterdam.
Hydrogen. Hydrogen is widely used in the production of cleaner transport fuels and is also the most widely used industrial gas in the refining, chemical, and petrochemical industries. With more than 55 years' experience and expertise in the production of hydrogen, Technip Energies offers a single point of responsibility for the design and construction of hydrogen and synthesis gas production units, with tailored solutions ranging from Process Design Packages to full lump-sum turnkey projects. Technip Energies also offers services for maintenance and performance optimization of running units as well as a wide choice of proprietary technologies, including steam reforming technology used worldwide. Technip Energies has solutions in place for carbon capture readiness in future hydrogen plants, targeting more than a two-thirds' reduction in carbon dioxide release from hydrogen plants. Driven by its track record in grey and blue hydrogen projects, Technip Energies is also focused on positioning carbon-free, green, hydrogen in the current and future energy landscape, on the basis of its extensive expertise in hydrogen technology. In October 2020, Technip Energies entered into a strategic alliance with McPhy, a leading manufacturer and supplier of carbon-free hydrogen production and distribution equipment, to develop large-scale and competitive carbon-free hydrogen solutions from production to liquefaction, storage, and distribution.
Ethylene. Technip Energies holds proprietary technologies and is a leader in the design, construction, and commissioning of ethylene production plants. Technip Energies designs steam crackers, from concept stage through construction and commissioning, for both new plants (including mega-crackers) and plant expansions. Technip Energies has a portfolio of the latest generation of commercially proven technologies and is uniquely positioned to be both a licensor and an EPC contractor. Technip Energies’ technological developments have improved the energy efficiency in ethylene plants by improving thermal efficiency of the furnaces and reducing the compression power required per ton, thereby reducing carbon dioxide emissions per ton of ethylene by 30 percent over the last 20 years.
Petrochemicals. Technip Energies is one of the world leaders in the process design, licensing, and realization of petrochemical units, including basic chemicals, intermediate, and derivative plants. Technip Energies provides a range of services that includes process technology licensing and development and full EPC complexes. Technip Energies is accelerating the energy transition by improving monomer and energy efficiencies of its plants and by integrating feedstock shifts to improve production costs and carbon footprints. Technip Energies licenses a portfolio of chemical technologies through long-standing alliances and relationships with leading manufacturing companies and technology providers. Technip Energies has research centers to develop and test technologies for polymer and petrochemical applications, where fully automated pilot plants gather design data to scale-up processes for commercialization.
Fertilizers. Technip Energies’ expertise covers the entire value chain from mining and beneficiation to fertilizers, including ammonia, urea, and phosphoric acid plants. Working in more than 40 countries, Technip Energies has engineered and delivered more than 350 large fertilizer complexes and integrated units. Technip Energies services offerings range from global strategic planning, technical consulting, and feasibility studies to complete turnkey facilities and further assistance to production and de-bottlenecking. Through its commitment to continuous end-to-end innovation for higher performance and efficiencies, Technip Energies helps its clients develop optimized and sustainable process schemes for their projects and meet the highest environmental standards.
Sustainable Chemistry. Technip Energies is a key player in sustainable chemistry and offers a variety of technologies, processes and services in the areas of biofuels, biochemicals, and circular economy applications. With leading engineering and project management capabilities originating from expertise in chemicals, petrochemicals, refining, and fermentation, it provides high value for clients – from process development in the very early stage of the project, to the implementation of large and complex sustainable chemicals plants.
Decarbonization. Technip Energies provides solutions that span from energy efficiency to full carbon removal, adapting to a variety of client challenges and requirements. Technip Energies makes clients’ businesses less carbon intensive across activities, decarbonizes fossil-based energies and manages the resulting CO2 in a sustainable manner. Technip Energies current portfolio of sustainable technologies includes process designs that improve energy efficiency and reduce emissions and provides answers today for its customers.
Carbon-free energy solutions. To offer carbon-free solutions requires overcoming many technical and commercial challenges, as well as integrating multiple technologies for the management of electrical power from wind or solar intermittency. In this field, Technip Energies is expanding its portfolio of technologies and processes to carbon-free energy chains such as green hydrogen produced from renewable energy.
Fixed Platforms. Technip Energies offers a broad range of fixed platform solutions in shallow water, including: (i) large conventional platforms with pile steel jackets whose topsides are installed offshore either by heavy lift vessel or floatover; (ii) small, conventional platforms installed by small crane vessel; (iii) steel gravity-based structure platforms, generally with floatover topsides; and (iv) small to large self-installing platforms. Technip Energies offers a range of design, construction, and industrial applications that are key to the global transition to a less carbon intensive economy.
Floating Production Units. Technip Energies offers a broad range of floating platform solutions for moderate to ultra-deepwater applications, including:
•Spar Platforms: Capable of operating in a wide range of water depths, the Spar is a low motion floater that can support full drilling with dry trees or with tender assist and flexible or steel catenary risers. The Spar topside is installed offshore either by heavy lift vessel or floatover. Technip Energies has constructed 17 Spar facilities which are currently operating in the world.
•Semi-Submersible Platforms: These platforms are well-suited for oil field developments where subsea wells drilled by a mobile offshore drilling unit are appropriate. Semi-Submersibles can operate in a wide range of water depths and may have full drilling and large topside capabilities. Technip Energies has its own unique design of low-motion Semi-Submersible platforms that can accommodate dry trees.
•Tension-Leg Platforms (“TLP”): An appropriate platform for deepwater drilling and production in water depths up to approximately 1,500 meters, the TLP can be configured with full drilling or with tender assist and is generally a dry tree unit. The TLP and our topside can be integrated on to the substructure in a cost-effective manner at quayside.
Floating Production, Storage and Offloading (“FPSO”). Working with its construction partners, Technip Energies has delivered some of the largest FPSOs in the world. FPSOs enable offshore production and storage of oil which is then transported by a tanker where pipeline export is uneconomic or technically challenged (e.g., ultra-deepwater). FPSOs utilize onshore processes adapted to a floating marine environment. They can support large topsides and hence large production capacities. Leveraging its industry-leading capabilities in gas monetization, particularly FLNG, Technip Energies is currently well-positioned to leverage the global offshore gas cycle with gas FPSOs.
Floating Liquefied Natural Gas. FLNG is an innovative alternative to traditional onshore LNG plants and is suitable for remote and stranded gas fields that were previously deemed uneconomical. FLNG is a commercially attractive and carbon conscious approach to the monetization of offshore stranded gas fields or associated gas from oil production. It avoids the cost of building and operating long-distance pipelines and extensive onshore infrastructure. Technip Energies pioneered the FLNG industry and is the contractor best able to integrate all of the core activities required to deliver an FLNG project: LNG process, offshore facilities, loading systems, and subsea infrastructure. Technip Energies delivered the industry’s first and largest FLNG facilities and is currently executing ENI’s Coral South FLNG, which will be installed offshore Mozambique in East Africa.
Mining and Metals. Technip Energies offers its clients an integrated approach and expertise across the mineral value chain from mining to processing. The Sintoukola potash project in the Congo is a prime example of this integrated approach. Technip Energies covers the entire project lifecycle, from conceptual studies to engineering, procurement, construction, and project management services or EPC Lump-Sum Turn-Key services with references including successful completed projects and ongoing projects dedicated to the treatment of nickel, uranium, phosphate, potash, alumina, and iron ore. Technip Energies brings together the know-how and determination to transform its clients’ project economics.
Life Sciences. Technip Energies is a leading provider in the design and construction of pharmaceuticals and bio-technologies facilities, bringing together know-how, process engineering expertise, construction management, commissioning, and qualification. Technip Energies offers fully integrated technical and regulatory solutions from design to validation. Technip Energies provides its clients a robust experience with more than 350 pharmaceuticals and bio-technologies facilities delivered in the past 25 years.
Nuclear. Technip Energies has recognized expertise and dedicated capabilities at several stages of the nuclear industry chain, from mining to chemistry, underground waste storage and reprocessing. Technip Energies provides engineering services from basic to detailed design, project management, control assistance, and construction services for the nuclear market.
Loading Systems. Technip Energies is globally recognized for setting technical and performance standards in fluid transfer, delivering liquid and gas loading systems to the most challenging applications, both onshore and offshore. Technip Energies leads the market with 10,000 loading arms supplied, including more than 500 arms for LNG. Technip Energies has developed unique offshore LNG transfer systems for all FLNG facilities operating to-date. Technip Energies offers equipment design and fabrication projects, as well as services over the life of its systems.
Cybernetix robotics and surveillance. Technip Energies offers innovative robotics and surveillance systems for harsh environments and operational constraints. Technip Energies works with an array of clients in the energy industry. This includes nuclear, where Technip Energies involvement dates back more than 20 years. Technip Energies’ solutions help energy clients increase uptime, reduce costs, and improve safety and speed of decision-making through augmented monitoring and advanced robotics solutions for inspection and dexterous interventions.
Technip Energies executes turnkey contracts on a lump-sum or reimbursable basis through engineering, procurement, construction, and project management services on both brownfield and greenfield developments and projects. Technip Energies can execute EPC contracts through sole responsibility, joint ventures, or consortiums with other companies. Technip Energies often receives advance payments and progress billings from its customers to fund initial development and working capital requirements. However, its working capital balances can vary significantly through the project lifecycle depending on the payment terms and timing on contracts.
Dependence on Key Customers
Generally, Technip Energies' customers are major integrated oil companies or national oil companies. Technip Energies has developed long-term relationships with its main clients around its portfolio of technologies, expertise in project management, and strong execution, while addressing national content development requirements. Technip Energies’ customers have sought the security of partnerships with Technip Energies to ensure timely and cost-effective delivery of their projects. One customer, Arctic LNG, represented more than 10 percent of our 2020 consolidated revenue.
In the onshore market, Technip Energies faces a large number of competitors, including U.S. companies (Bechtel Corporation, Fluor Corporation, KBR, Inc. (“KBR”), and McDermott), Asian and Australian companies (Chiyoda Corporation, JGC Corporation, Hyundai Engineering & Construction Co., Ltd., Samsung Engineering Co., Ltd, SK Engineering & Construction Co., Ltd, and Worley Limited), European companies (Wood Group plc, Maire Tecnimont Group, Petrofac, Ltd., Saipem, and Tecnicas Reunidas, S.A.). In addition, Technip Energies competes against smaller, specialized, and locally based engineering and construction companies in certain countries or for specific units such as petrochemicals.
Competition in the offshore market is relatively fragmented and includes various players with different core capabilities, including offshore construction contractors, shipyards, leasing contractors, and local yards in Asia Pacific, the Middle East, and Africa. Competitors include China Offshore Oil Engineering Co., Ltd., Daewoo Shipbuilding & Marine Engineering Co., Ltd., Hyundai Heavy Industries Co., Ltd., JGC Corporation, KBR, McDermott, MODEC Inc., Saipem, and Samsung Heavy Industries Co., Ltd.
Technip Energies’ onshore business is generally not impacted by seasonality. Technip Energies’ offshore business could be impacted by seasonality in the North Sea and other harsh environment regions during the offshore installation campaign at the end of a project.
In the first quarter of 2020, the COVID-19 pandemic provoked an unprecedented drop in demand for oil and gas, while supply was maintained at a high level for some time by some large oil and gas producing countries, resulting in sharp price reductions. Technip Energies’ clients reacted rapidly, cutting their investments and delaying project sanctions.
Given the long cycle nature of Technip Energies business and the resilience and maturity of the projects in backlog, Technip Energies has been able to mitigate a significant portion of COVID-19 operational impacts. For its large capital projects, deferrals of new projects were recorded while on-going projects were maintained. With the introduction of its energy transition framework, Technip Energies is well positioned to accompany clients in their shift towards low-carbon societies and pursue commercial opportunities, including in digitalization.
The onshore market activity continues to provide a tangible set of opportunities in LNG due to the critical role that natural gas plays as a transition fuel. By focusing on selectivity, cost competitiveness and an agility to capture new opportunities, Technip Energies continues to pursue refining, petrochemical, fertilizer, and renewables project opportunities. Based on a solid track-record, technologies and its energy transition framework, Technip Energies is well positioned for growth in sustainable chemistry and other low-carbon or carbon-free energy solutions.
Offshore market activity is expected to benefit in the near-term as macro conditions continue to support the international growth cycle, resulting in increased activity in offshore and deepwater exploration and development. In the long term, new upstream investment will also be required as gas becomes a bigger portion of the global energy mix. Technip Energies is well positioned to capture these opportunities due to its offering in all offshore markets and leadership position in FLNG or gas FPSO.
Technip Energies strategy is based on the following:
•Selectivity of clients, projects, and geographies, which serves to maintain early engagement, leading to influence over technological choices, design considerations, and project specifications that make projects economically viable.
•Technology-driven differentiation with strong project management, which eliminates or significantly reduces technical and project risks, leading to both schedule and cost certainty without compromising safety.
•Excellence in project execution, because of our global, multi-center project delivery model complemented by deep partnerships and alliances to ensure the best possible execution for complex projects.
Technip Energies continues to invest in innovation and technology. Technip Energies is at the forefront of digital solutions due in part to its investment in three dimensional models, often referred to as digital twin, and interfaces.
Technip Energies continues to serve its clients in traditional markets, developing more energy-efficient solutions while making their facilities less-carbon intensive. Technip Energies’ framework about Energy Transition is organized around four pillars, and will help us accelerate the journey to a low-carbon society:
•LNG – to deliver the necessary infrastructure as a global leader as we transition to a low-carbon society.
•Sustainable Chemistry – to design and implement processes for products from renewable sources and to provide circular solutions for the generation of safe and sustainable substances that are in demand by industry and society.
•Decarbonization – to make Technip Energies’ clients’ businesses less carbon intensive across our activities, decarbonize fossil-based energies and manage the resulting CO2 in a sustainable manner.
•Carbon-Free Solutions – to expand Technip Energies’ portfolio of technologies and processes that provide non-carbon-based energy alternatives.
Recent and Future Developments
Technip Energies’ active early engagement with its clients through front-end engineering studies serves to optimize project economics while also significantly mitigating risks during project execution. Technip Energies direct engagement led to the signing of a major EPC contract in July for the construction of a new hydrocracking complex for the Assiut refinery in Egypt. Technip Energies continues to selectively track refining, petrochemical, fertilizer, and sustainable chemistry project opportunities – notably in the Middle East, Africa, Asia and North America – as these sectors typically prove to be more resilient through a downturn.
In response to an increase in demand for gas, new offshore investment will be required in the long term. Recent discoveries of offshore fields with reserves in regions such as Australia and East Africa are expected to benefit future activity; however, the timing of increased investment in these regions could be deferred. Offshore continued as a leader in gas projects with the ongoing Karish FPSO project for Energean, Tortue FPSO project for BP, and Coral FLNG project for Eni.
Technip Energies is positioned as a premier provider of project execution and technology solutions, which enables its customers to unlock resources at advantaged capital and operating economics. Technip Energies invests in these main onshore R&D areas: (i) the development of process technology and equipment for economy of scale; (ii) continuous improvement of its proprietary process technologies and other solutions to reduce operating and investment cost; and (iii) diversification of its proprietary technology offering, especially in the energy transition domain.
Technip Energies’ offshore R&D efforts are focused on improving the economics of its clients’ diverse fixed and floating platform projects. Additionally, to further reduce operating and investment costs, Technip Energies continues to progress the development of robotic solutions for offshore platforms and work towards a standard and adaptable design for Normally Unmanned Installations. Technip Energies is also evaluating the various opportunities that will emerge as the industry and societal demands shift as part of the energy transition. Technip Energies continues to assess and implement the best digital technologies to support the business.
Acquisitions and Investments
Technip Energies has made an investment in McPhy, a leading manufacturer and supplier of carbon-free hydrogen production and distribution equipment. Technip Energies also signed a memorandum of understanding with McPhy, pursuant to which the two companies will jointly work on technology development and project implementation. In addition to its leadership position in hydrogen, this collaboration will help Technip Energies develop large-scale and competitive Green hydrogen solutions.
The 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.
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
Completion and stimulation. Our 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.
TechnipFMC’s manifold solutions help increase operational efficiency for a pad site with multiple wells. Our SuperFrac™ Manifold provides time savings and pumping efficiencies when stimulating multiple wells on a single pad. The manifolds are installed and connected to multiple trees off the critical path, which allows our customers to fracture more stages per day in a compact footprint and efficiently move operations from one well to another, saving time and money. We also offer conventional and articulating arm manifold trailers, which are used as the connection point between fracturing pump trucks and the fracturing flowline and manifold system.
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.
Flowline. We are a leading supplier of flowline products and services to the oilfield industry. From the original Chiksan® and Weco® products to our revolutionary equipment designs and integrated services, our family of flowline products and services provides our customers with reliable and durable pressure pumping equipment. Our facilities stock flowline products in the specific sizes, pressures, and materials common to each region. Our commitment is to help our customers worldwide attain maximum value from their pressure pumping assets by guaranteeing that the right products arrive at the job site in top working condition. Our total solutions approach includes the InteServ tracking and management system, mobile inspection and repair, strategically located service centers, and genuine Chiksan® and Weco® spare parts.
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 is the first automated integrated production platform for onshore unconventional. Our digital interface enables operators to manage their production operations remotely, leveraging Insitex 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. Our Automated Well Testing Package (AWT™) is now widely used in North America enabling operators to remove personnel from processes and its digital package anticipates service. These offerings enable a substantial reduction in downtime and enhanced safety.
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. TechnipFMC provides 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.
Surface Technologies manufactures most of its products, resulting in a reliance on manufacturing locations throughout the world, including fully owned manufacturing hubs in Stephenville, Texas, U.S., and Singapore, and a wide global network of third-party suppliers. We also maintain a large quantity of rental equipment related to our drilling and completion and pressure control offerings.
Dependence on Key Customers
Generally, Surface Technologies’ customers are major integrated oil companies, national oil companies, independent exploration and production companies and oil and gas service companies. No single Surface Technologies customer accounted for 10% or more of our 2020 consolidated revenue.
Surface Technologies is a market leader for many of our products and services. Some of the factors that distinguish us from other companies in the same sector include our technological innovation, reliability, product quality, and ability to integrate across a broad portfolio scope. Surface Technologies competes with other companies that supply surface production equipment and pressure control products. Some of our major competitors include Baker Hughes, Cactus, Inc., Forum Energy Technologies, Inc., Gardner Denver, Inc., Schlumberger, Haliburton, and The Weir Group plc.
It has been a challenging year for the surface market, driven in part by the COVID-19 pandemic and the decline in hydrocarbon demand. Drilling and completion activity during 2020 decreased by approximately 40 percent compared to 2019 levels.
North American activity remained lower during the year, however, the number of U.S. fracturing crews has started to recover from the trough reached in May, and the weekly U.S. rig count has stabilized. Activity outside of North America remains resilient. We also continue to benefit from our exposure to the Middle East and Asia Pacific, both of which are being supported by strength in gas-related activity. The business mix outside of North America is expected to account for as much as 65% of total segment revenue in 2021.
We exist to transform the surface market in order to provide customers with breakthrough reductions in cost and carbon intensity in the drilling, completion, upstream production, and midstream and downstream transportation sectors. We distinguish our offering by three key strengths: technology, integration, and automation.
Technology: We are committed to differentiated core products that enable integrated solutions to leverage the benefits of smarter designs.
Integration: Integrated ecosystems that reduce costs and increase uptime through pre-engineered, modular solutions which drive improvements in greenhouse gas emissions.
Automation: Intelligent products that are remotely managed using actionable data, reducing manpower in the field, maximizing uptime, and enabling enhanced production.
In 2020, we capitalized on the launch of our revolutionary integrated ecosystems, iProduction™ and iComplete™, with the successful installation of our first iProduction™ system with Shell in their Permian basin iShale™
production site, and the implementation of our iComplete™ integrated system in the U.S. utilizing our digital interface technology, CyberFrac™.
iProduction™ is a modern production approach that includes well pad processing, gathering lines, and central processing facilities under a single digital interface. iProduction™ uses proprietary process technology, allowing customers to eliminate tanks, decrease GHG emissions and reduce footprint while maintaining reliability. By integrating and modularizing pre-engineered standard products, we reduced our clients’ costs by up to 33 percent, reduce time to first oil by up to 30 percent and, using our digital twin technology, each site is monitored and controlled remotely – delivering new levels of insightful data to ensure uptime.
iComplete™ uses standardized equipment that can be set up for any unconventional well in the world. The integrated system removes 80 percent of connections and reduces the need for manual intervention during operations thanks to our CyberFrac™ digital interface, which provides actionable data remotely. Our customers get to oil faster and reduce operating costs by 30 percent. This revolutionary approach is making our customers' frac pads faster, safer, and smarter.
Acquisitions and Investments
In June 2018, we broke ground on a new 52,000 square meter facility in Dhahran, Saudi Arabia, with work continuing throughout 2019. Despite the COVID-19 pandemic, work has progressed through 2020 and we are on track to open the facility by mid-2021. The facility, which will be comprised of two stories and a 13, 000 square meter manufacturing space, is part of our continued investment in the Middle East to reinforce our leading position in delivering local solutions that extend asset life and improve project returns. The new facility positions us to respond to the expected increase in activity in the area while strengthening our capabilities, providing a solid platform for us to grow in what is a strategic market for our surface business. The new facility will offer a broader range of capabilities and greater value-add in-country, supporting our full portfolio with high technology equipment in the drilling, completion, production, and pressure control sectors.
Capitalizing on Energy Transition
TechnipFMC continues to innovate and introduce new technologies across our portfolio of products and services. Leveraging our vast experience and competencies from decades of working in the transformation of the energy sector, we enable our clients to achieve their energy transition targets.
In Subsea, we fundamentally changed the way we design, manage, and execute projects, starting with digital tools such as our Subsea Studio™. Our Subsea 2.0™ platform can greatly simplify subsea infrastructure, while reducing greenhouse gas emissions by nearly 50%. Combined with iEPCI™, our unique integrated model, it simplifies vessel installation campaigns, providing an even greater environmental and economic benefit. Our vision includes an “all-electric” system powered by renewable energy, with the potential to eliminate emissions.
Technip Energies continues to break boundaries and accelerate the journey to a low-carbon society. With decades of experience in the energy industry, Technip Energies is using its engineering, process and technology competencies as well as R&D facilities to find decarbonized solutions for a better environment. Technip Energies has structured its energy transition framework around four pillars: LNG, sustainable chemistry, decarbonization and carbon-free energy solutions. Technip Energies is a leader in gas treatment and liquefaction and has significant expertise and prospects in sustainable chemistry, such as its partnership with Neste’s for renewable diesel projects. It has expanded its footprint in the circular economy, including collaboration with Carbios to demonstrate its recycling technology. Technip Energies’ Genesis advisory services have a particular focus on energy transition. Technip Energies is a leader in hydrogen, with proven technology to deliver blue hydrogen and, through its investment in McPhy, it is well positioned for the emerging Green hydrogen market.
Surface Technologies’ high-efficiency solutions enable our clients to reach hydrocarbons faster with fully optimized and environmentally compact systems. Our integrated service lines, such as iProduction™ and iComplete™, provide additional opportunities and benefits to our customers. For instance, a project utilizing our iProduction™ integrated production system allows the client to capture more than 50 percent of the greenhouse gases that are typically released into the atmosphere during the production phase of an unconventional development.
OTHER BUSINESS INFORMATION RELEVANT TO OUR BUSINESS SEGMENTS
Sources and Availability of Raw Materials
Our business segments purchase carbon steel, stainless steel, aluminum, and steel castings and forgings from the global marketplace. We typically do not use single source suppliers for the majority of our raw material purchases; however, certain geographic areas of our businesses, or a project or group of projects, may heavily depend on certain suppliers for raw materials or supply of semi-finished goods. We believe the available supplies of raw materials are adequate to meet our needs.
Research and Development
We are engaged in R&D activities directed toward the improvement of existing products and services, the design of specialized products to meet customer needs, and the development of new products, processes, and services. A large part of our product development spending has focused on the improved design and standardization of our Subsea and Technip Energies products to meet our customer needs.
Patents, Trademarks, and Other Intellectual Property
We own a number of patents, trademarks, and licenses that are cumulatively important to our businesses. As part of our ongoing R&D focus, we seek patents when appropriate for new products, product improvements, and related service innovations. We have approximately 7,300 issued patents and pending patent applications worldwide. Further, we license intellectual property rights to or from third parties. We also own numerous trademarks and trade names and have approximately 660 registrations and pending applications worldwide.
We protect and promote our intellectual property portfolio and take actions we deem appropriate to enforce and defend our intellectual property rights. We do not believe, however, that the loss of any one patent, trademark, or license, or group of related patents, trademarks, or licenses would have a material adverse effect on our overall business.
Segment and Geographic Financial Information
The majority of our consolidated revenue and segment operating profits are generated in markets outside of the United States. Each segment’s revenue is dependent upon worldwide oil and gas exploration, production and petrochemical activity. Financial information about our segments and geographic areas is incorporated herein by reference from Note 7 to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
Information regarding order backlog is incorporated herein by reference from the section entitled “Inbound Orders and Order Backlog” in Part II, Item 7 of this Annual Report on Form 10-K.
Website Access to Reports and Proxy Statement
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements, and Forms 3, 4, and 5 filed on behalf of directors and executive officers, and amendments to each of those reports and statements, are available free of charge through our website at www.technipfmc.com, under “Investors” as soon as reasonably practicable after such material is electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (the “SEC”). Alternatively, our reports may be accessed through the website maintained by the SEC at www.sec.gov. Unless expressly noted, the information on our website or any other website is not incorporated by reference in this Annual Report on Form 10-K and should not be considered part of this Annual Report on Form 10-K or any other filing we make with the SEC.
In the first quarter of 2018, we developed a global framework and key performance indicators for 2018 and beyond to promote and accelerate the development of women in all functions of our global organization.
Our Advancing Gender Diversity objectives include the following:
•Ensure gender pay equality everywhere we operate and review all jobs to ensure gender pay equality and monitor them through a full review every three years.
•Improve gender balance in the organization, across all functions and levels.
•Promote women fairly and equally through the career development process.
In 2018, we reviewed 100 percent of job functions to ensure pay equity. We identified areas for improvement and completed all necessary salary adjustments in 2019 to ensure fair compensation for all of our employees. Continuous monitoring to ensure pay equity was a focus for 2020. Additionally, in 2020, we announced a global parental leave policy for 2021 implementation.
In 2019, to foster a diverse and inclusive culture, we launched its “Diversity & Inclusion – It Matters!” e-learning module with an aim to raise awareness of our differences and help our employees improve as people and professionals. This e-learning module was added to new hire orientation in 2020 to promote our commitment to advancing gender diversity and an inclusive culture where all employees can reach their full potential. We also continued to improve gender balance in 2020 with a focus on increasing the representation of women hired as new graduates. 40 percent of all graduates hired globally in 2020 were women, surpassing our goal of 30 percent.
We continued to foster Employee Resource Groups (“ERGs”) and encourage participation throughout the whole Company. Our CEO made the pledge to CEO Action for Diversity and Inclusion, committing to create a trusting environment where all ideas are welcomed and employees feel comfortable and empowered to draw on their unique experiences and backgrounds. Our seven ERGs continue to be instrumental in engaging employees and creating a platform to have complex, and sometimes difficult conversations about diversity and inclusion.
Continuous discussions around improving representation of women in the organization helps us promote women fairly and equally throughout their career development process within our Company. In 2020, our People and Culture team reviewed all senior management succession plans to ensure that female candidates were considered and included.
As a result, 76 percent of our senior management succession plans in 2020 include at least one woman versus 70 percent in 2019, which exceeded our 2020 goal to increase representation of women in succession plans by five percent.
As of December 31, 2020, TechnipFMC had the following number of employees:
|Male Employees||Female Employees||Total||% of Female Employees|
|Executive officers||7||5||4||3||11||8||36 ||%||38 ||%|
|Senior managers||84||92||24||19||108||111||22 ||%||19 ||%|
|Employees on payroll (overall)||28,760 ||26,948 ||8,407 ||8,135 ||37,167 ||35,086 ||23 ||%||23 ||%|
We are committed to improving this dimension and took necessary steps in strengthening our succession plans and graduate intake in 2020. We have also developed an inclusive leadership curriculum, which, along with executive leadership team commitment and systemic changes to policy and talent standards, will help improve women representation in senior manager roles in the medium to long term.
In June 2020, we decided to broaden our inclusion focus by reflecting not only gender but also race, ethnicity, religion, sexual orientation and disability. This committee is renamed to “Inclusion and Diversity” empowering our people to be the difference through inclusion and exercising the value of diversity. This will be accomplished through our people, culture and internal and external partnerships.
Promoting Cultural and Ethnic Diversity
We focus on our broad cultural and ethnic diversity, which we constantly promote and develop throughout the Company and our subsidiaries, through the internationalization of our teams, multicultural programs, and international mobility.
Providing Employment to People with Disabilities
Three of our Foundational Beliefs – integrity, respect, and sustainability – are tangibly embedded in fair employment practices and equal opportunity. Our policy is that our employment decisions related to recruitment, selection, evaluation, compensation, and development, among others, are not influenced by unlawful or unfair discrimination on the basis of race, religion, gender, age, ethnic origin, nationality, sexual orientation, gender or gender reassignment, marital status, or disability.
It is our policy to encourage and give full and fair consideration to applications for employment from disabled people, and to assist with their training and development in light of their aptitudes and abilities. If an existing employee becomes disabled, it is our policy wherever practicable to provide continuing employment under our usual terms and conditions, and to provide training, career development, and promotion opportunities to the disabled employee to the fullest extent possible.
Employee and Social Matters
People and culture are at the heart of our development strategy. People are our wealth and strength. We are committed to our employees, our employee guidelines are specified in our Code of Business Conduct, which applies to all employees, regardless of their roles and where they work.
We believe that all of our employees are entitled to fair treatment, courtesy, and respect, wherever they work: in the office, on vessels, on industrial and construction sites, or in client offices. We do not tolerate any form of abuse or harassment, and we will not tolerate any action, conduct, or behavior that is humiliating, intimidating, or hostile.
Furthermore, our hiring and employee development decisions are fair and objective. Employment decisions are based only on relevant qualifications, performance, demonstrated skills, experience, and other job-related factors, with our goal of creating a diverse, tolerant, and inclusive workforce.
Our workforce consists of the following:
|Temporary employees (fixed-term)||3,616||2,713||3,691|
|Employees on payroll||37,144||37,167||35,086|
Developing and Keeping Talent
We simplified the process of identifying key talents in the organization in 2020 and the new process helped us achieve significant and quality progress in a remote working environment. We also strengthened the depth of our succession planning for leadership roles in the organization.
Following the 2019 enhancement of our processes and practices, in 2020 we continued our journey of offering best-in-class development opportunities to our people:
•We introduced a new process called 'Talking Talents' in 2020 to identify and flag talents to develop in the key areas of Leadership, Technology and Project Management. This population represented 6 percent of our global population and will be the primary focus for development initiatives.
•Our new and improved performance appraisal process kicked off for all TechnipFMC employees in October 2020 and we concluded with 98 percent completion. A stronger focus was put on employees’ behaviors, as part of our core values framework, and a simplified workflow for employees and managers for an efficient performance appraisal process.
•We continued to support our talent acquisition efforts by reinforcing the TechnipFMC employer brand in 2020, reflecting what our people say about TechnipFMC: we work on breakthrough projects, in a global playground and, as a result, our people live inspiring experiences. This is the key message we want potential future employees to associate with TechnipFMC. Initiatives, such as #technipfmcproud, launched in 2020 comprised of a series of webinars, inviting employees to share their own inspiring TechnipFMC experiences. This, along with other initiatives and onboarding of brand ambassadors, helped us put our employer brand into operation in 2020.
Enabling our people to grow and develop is a significant priority and during 2020 we launched and improved upon a number of learning and knowledge management initiatives to enhance the capabilities of our employees. While our ambition is to create a learning environment and tools and resources for everyone to succeed - some of our content is indeed focused on the following development pathways of Leadership, Technology and Project Management mentioned earlier.
•In October 2020, we launched the global technical expertise program, onboarding more than 650 technical experts and laying the foundation for identifying and nurturing more technical experts who help us in creating differentiated technologies.
•Engagement in the iLearn learning platform gained significant traction in 2020 as we embraced a digital transformation of learning. This hub is a learning experience platform with a modern and easy-to-use interface. In 2020, there were more than 6,860 pieces of creative and innovative learning content available, with ongoing releases of new and meaningful courses, to support skills development for our employees and enhance their performance in their job. 50 percent of our training hours and 95 percent of our course completions were done in a digital or virtual environment, which resulted in 5.85 training hours per employee. The top five areas of learning in 2020 were Health, Safety, Environment and Security, Engineering, Manufacturing, Quality and Surface.
•2020 also saw significant progress in the knowledge management space with our knowledge repository “The Well” having over 646,000 visits with 16,674 employees having utilized it. Our second knowledge-sharing platform, The Bridge, which aligns with The Well, enables chartered global knowledge-sharing networks. It had a soft launch in May 2020, and now has 17 enterprise-wide business and technical communities with the expectation that there will be more than 50 by the end of 2021.
Employee attrition in 2020 was 2.5 percent compared to 6.2 percent in 2019 attributable to a major extent to our continued focus on learning and talent development.
Strengthening Social Dialogue
TechnipFMC has developed a culture that is based on the values of trust, mutual respect, and dialogue. In accordance with local legislation, regular meetings with trade union-appointed and/or works council representatives are organized for information and/or consultation. The European Works Council (“EWC”) meets at least twice a year and all of our European entities had joined the EWC by the end of 2019 with the EWC agreement signed by participants' representatives by the end of 2019. In the first quarter of 2020, the EWC elected its new member and held two meetings in 2020, first in May and the second in December.
We also foster ERGs, which are voluntary, employee-led focus groups dedicated to a diverse and inclusive work environment. We currently have seven active ERGs with approximately 1,800 members in the United States, the United Kingdom, and Brazil, covering Diversity in Science, Technology, Engineering and Mathematics, Mothers Network, Black Organization for Leadership & Development, Young Professionals Group, Military Veterans & Friends Network, and Handicap Inclusion. ERGs discuss and promote topics related to diversity and inclusion, develop and organize workshops internally and externally, support local initiatives, and propose actions to improve accessibility and inclusivity for all at the workplace. TechnipFMC provides executive support to our ERGs to help maintain cordial employee relations and improve the wellbeing of our people.
In light of the global challenges faced in 2020 due to COVID-19 pandemic, we ran a global employee wellbeing survey in May to understand how our employees were coping with social distancing and other related domestic challenges during the pandemic. We received a strong response, with 19,954 (55 percent) employees responding globally which helped us develop policies to assist in the challenges our people are facing in these unprecedented times. 74 percent of responding employees answered favorably to the question on their overall wellbeing. The survey also gave us insights on other topics that helped in improving overall communication and employee engagement.
We have a robust internal communications strategy and support communication channels that ensure that all employees are communicated to within a timely and relevant way. The effectiveness of internal communication is continually monitored and adjusted based on a focus group feedback program that reaches multiple levels across the organization. Employees are regularly consulted and provided with information on changes and events that may affect them through channels such as regular meetings, employee representatives, and our intranet site. These consultations and meetings ensure that employees are kept informed of the financial and economic factors affecting our performance and matters of concern to them as employees.
Labor Relations and Collective Agreements
We seek to maintain constructive relationships with works councils and trade unions, and to comply with relevant local laws and collective agreements in relation to collective or individual labor relations. We also operate through local subsidiaries in many countries, a number of which, including France, Germany, Norway, and Italy, have legal requirements for works councils, which include employee representatives.
We send regular information to all employees to share information about business success, changes to the organizational structure, and any major impact to the business or company. The same approach of sharing information and maintaining a regular dialogue with employees exists at a local level through the action of the local
communications teams and the managers. In countries where staff representatives or works councils are in place, we seek to maintain an effective and regular dialogue. To get the direct feedback of employees, employees surveys are performed in some countries or business, such as Norway, Americas, and the Asia Pacific region. Every quarter, all employees receive a direct communication from the Chairman and CEO about our financial results and main business information. While travelling to a company center, the executive leadership team members take this as an opportunity to engage with employees, either through town halls or informal meetings.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding our executive officers called for by Item 401(b) of Regulation S-K is hereby included in Part I, Item 1 “Business” of this Annual Report on Form 10-K.
The following table indicates the names and ages of our executive officers as of March 5, 2021, including all offices and positions held by each in the past five years:
|Name||Age||Current Position and Business Experience (Start Date)|
Douglas J. Pferdehirt (a)
Executive Chairman and Chief Executive Officer (2019)
Chief Executive Officer (2017)
President and Chief Executive Officer of FMC Technologies (2016)
Alf Melin (a)
Executive Vice President and Chief Financial Officer (2021)
Senior Vice President, Finance Operations (2017)
Senior Vice President, Surface Americas (2017)
General Manager, Fluid Control (2015)
Victoria Lazar (a)
Executive Vice President, General Counsel and Secretary (2020)
Senior Vice President, General Counsel and Corporate Secretary for Bristow Group (2020)
Executive Counsel, M&A, General Electric (2019)
Associate General Counsel, Baker Hughes, a GE Company (2018)
Associate General Counsel, GE Oil & Gas (2017)
Justin Rounce (a)
Executive Vice President and Chief Technology Officer (2018)
President, Valves & Measurement for Schlumberger Limited (2018)
Senior Vice President, Marketing & Technology for Schlumberger Limited (2016)
Agnieszka Kmieciak (a)
Executive Vice President, People and Culture (2018)
HR Director, Production Group for Schlumberger Limited (2017)
Talent Manager and Workforce Planning Manager for Schlumberger Limited (2015)
Barry Glickman (a)
President, Surface Technologies (2019)
President, Engineering, Manufacturing and Supply Chain (2017)
Vice President, Subsea Services of FMC Technologies (2015)
Jonathan Landes (a)
President, Subsea (2020)
Senior Vice President, Subsea Commercial (2017)
President, Subsea Projects North America (2017)
General Manager, Western Region Subsea (2015)
Krisztina Doroghazi (b)
Senior Vice President, Controller, and Chief Accounting Officer (2018)
Senior Vice President, Financing Planning and Reporting of MOL Group (2015)
(a) Member of the Executive Leadership Team and a Rule 3b-7 executive officer and Section 16 officer under the Exchange Act.
(b) Section 16 officer under the Exchange Act.
No family relationships exist among any of the above-listed officers, and there are no arrangements or understandings between any of the above-listed officers and any other person pursuant to which they serve as an officer. During the past 10 years, none of the above-listed officers was involved in any legal proceedings as defined in Item 401(f) of Regulation S-K. All officers are appointed by the Board of Directors to hold office until their successors are appointed.
ITEM 1A. RISK FACTORS
Important risk factors that could impact our ability to achieve our anticipated operating results and growth plan goals are presented below. The following risk factors should be read in conjunction with discussions of our business and the factors affecting our business located elsewhere in this Annual Report on Form 10-K and in our other filings with the SEC.
Summary Risk Factors
The following is a summary of some of the risks and uncertainties that could materially adversely affect our business, financial condition and results of operations. You should read this summary together with the more detailed description of each risk factor contained below.
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.
•Our success depends on our ability to develop, implement, and protect new technologies and services.
•Cumulative loss of several major contracts, customers, or alliances may have an adverse effect on us.
•The COVID-19 pandemic, the United Kingdom’s withdrawal from the European Union, 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.
•DTC and Euroclear may cease to act as depository and clearing agencies for our shares.
•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.
•New capital asset construction projects for vessels and manufacturing facilities are subject to risks, including delays and cost overruns.
•Our failure to timely deliver our backlog could affect future sales, profitability, and customer relationships.
•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.
•Pirates endanger our maritime employees and assets.
Risks Related 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 laws and regulations, including those related to environmental protection and climate change, health and safety, privacy, data protection and data security, labor and employment, import/export controls, currency exchange, bribery and corruption, and taxation, violations of which could have a material adverse effect on our financial condition, results of operations, or cash flows.
•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.
•Uninsured claims and litigation against us, including intellectual property litigation, could adversely impact our financial condition, results of operations, or cash flows.
•The IRS may not agree that we should be treated as a foreign corporation for U.S. federal tax purposes and may seek to impose an excise tax on gains recognized by certain individuals;
•U.S. tax laws and/or guidance could also affect our ability to engage in certain acquisition strategies and certain internal restructurings.
•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 intend to be treated exclusively as a resident of the United Kingdom for tax purposes, but French or other tax authorities may seek to treat us as a tax resident of another jurisdiction, and we may not qualify for benefits under tax treaties entered into between the United Kingdom and other countries.
Risks Related to the Spin-off and the Related Transactions
•The Spin-off may subject us to future liabilities and may not achieve some or all of the anticipated benefits.
•We are a significant shareholder of Technip Energies and the value of our investment in Technip Energies may fluctuate substantially and may result in a significant impact to our results of operations.
•We may be required to refund the Purchase Price under the Share Purchase Agreement to BPI in the event that certain conditions thereunder are not met.
General Risk Factors
•Our businesses are dependent on the continuing services 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.
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 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 Organization of Petroleum Exporting Countries and the 10 other oil producing countries, including Russia, Mexico and Kazakhstan (“OPEC+”) to set and maintain production level for oil;
•oil refining and transportation capacity and shifts in end-customer preferences toward fuel efficiency and the use of natural gas;
•technological advances affecting energy consumption;
•development, exploitation, relative price, and availability of alternative sources of energy and our customers’ shift of capital to the development of these sources;
•volatility in, and access to, capital and credit markets, which may affect our customers’ activity levels, and spending for our products and services;
•decrease in investors’ interest in hydrocarbon producers because of environmental and sustainability initiatives; and
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. The oil and natural gas market remains quite volatile, and price recovery and business activity levels are 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.
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.
We compete on the basis of a number of different factors, such as product offerings, project execution, customer service, and price. In order to compete effectively we must develop and implement innovative technologies and
processes, and execute our clients’ projects effectively. We can give no assurances that we will continue to be able to compete effectively with the products and services or prices offered by our competitors.
Our industry, including our customers and competitors, has experienced unanticipated changes in recent years. Moreover, the industry is undergoing consolidation to create economies of scale and control the value chain, which may affect demand for our products and services because of price concessions for our competitors or decreased customer capital spending. This consolidation activity could impact our ability to maintain market share, maintain or increase pricing for our products and services or negotiate favorable contract terms with our customers and suppliers, which could have a significant negative impact on our financial condition, results of operations or cash flows. We are unable to predict what effect consolidations and other competitive factors in the industry may have on prices, capital spending by our customers, our selling strategies, our competitive position, our ability to retain customers or our ability to negotiate favorable agreements with our customers.
The COVID-19 pandemic 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.
The COVID-19 pandemic, including actions taken by governments and businesses, has resulted in a significant reduction in global economic activity, including increased volatility in global oil and natural gas markets. Measures taken to address and limit the spread of the disease-such as stay-at-home orders, social distancing guidelines, and travel restrictions have adversely affected the economies and financial markets of many countries. The resulting disruption to our operations, communications, travel, and supply chain may continue or increase in the future, and could limit the ability of our employees, partners, or vendors to operate efficiently or at all, and has had, and is reasonably likely to continue to have, an adverse impact on our financial condition, operating results, and cash flows.
Significant uncertainty remains as to the potential impact of the COVID-19 pandemic on our operations, and we are closely monitoring the effects of the pandemic on commodity demands and on our customers. These effects may include adverse revenue and net income effects; disruptions to our operations; potential project delays or cancellations; employee impacts from illness, school closures, and other community response measures, which may lead to disruptions and decreased productivity; and temporary closures of our facilities or the facilities of our customers and suppliers. Beginning in the first quarter of 2020, we have experienced operational impacts including supply chain disruptions, productivity declines and logistics constraints. We have also experienced incremental, direct costs as a result of COVID-19.
COVID-19, and the volatile regional and global economic conditions stemming from the pandemic, could also aggravate the other risk factors discussed herein, including but not limited to risks related to the demand for oil and gas, which may not recover immediately. The full extent to which the COVID-19 pandemic will impact our results is unknown and evolving and will depend on various factors and consequences beyond our control, such as the severity, duration, and spread of COVID-19; the success of actions taken by governments and health organizations to combat the disease and treat its effects, including vaccine acceptance, distribution and effectiveness; decisions by our alliance partners and customers regarding their business plans and capital expenditures; and the extent to which, and the timing of, general economic and operating conditions recover.
Our success depends on our ability to develop, implement, and protect new technologies and services and the intellectual property related thereto.
Our success depends on the ongoing development and implementation of new product designs, including the processes used by us to produce and market our products, and on our ability to protect and maintain critical intellectual property assets related to these developments. If we are not able to obtain patents, maintain trade secrets or obtain other protection of our intellectual property rights, if our patents are unenforceable or the claims allowed under our patents are not sufficient to protect our technology, or if we are not able to adequately protect our patents or trade secrets, we may not be able to continue to develop our services, products and related technologies. Additionally, our competitors may be able to independently develop technology that is similar to ours without infringing on our patents or gaining access to our trade secrets. If any of these events occurs, we may be unable to meet evolving industry requirements or do so at prices acceptable to our customers, which could adversely affect our financial condition, results of operations, or cash flows.
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.
We often enter into large, long-term contracts that, collectively, represent a significant portion of our revenue. These agreements, if terminated or breached, may have a larger impact on our operating results or our financial condition than shorter-term contracts due to the value at risk. Moreover, the global market for the production, transportation, and transformation of hydrocarbons and by-products, as well as the other industrial markets in which we operate, is dominated by a small number of companies. As a result, our business relies on a limited number of customers. If we were to lose several key contracts, customers, or alliances over a relatively short period of time, we could experience a significant adverse impact on our financial condition, results of operations, or cash flows.
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.
We operate in various countries across the world. Instability and unforeseen changes in any of the markets in which we conduct business, including economically and politically volatile areas could have an adverse effect on the demand for our services and products, our financial condition, or our results of operations. These factors include, but are not limited to, the following:
•nationalization and expropriation;
•potentially burdensome taxation;
•inflationary and recessionary markets, including capital and equity markets;
•civil unrest, labor issues, political instability, disease outbreaks, terrorist attacks, cyber terrorism, military activity, and wars;
•supply disruptions in key oil producing countries;
•the ability of OPEC+ to set and maintain production levels and pricing;
•trade restrictions, trade protection measures, price controls, or trade disputes;
•sanctions, such as prohibitions or restrictions by the United States against countries that are the targets of economic sanctions, or are designated as state sponsors of terrorism;
•foreign ownership restrictions;
•import or export licensing requirements;
•restrictions on operations, trade practices, trade partners, and investment decisions resulting from domestic and foreign laws, and regulations;
•changes in, and the administration of, treaties, laws, and regulations including in response to public health issues;
•inability to repatriate income or capital;
•reductions in the availability of qualified personnel;
•foreign currency fluctuations or currency restrictions; and
•fluctuations in the interest rate component of forward foreign currency rates.
DTC and Euroclear may cease to act as depository and clearing agencies for our shares.
Our shares were issued into the facilities of The Depository Trust Company (“DTC”) with respect to shares listed on the NYSE and Euroclear with respect to shares listed on Euronext Paris (DTC and Euroclear being referred to as the “Clearance Services”). The Clearance Services are widely used mechanisms that allow for rapid electronic transfers of securities between the participants in their respective systems, which include many large banks and brokerage firms. The Clearance Services have general discretion to cease to act as a depository and clearing agencies for our shares. If either of the Clearance Services determine at any time that our shares are not eligible for continued deposit and clearance within its facilities, then we believe that our shares would not be eligible for continued listing on the NYSE or Euronext Paris, as applicable, and trading in our shares would be disrupted. Any such disruption could have a material adverse effect on the trading price of our shares.
The United Kingdom’s withdrawal from the European Union may have a negative effect on global economic conditions, financial markets, and our business.
We are based in the United Kingdom and have operational headquarters in Paris, France; Houston, Texas, United States; and in London, United Kingdom, with worldwide operations, including material business operations in Europe. The United Kingdom withdrew from the European Union on January 31, 2020 (“Brexit”). In connection with Brexit, the United Kingdom and the European Union agreed on the Trade and Cooperation Agreement (“TCA”) that governs the future trading relationship between the United Kingdom and the European Union in specified areas. The TCA took effect on January 1, 2021. The United Kingdom is no longer in the European Union customs union and is outside of the European Union single market. The TCA addresses trade, economic arrangements, law enforcement, judicial cooperation and a governance framework including procedures for dispute resolution, among other things. Because the agreement merely sets forth a framework in many respects and will require complex additional bilateral negotiations between the United Kingdom and the European Union as both parties continue to work on the rules for implementation, significant political and economic uncertainty remains about whether the terms of the relationship will differ materially from the terms before withdrawal.
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 United Kingdom laws and regulations as the United Kingdom determines which European Union laws to replicate or replace, including financial laws and regulations, tax and free trade agreements, intellectual property rights, supply chain logistics, environmental, health and safety laws and regulations, immigration laws, employment laws, and other rules that would apply to us and our subsidiaries, could increase our costs, restrict our access to capital within the United Kingdom and the European Union, depress economic activity, and further decrease foreign direct investment in the United Kingdom. For example, any divergence in the United Kingdom from European Union law could eliminate the benefit of certain tax-related European Union directives currently applicable to United Kingdom companies such as us, including the Parent-Subsidiary Directive and the Interest and Royalties Directive, which could, subject to any relief under an available tax treaty, raise our tax cost.
Any of these factors could have a material adverse effect on our business, financial condition, or results of operations.
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.
We have substantial existing debt. As of December 31, 2020, our total debt was $4.0 billion. In addition, in connection with Spin-off, we obtained commitments from a syndicate of financial institutions for a senior secured revolving credit facility of up to $1.0 billion. We will also have the capacity under our debt agreements to incur substantial additional debt.
Our level of debt could have important consequences. For example, it could:
•make it more difficult for us to make payments on our debt;
•require us to dedicate a substantial portion of our cash flow from operations to the payment of debt service, reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, distributions, and other general partnership purposes;
•increase our vulnerability to adverse economic or industry conditions;
•limit our ability to obtain additional financing to react to changes in our business; or
•place us at a competitive disadvantage compared to businesses in our industry that have less debt.
Additionally, any failure to meet required payments on our debt or to comply with any covenants in the instruments governing our debt, could result in an event of default under the terms of those instruments. In the event of such default, the holders of such debt could elect to declare all the amounts outstanding under such instruments to be due and payable. Such default could also trigger a cross default or our other debt.
The London Interbank Offered Rate (“LIBOR”), the Euro Interbank Offered Rate and certain other interest “benchmarks” may be subject to further regulatory guidance and/or reform that could cause interest rates under our current or future debt agreements to perform differently than in the past or cause other unanticipated consequences. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has announced that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021 and it is unclear if LIBOR will cease to exist or if new methods of calculating LIBOR will evolve. If LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form, interest rates on our current or future debt obligations may be adversely affected.
The terms of the agreements governing our existing indebtedness restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.
The terms of the agreements governing our indebtedness contain a number of restrictive covenants that limit our flexibility in conducting our business and restrict our ability to take specific actions, including (subject to various exceptions) restrictions on incurring indebtedness, paying dividends, making certain loans and investments, selling assets or incurring liens which may limit our ability to compete effectively, or to take advantage of new business opportunities. In addition, the restrictive covenants in the credit agreement, dated February 16, 2021, that governs our $1,000,000,000 three-year senior secured multicurrency revolving credit facility (the “Revolving Credit Facility”) require us to maintain specified financial ratios and satisfy other financial condition tests.
A breach of the covenants or restrictions under our existing indebtedness could result in an event of default under the applicable indebtedness. Such default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. An event of default under our Revolving Credit Facility would also permit the lenders to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay the amounts due and payable under our Revolving Credit Facility, lenders thereunder could proceed against the collateral granted to them to secure that indebtedness. In the event our lenders or noteholders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.
These restrictions may affect our ability to grow in accordance with our strategy. In addition, our financial results, our substantial indebtedness and our credit ratings could adversely affect the availability and terms of our financing.
Our acquisition and divestiture activities involve substantial risks.
We have made and expect to continue to pursue acquisitions, dispositions, or other investments that may strategically fit our business and/or growth objectives. We cannot provide assurances that we will be able to locate suitable acquisitions, dispositions, or investments, or that we will be able to consummate any such transactions on terms and conditions acceptable to us. Even if we do successfully execute such transactions, they may not result in anticipated benefits, which could have a material adverse effect on our financial results. If we are unable to successfully integrate and develop acquired businesses, we could fail to achieve anticipated synergies and cost savings, including any expected increases in revenues and operating results. We may not be able to successfully cause a buyer of a divested business to assume the liabilities of that business or, even if such liabilities are assumed, we may have difficulties enforcing our rights, contractual or otherwise, against the buyer. We may invest in companies or businesses that fail, causing a loss of all or part of our investment. In addition, if we determine that an other-than-temporary decline in the fair value exists for a company in which we have invested, we may have to write down that investment to its fair value and recognize the related write-down as an investment loss.
In connection with the Spin-off, we agreed to indemnify Technip Energies for certain liabilities and Technip Energies agreed to 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.
Risks Related to Our Operations
We may lose money on fixed-price contracts.
As customary for some of our projects, we often agree to provide products and services under fixed-price contracts. We are subject to material risks in connection with such fixed-price contracts. It is not possible to estimate with complete certainty the final cost or margin of a project at the time of bidding or during the early phases of its execution. Actual expenses incurred in executing these fixed-price contracts can vary substantially from those originally anticipated for several reasons including, but not limited to, the following:
•unforeseen additional costs related to the purchase of substantial equipment necessary for contract fulfillment or labor shortages in the markets where the contracts are performed;
•mechanical failure of our production equipment and machinery;
•delays caused by local weather conditions and/or natural disasters (including earthquakes, floods and public health crises such as the COVID-19 pandemic); and
•a failure of suppliers, subcontractors, or joint venture partners to perform their contractual obligations.
The realization of any material risks and unforeseen circumstances could also lead to delays in the execution schedule of a project. We may be held liable to a customer should we fail to meet project milestones or deadlines or to comply with other contractual provisions. Additionally, delays in certain projects could lead to delays in subsequent projects that were scheduled to use equipment and machinery still being utilized on a delayed project.
Pursuant to the terms of fixed-price contracts, we are not always able to increase the price of the contract to reflect factors that were unforeseen at the time our bid was submitted, and this risk may be heightened for projects with longer terms. Depending on the size of a project, variations from estimated contract performance, or variations in multiple contracts, could have a significant impact on our financial condition, results of operations or cash flows.
New capital asset construction projects for vessels and manufacturing facilities are subject to risks, including delays and cost overruns, which could have a material adverse effect on our financial condition, or results of operations.
From time to time, we carry out capital asset construction projects to maintain, upgrade, and develop our asset base, and such projects are subject to risks of delay and cost overruns that are inherent in any large construction project, resulting from numerous factors including, but not limited to, the following:
•shortages of key equipment, materials or skilled labor;
•delays in the delivery of ordered materials and equipment;
•design and engineering issues; and
•shipyard delays and performance issues.
Failure to complete construction in time, or the inability to complete construction in accordance with design specifications, may result in the loss of revenue. Additionally, capital expenditures for construction projects could materially exceed the initially planned investments, or there could be delays in putting such assets into operation.
Our failure to timely deliver our backlog could affect future sales, profitability, and relationships with our customers.
Many of the contracts we enter into with our customers require long manufacturing lead times due to complex technical and logistical requirements. These contracts may contain clauses related to liquidated damages or financial incentives regarding on-time delivery, and a failure by us to deliver in accordance with customer expectations could subject us to liquidated damages or loss of financial incentives, reduce our margins on these contracts, or result in damage to existing customer relationships. The ability to meet customer delivery schedules for this backlog is dependent upon a number of factors, including, but not limited to, access to the raw materials required for production, an adequately trained and capable workforce, subcontractor performance, project engineering expertise and execution, sufficient manufacturing plant capacity, and appropriate planning and scheduling of manufacturing resources. Failure to deliver backlog in accordance with expectations could negatively impact our financial performance.
We face risks relating to our reliance on subcontractors, suppliers, and our joint venture partners.
We generally rely on subcontractors, suppliers, and our joint venture partners for the performance of our contracts. Although we are not dependent upon any single supplier, certain geographic areas of our business or a project or group of projects may depend heavily on certain suppliers for raw materials or semi-finished goods.
Any difficulty in engaging suitable subcontractors or acquiring equipment and materials could compromise our ability to generate a significant margin on a project or to complete such project within the allocated time frame. If subcontractors, suppliers or joint venture partners refuse to adhere to their contractual obligations with us or are unable to do so due to a deterioration of their financial condition, we may be unable to find a suitable replacement at a comparable price, or at all. Moreover, the failure of one of our joint venture partners to perform their obligations in a timely and satisfactory manner could lead to additional obligations and costs being imposed on us as we may be obligated to assume our defaulting partner’s obligations or compensate our customers.
Any delay, failure to meet contractual obligations, or other event beyond our control or not foreseeable by us, that is attributable to a subcontractor, supplier or joint venture partner, could lead to delays in the overall progress of the project and/or generate significant extra costs. Even if we are entitled to make a claim for these extra costs against the defaulting supplier, subcontractor or joint venture partner, we may be unable to recover the entirety of these costs and this could materially adversely affect our business, financial condition or results of operations.
A failure of our IT infrastructure, including as a result of cyber-attacks, could adversely impact our business and results of operations.
The efficient operation of our business is dependent on our IT systems. Accordingly, we rely upon the capacity, reliability, and security of our IT hardware and software infrastructure and our ability to expand and update this infrastructure in response to changing needs. We have been subject to cyber-attacks in the past, including phishing, malware, and ransomware. No such attack has had a material adverse effect on our business, however this may not be the case with future attacks. Our systems may be vulnerable to damages from such attacks, as well as from natural disasters, failures in hardware or software, power fluctuations, unauthorized access to data and systems, loss or destruction of data (including confidential customer information), human error, and other similar disruptions, and we cannot give assurance that any security measures we have implemented or may in the future implement will be sufficient to identify and prevent or mitigate such disruptions. In response to the COVID-19 pandemic, we have transitioned many of our employees to remote working arrangements which presents increased cybersecurity risks. If a cyber-attack, power outage, connectivity issue, or other event occurred that impacted our employees’ ability to work remotely, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time.
We rely on third parties to support the operation of our IT hardware, software infrastructure, and cloud services, and in certain instances, utilize web-based and software-as-a-service applications. The security and privacy measures implemented by such third parties, as well as the measures implemented by any entities we acquire or with whom we do business, may not be sufficient to identify or prevent cyber-attacks, and any such attacks may have a material adverse effect on our business. While our IT vendor agreements typically contain provisions that seek to eliminate or limit our exposure to liability for damages from a cyber attack, we cannot ensure such provisions will withstand legal challenges or cover all or any such damages.
Threats to our IT systems arise from numerous sources, not all of which are within our control, including fraud or malice on the part of third parties, accidental technological failure, electrical or telecommunication outages, failures of computer servers or other damage to our property or assets, outbreaks of hostilities, or terrorist acts. The failure
of our IT systems or those of our vendors to perform as anticipated for any reason or any significant breach of security could disrupt our business and result in numerous adverse consequences, including reduced effectiveness and efficiency of operations, inappropriate disclosure of confidential and proprietary information, including personal data, regulatory action and fines included for a breach of data protection laws, reputational harm, regulatory fines or investigations, increased overhead costs, and loss of important information, which could have a material adverse effect on our business and results of operations. In addition, we may be required to incur significant costs to protect against or to mitigate damage caused by these disruptions or security breaches in the future. Our insurance coverage may not cover all of the costs and liabilities we incur as the result of any disruptions or security breaches, and if our business continuity and/or disaster recovery plans do not effectively and timely resolve issues resulting from a cyber-attack, we may suffer material adverse effects on our business.
Pirates endanger our maritime employees and assets.
We face material piracy risks in the Gulf of Guinea, the Somali Basin, and the Gulf of Aden, and, to a lesser extent, in Southeast Asia, Malacca, and the Singapore Straits. Piracy represents a risk for both our projects and our vessels, which operate and transport through sensitive maritime areas. Such risks have the potential to significantly harm our crews and to negatively impact the execution schedule for our projects. If our maritime employees or assets are endangered, additional time may be required to find an alternative solution, which may delay project realization and negatively impact our business, financial condition, or results of operations.
Risks Related 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.
We are subject to potential liabilities arising from, among other possibilities, equipment malfunctions, equipment misuse, personal injuries, and natural disasters, any of which may result in hazardous situations, including uncontrollable flows of gas or well fluids, fires, and explosions. Our insurance against these risks may not be adequate to cover our liabilities. Further, the insurance may not generally be available in the future or, if available, premiums may not be commercially justifiable. If we incur substantial liability and the damages are not covered by insurance or are in excess of policy limits, or if we were to incur liability at a time when we were not able to obtain liability insurance, such potential liabilities could have a material adverse effect on our business, results of operations, financial condition or cash flows.
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.
Our operations and manufacturing activities are governed by international, regional, transnational, and national laws and regulations in every place where we operate relating to matters such as environmental protection, health and safety, labor and employment, import/export controls, currency exchange, bribery and corruption, and taxation. These laws and regulations are complex, frequently change, and have tended to become more stringent over time. In the event the scope of these laws and regulations expand in the future, the incremental cost of compliance could adversely impact our financial condition, results of operations, or cash flows.
Our international operations are subject to anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act of 2010 (the “Bribery Act”), the anti-corruption provisions of French law n° 2016-1691 dated December 9, 2016 relating to Transparency, Anti-corruption and Modernization of the Business Practice (“Sapin II Law”), the Brazilian law nº 12,846/13, or the Brazilian Anti-Bribery Act (also known as the Brazilian Clean Company Act), and economic and trade sanctions, including those administered by the United Nations, the European Union, the Office of Foreign Assets Control of the U.S. Department of the Treasury (“U.S. Treasury”), and the U.S. Department of State. The FCPA prohibits corruptly providing anything of value to foreign officials for the purposes of obtaining or retaining business or securing any improper business advantage. We may deal with both governments and state-owned business enterprises, the employees of which are considered foreign officials for purposes of the FCPA. The provisions of the Bribery Act extend beyond bribery of foreign public officials and are more onerous than the FCPA in a number of other respects, including jurisdiction, non-exemption of facilitation payments, and penalties. Economic and trade sanctions restrict our transactions or dealings with certain sanctioned countries, territories, and designated persons.
As a result of doing business in countries throughout the world, including through partners and agents, we are exposed to a risk of violating anti-corruption laws and sanctions regulations. Some of the international locations in which we currently operate or may, in the future, operate, have developing legal systems and may have higher levels of corruption than more developed nations. Our continued expansion and worldwide operations, including in developing countries, our development of joint venture relationships worldwide, and the employment of local agents in the countries in which we operate increases the risk of violations of anti-corruption laws and economic and trade sanctions. Violations of anti-corruption laws and economic and trade sanctions are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts (and termination of existing contracts), and revocations or restrictions of licenses, as well as criminal fines and imprisonment. In addition, any major violations could have a significant impact on our reputation and consequently on our ability to win future business.
We have implemented internal controls designed to minimize and detect potential violations of laws and regulations in a timely manner but we can provide no assurance that such policies and procedures will be followed at all times or will effectively detect and prevent violations of the applicable laws by one or more of our employees, consultants, agents, or partners. The occurrence of any such violation could subject us to penalties and material adverse consequences on our business, 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.
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 European Union in particular in relation to financial market participants. Such regulatory requirements are being implemented on a phased basis. We expect regulatory requirements related to, and investor focus on, ESG (including sustainability) matters to continue to expand in the EU, the United States, and more globally. We establish ESG objectives that align with our foundational beliefs and corporate strategy with an aim toward reducing our carbon footprint, raising awareness and making advancements in inclusion and diversity. If, in relation to ESG (including sustainability) matters, we are not able to meet current and future regulatory requirements, the reporting requirements of regulators, or the current and future expectations of investors, customers or other stakeholders, our business and ability to raise capital may be adversely affected.
Existing or future laws and regulations relating to greenhouse gas emissions and climate change may adversely affect our business.
Climate change continues to attract considerable public and scientific attention. As a result, numerous laws, regulations, and proposals have been made and are likely to continue to be made at the international, national, regional, and state levels of government to monitor and limit emissions of carbon dioxide, methane, and other “greenhouse gases” (“GHGs”). These efforts have included cap-and-trade programs, carbon taxes, GHG reporting and tracking programs and regulations that directly limit GHG emissions from certain sources. Such existing or future laws, regulations, and proposals concerning the release of GHGs or that concern climate change (including laws, regulations, and proposals that seek to mitigate the effects of climate change) may adversely impact demand for the equipment, systems and services we design, market and sell. For example, oil and natural gas exploration and production may decline as a result of such laws, regulations, and proposals, and as a consequence, demand for our equipment, systems and services may also decline. In addition, such laws, regulations, and proposals may also result in more onerous obligations with respect to our operations, including the facilities where we manufacture our equipment and systems. Such decline in demand for our equipment, systems and services and such onerous
obligations in respect of our operations may adversely affect our financial condition, results of operations, or cash flows.
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.
Under English law, we will only be able to declare dividends, make distributions, or repurchase shares (other than out of the proceeds of a new issuance of shares for that purpose) out of “distributable profits.” Distributable profits are a company’s accumulated, realized profits, to the extent that they have not been previously utilized by distribution or capitalization, less its accumulated, realized losses, to the extent that they have not been previously written off in a reduction or reorganization of capital duly made. In addition, as a public limited company incorporated in England and Wales, we may only make a distribution if the amount of our net assets is not less than the aggregate of our called-up share capital and non-distributable reserves and to the extent that the distribution does not reduce the amount of those assets to less than that aggregate.
Our articles of association permit us by ordinary resolution of the stockholders to declare dividends, provided that the directors have made a recommendation as to its amount. The dividend shall not exceed the amount recommended by the Board of Directors. The directors may also decide to pay interim dividends if it appears to them that the profits available for distribution justify the payment. When recommending or declaring payment of a dividend, the directors are required under English law to comply with their duties, including considering our future financial requirements.
In addition, the Board of Directors’ determinations regarding dividends and share repurchases will depend on a variety of other factors, including our net income, cash flow generated from operations or other sources, liquidity position, and potential alternative uses of cash, such as acquisitions, as well as economic conditions and expected future financial results. Our ability to declare and pay future dividends and make future share repurchases will depend on our future financial performance, which in turn depends on the successful implementation of our strategy and on financial, competitive, regulatory, technical, general economic conditions, demand and selling prices for our products and services, and other factors specific to our industry or specific projects, many of which are beyond our control. Therefore, our ability to generate cash depends on the performance of our operations and could be limited by decreases in our profitability or increases in costs, regulatory changes, capital expenditures, or debt servicing requirements.
Any failure to pay dividends or repurchase shares of our ordinary shares could negatively impact our reputation, harm investor confidence in us, and cause the market price of our ordinary shares to decline.
Uninsured claims and litigation against us, including intellectual property litigation, could adversely impact our financial condition, results of operations, or cash flows.
We could be impacted by the outcome of pending litigation, as well as unexpected litigation or proceedings. We have insurance coverage against operating hazards, including product liability claims and personal injury claims related to our products or operating environments in which our employees operate, to the extent deemed prudent by our management and to the extent insurance is available. However, our insurance policies are subject to exclusions, limitations, and other conditions and may not apply in all cases, for example where willful wrongdoing on our part is alleged. Additionally, the nature and amount of that insurance may not be sufficient to fully indemnify us against liabilities arising out of pending and future claims and litigation. Additionally, in individual circumstances, certain proceedings or cases may also lead to our formal or informal exclusion from tenders or the revocation or loss of business licenses or permits. Our financial condition, results of operations, or cash flows could be adversely affected by unexpected claims not covered by insurance.
In addition, the tools, techniques, methodologies, programs, and components we use to provide our services may infringe upon the intellectual property rights of others. Infringement claims generally result in significant legal and other costs. The resolution of these claims could require us to pay damages, enter into license agreements or develop alternative technologies. The development of these technologies or the payment of royalties under licenses from third parties, if available, would increase our costs. If a license were not available, or we are not able to
develop alternative technologies, we might not be able to continue providing a particular service or product, which could adversely affect 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.
We are subject to international data protection laws, such as the General Data Protection Regulation, or GDPR, in the European Economic Area, or EEA, and the United Kingdom (“UK”) GDPR and Data Protection Act 2018 in the UK. The GDPR and implementing legislation in the EEA and UK impose several stringent requirements for controllers and processors of personal data which have increased our obligations, including, for example, by requiring more robust disclosures to individuals, notifications, in some cases, of data breaches to regulators and data subjects, and a record of processing and other policies and procedures to be maintained to adhere to the accountability principle. In addition, we are subject to the GDPR’s rules on transferring personal data outside of the EEA and UK (including to the United States), and recent legal developments in Europe have created complexity and uncertainty regarding such transfers. In addition, the UK’s withdrawal from the European Union may mean that in future we are required to find alternative solutions for the compliant transfer of personal data into the UK.
Failure to comply with the requirements of GDPR and the local laws implementing or supplementing the GDPR could result in fines of up to €20,000,000 or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, as well as other administrative penalties. The UK GDPR mirrors the fines under the GDPR. In addition, a breach of the GDPR or UK GDPR could result in regulatory investigations and enforcement action, reputational damage, and civil claims including representative actions and other class action type litigation.
We are likely to be required to expend significant capital and other resources to ensure ongoing compliance with the GDPR and UK GDPR and other applicable data protection legislation, and we may be required to put in place additional control mechanisms which could be onerous and adversely affect our business, financial condition, results of operations, or cash flows.
The IRS may not agree that we should be treated as a foreign corporation for U.S. federal tax purposes and may seek to impose an excise tax on gains recognized by certain individuals.
Although we are incorporated in the United Kingdom, the U.S. Internal Revenue Service (the “IRS”) may assert that we should be treated as a U.S. “domestic” corporation (and, therefore, a U.S. tax resident) for U.S. federal income tax purposes pursuant to Section 7874 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). For U.S. federal income tax purposes, a corporation (i) is generally considered a “domestic” corporation (or U.S. tax resident) if it is organized in the United States or of any state or political subdivision therein, and (ii) is generally considered a “foreign” corporation (or non-U.S. tax resident) if it is not considered a domestic corporation. Because we are a U.K. incorporated entity, we would be considered a foreign corporation (and, therefore, a non-U.S. tax resident) under these rules. Section 7874 of the Code (“Section 7874”) provides an exception under which a foreign incorporated entity may, in certain circumstances, be treated as a domestic corporation for U.S. federal income tax purposes.
We do not believe this exception applies. However, the Section 7874 rules are complex and subject to detailed regulations, the application of which is uncertain in various respects. It is possible that the IRS will not agree with our position. Should the IRS successfully challenge our position, it is also possible that an excise tax under Section 4985 of the Code (the “Section 4985 Excise Tax”) may be assessed against certain “disqualified individuals” (including former officers and directors of FMC Technologies, Inc.) on certain stock-based compensation held thereby. We may, if we determine that it is appropriate, provide disqualified individuals with a payment with respect to the Section 4985 Excise Tax, so that, on a net after-tax basis, they would be in the same position as if no such Section 4985 Excise Tax had been applied.
In addition, there can be no assurance that there will not be a change in law or interpretation, including with retroactive effect, that might cause us to be treated as a domestic corporation for U.S. federal income tax purposes.
U.S. tax laws and/or guidance could affect our ability to engage in certain acquisition strategies and certain internal restructurings.
Even if we are treated as a foreign corporation for U.S. federal income tax purposes, Section 7874, U.S. Treasury regulations, and other guidance promulgated thereunder may adversely affect our ability to engage in certain future
acquisitions of U.S. businesses or to restructure the non-U.S. members of our group. These limitations, if applicable, may affect the tax efficiencies that otherwise might be achieved in such potential future transactions or restructurings.
In addition, the IRS and the U.S. Treasury have issued final and temporary regulations providing that, even if we are treated as a foreign corporation for U.S. federal income tax purposes, certain intercompany debt instruments issued on or after April 4, 2016 will be treated as equity for U.S. federal income tax purposes, therefore limiting U.S. tax benefits and resulting in possible U.S. withholding taxes. Although recent guidance from the U.S. Treasury removes certain documentation requirements that would otherwise be imposed with respect to covered debt instruments, announces an intention to further modify and possibly withdraw certain classification rules relating to covered debt instruments, and further indicates that these rules generally are the subject of continuing study and may be further materially modified, the current regulations may adversely affect our future effective tax rate and could also impact our ability to engage in future restructurings if such transactions cause an existing intercompany debt instrument to be treated as reissued for U.S. federal income tax purposes.
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 and our subsidiaries are subject to tax laws and regulations in the United Kingdom, the United States, France, and numerous other jurisdictions in which we and our subsidiaries operate. These laws and regulations are inherently complex, and we are, and will continue to be, obligated to make judgments and interpretations about the application of these laws and regulations to our operations and businesses. The interpretation and application of these laws and regulations could be challenged by the relevant governmental authorities, which could result in administrative or judicial procedures, actions, or sanctions, which could be material.
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law in the United States, which made extensive changes to the U.S. taxation of multinational companies, and is subject to continuing regulatory and possible legislative changes, especially given the new Administration and Congress in the United States. In addition, the U.S. Congress, the U.K. Government, the European Union, the Organization for Economic Co-operation and Development (the “OECD”), and other government agencies in jurisdictions where we and our affiliates do business have had an extended focus on issues related to the taxation of multinational corporations. New tax initiatives, directives, and rules, such as the U.S. Tax Cuts and Jobs Act, the OECD’s Base Erosion and Profit Shifting initiative, and the European Union’s Anti-Tax Avoidance Directives, may increase our tax burden and require additional compliance-related expenditures. As a result, our financial condition, results of operations, or cash flows may be adversely affected. Further changes, including with retroactive effect, in the tax laws of the United States, the United Kingdom, the European Union, or other countries in which we and our affiliates do business could also adversely affect us.
We may not qualify for benefits under tax treaties entered into between the United Kingdom and other countries.
We operate in a manner such that we believe we are eligible for benefits under tax treaties between the United Kingdom and other countries. However, our ability to qualify for such benefits will depend on whether we are treated as a U.K. tax resident, the requirements contained in each treaty and applicable domestic laws, on the facts and circumstances surrounding our operations and management, and on the relevant interpretation of the tax authorities and courts. For example, because of Brexit, we may lose some or all of the benefits of tax treaties between the United States and the remaining members of the European Union, and face higher tax liabilities, which may be significant. Another example is the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the “MLI”), which entered into force for participating jurisdictions on July 1, 2018. The MLI recommends that countries adopt a “limitation-on-benefit” (“LOB”) rule and/or a “principal purpose test” (“PPT”) rule with regards to their tax treaties. The application of the LOB rule or the PPT rule could deny us treaty benefits (such as a reduced rate of withholding tax) that were previously available and as such there remains uncertainty as to whether and, if so, to what extent such treaty benefits will continue to be available. The position is likely to remain uncertain for a number of years.
The failure by us or our subsidiaries to qualify for benefits under tax treaties entered into between the United Kingdom and other countries could result in adverse tax consequences to us (including an increased tax burden and increased filing obligations) and could result in certain tax consequences of owning and disposing of our shares.
We intend to be treated exclusively as a resident of the United Kingdom for tax purposes, but French or other tax authorities may seek to treat us as a tax resident of another jurisdiction.
We are incorporated in the United Kingdom. English law currently provides that we will be regarded as a U.K. resident for tax purposes from incorporation and shall remain so unless (i) we are concurrently a resident in another jurisdiction (applying the tax residence rules of that jurisdiction) that has a double tax treaty with the United Kingdom and (ii) there is a tiebreaker provision in that tax treaty which allocates exclusive residence to that other jurisdiction.
In this regard, we have a permanent establishment in France to satisfy certain French tax requirements imposed by the French Tax Code with respect to the Merger. Although it is intended that we will be treated as having our exclusive place of tax residence in the United Kingdom, the French tax authorities may claim that we are a tax resident of France if we were to fail to maintain our “place of effective management” in the United Kingdom. Any such claim would be settled between the French and U.K. tax authorities pursuant to the mutual assistance procedure provided for by the tax treaty concluded between France and the United Kingdom. There is no assurance that these authorities would reach an agreement that we will remain exclusively a U.K. tax resident; an adverse determination could materially and adversely affect our business, financial condition, results of operations, or cash flows. A failure to maintain exclusive tax residency in the United Kingdom could result in adverse tax consequences to us and our subsidiaries and could result in certain adverse changes in the tax consequences of owning and disposing of our shares.
Risks Related to the Spin-off and the Other Transactions
The Spin-off may subject us to future liabilities.
On February 16, 2021, we completed the Spin-off, resulting in Technip Energies, which holds our former Technip Energies business segment, becoming a stand-alone publicly traded corporation. Pursuant to agreements we entered into with Technip Energies in connection with the Spin-off, we and Technip Energies are each generally responsible for the obligations and liabilities related to our respective businesses. Pursuant to those agreements, we and Technip Energies each agreed to cross-indemnities principally designed to allocate financial responsibility for the obligations and liabilities of our business to us and those of Technip Energies’ business to it. However, third parties, including governmental agencies, could seek to hold us responsible for obligations and liabilities that Technip Energies agreed to retain or assume, and there can be no assurance that the indemnification from Technip Energies will be sufficient to protect us against the full amount of such obligations and liabilities, or that Technip Energies will be able to fully satisfy its indemnification obligations. Additionally, if a court were to determine that the Spin-off or related transactions were consummated with the actual intent to hinder, delay or defraud current or future creditors or resulted in Technip Energies receiving less than reasonably equivalent value when it was insolvent, or that it was rendered insolvent, inadequately capitalized or unable to pay its debts as they become due, then it is possible that the court could disregard the allocation of obligations and liabilities agreed to between us and Technip Energies, impose substantial obligations and liabilities on us and void some or all of the transactions related to the Spin-off. Any of the foregoing could adversely affect our results of operations and financial position.
The Spin-off may not achieve some or all of the anticipated benefits.
We may not realize some or all of the anticipated strategic, financial, operational or other benefits from the Spin-off. As independent publicly-traded companies, we and Technip Energies are smaller, less diversified companies with a narrower business focus, and may be more vulnerable to changing market conditions, which could materially adversely affect our and its results of operations, cash flows and financial position.
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 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 Spin-off.
We are a significant shareholder of Technip Energies and the value of our investment in Technip Energies may fluctuate substantially.
Following completion of the Spin-off, we own approximately 49.9% of the outstanding shares of common stock of Technip Energies. The value of our investment in Technip Energies may be adversely affected by negative changes in its results of operations, cash flows and financial position, which may occur as a result of the many risks attendant with operating in the onshore/offshore industry, including the effect of laws and regulations on the operation of Technip Energies’ business and the development of its assets, increased competition, loss of contract commitments, delays in the timing of or the failure to complete projects, lack of access to capital and operating risks and hazards. The value of our investment in Technip Energies may fluctuate substantially and may result in a significant impact to our results of operations.
We intend to significantly reduce our shareholding in Technip Energies over the 18 months following the Spin-off, including in connection with the sale of Technip Energies shares to BPI (as defined herein) pursuant to the Investment (as defined herein). However, we can offer no guarantee that we will be able to complete such disposition or, if completed, the extent to which we will reduce our shareholding or the value that we will realize in connection with such disposition. The occurrence of any of these and other risks faced by Technip Energies could adversely affect the value of our investment in Technip Energies.
We may be required to refund the Purchase Price under the Share Purchase Agreement to BPI in the event that certain conditions thereunder are not met.
In connection with the Spin-off, we entered into the Share Purchase Agreement with BPI, pursuant to which BPI agreed to purchase from us for $200.0 million, subject to a purchase price adjustment as described below (the “Purchase Price”), a number of Technip Energies shares (the “Purchased Shares”) determined based upon a thirty day volume-weighted average price of Technip Energies’ shares, less a six percent discount (the “Investment”). Pursuant to the Share Purchase Agreement, BPI paid us the Purchase Price on February 25, 2021, however (i) if the number of Purchased Shares due from us to BPI is less than 11.82% of the number of Technip Energies shares outstanding immediately following completion of the Spin-off, then BPI may, upon written notice to us, terminate the Share Purchase Agreement and we will be required to refund the Purchase Price to BPI or (ii) if the number of Purchased Shares due from us to BPI exceeds 17.25% of the number of Technip Energies shares outstanding immediately following completion of the Spin-off (the “Cap”), then we will transfer to BPI an aggregate number of Technip Energies shares equal to the Cap and will pay to BPI, as a reduction of the Purchase Price, an amount equal to (x) the difference between the number of Technip Energies shares that we would have delivered to BPI but for the Cap and the number of Technip Energies shares that we actually delivered to BPI, multiplied by (y) the applicable price per Technip Energy share. Any such refund or reduction of the Purchase Price could have a material adverse effect on our financial condition or cash flows.
General Risk Factors
Our businesses are dependent on the continuing services of our key managers and employees.
We depend on key personnel. The loss of any key personnel could adversely impact our business if we are unable to implement key strategies or transactions in their absence. The loss of qualified employees or failure to retain and motivate additional highly-skilled employees required for the operation and expansion of our business could hinder our ability to successfully conduct research activities and develop marketable products and services.
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 Gulf of Mexico or extreme winter conditions in Canada, Russia, and the North Sea, may interrupt or curtail our operations, or our customers’ operations, cause supply disruptions or loss of productivity, and may result in a loss of revenue or damage to our equipment and facilities, which may or may not be insured. Increasing concentrations of greenhouse gases in the Earth’s atmosphere may produce climate changes that increase variation from normal weather patterns, such as increased frequency and severity of storms, floods, droughts, and other climatic events, which could further impact our operations. Significant physical effects of climate change could also have a direct effect on our operations and an indirect effect on our business by interrupting the operations of those with whom we do business. Any of these events or outcomes could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
Currency exchange rate fluctuations could adversely affect our financial condition, results of operations, or cash flows.
We conduct operations around the world in many different currencies. Because a significant portion of our revenue is denominated in currencies other than our reporting currency, the U.S. dollar, changes in exchange rates will produce fluctuations in our revenue, costs, and earnings, and may also affect the book value of our assets and liabilities and related equity. We hedge transaction impacts on margins and earnings where a transaction is not in the functional currency of the business unit, but we do not hedge translation impacts on earnings. Our efforts to minimize our currency exposure through such hedging transactions may not be successful depending on market and business conditions. Moreover, certain currencies in which we conduct operations, specifically currencies in countries such as Angola and Nigeria, do not actively trade in the global foreign exchange markets and may subject us to increased foreign currency exposures. As a result, fluctuations in foreign currency exchange rates may 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 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. For further information regarding our pension liabilities, see Note 22 for further information.
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
Our corporate headquarters is in London, England. We also maintain corporate offices in Houston, Texas and Paris, France, where significant worldwide global support activity occurs. In addition, we own or lease numerous properties throughout the world.
We believe our properties and facilities are suitable for their present and intended purposes and are operating at a level consistent with the requirements of the industry in which we operate. We also believe that our leases are at competitive or market rates and do not anticipate any difficulty in leasing suitable additional space upon expiration of our current lease terms.
The following table shows our principal properties by reporting segment as of December 31, 2020:
Malabo, Equatorial Guinea
Port Harcourt, Nigeria