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Technip To Lay Off 6,000 due to Challenging Oil and Gas Environment

Technip To Lay Off 6,000 due to Challenging Oil and Gas Environment

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07 July 2015

French engineering giant Technip will lay off some 6000 workers as part of a major restructuring effort aimed at countering a business environment that the company reckons will get even more challenging in coming months.

The major overhaul, in which Technip will accelerate cost-reduction efforts with an eye on life beyond the downturn, will target savings of around €830 million ($919.6 million), about €700 million of which will be be delivered in 2016.

"The slowdown in the oil and gas industry is prolonged and harsh. Therefore we have decided to accelerate our cost reduction and efficiency measures which I know

will have tough consequences for employees across the group," chief executive Thierry Pilenko said in a statement.

Technip expects to take one-off charges of €650 million related to the restructuring. This will likely come in the form asset impairments, lease overhangs and reducing the company's footprint in areas where it sees smaller short- and medium-term growth opportunities.

About 60% of the charges are expected to be taken in cash, with 40% tallied as non-cash.

The restructuring is a reaction to an already depressed market - brought on by low oil prices - and trends that Technip says "have not improved and, in some cases, have actually worsened over the last two months".

Those trends include deferrals of new projects, protracted negotiations on contract changes and what the company calls "irrational behaviour" on sanctioned projects.

The business segment likely to see the biggest change in the restructuring figures to be Technip's onshore/offshore division, which the company singled out for its "unsatisfactory performance", noting also that some discussions "are now even stopped and will find their resolution through a legal process".

That division is likely to see sales or closures in some markets "where profitable business is unlikely even in the medium-term", including countries in Europe, Asia and Latin America, including Brazil.

As a result, Technip expects onshore/offshore to be "significantly more profitable" in the second half of the year, with adjusted underlying operating income from recurring activities of between €140 million and €160 million.

Meanwhile, the company will "reinforce its investment" in key geographic and technology areas where it has first mover advantage, such as floating liquefied natural gas.

Technip last week confirmed it had won the front-end engineering and design contract for Woodside's Browse FLNG project off Western Australia.

Subsea is another area where Technip remains strong and expects to bolster its business through the restructuring. It plans to reduce costs in areas like the North Sea, where new subsea projects and awards are under pressure.

The company also plans to further reduce its subsea fleet. It had originally planned to cut the fleet by two vessels this year, but now intends to take out a further two vessels - one fully-owned and one leased. That will take the fleet down to 23 vessels from 36 at the end of 2013.

Technip expects to see €240 million in adjusted operating subsea income for the second quarter.