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Market conditions

Following the global financial crisis of the previous two years, the Offshore sector experienced a modest recovery in 2010 with conditions emerging for more robust growth in 2011. During the year, oil prices settled at between 70-90 $/barrel – levels at which oil production is sustainable in almost all of the world’s oil production areas – and a large number of investment projects were either resumed or expanded on the basis of expectations that oil prices will remain high. With costs for offshore oil services rising only slightly, conditions for investment during the year were positive.

For the subsea installation sector, 2010 was a year of transition, in which the deep water segment – particularly in West Africa – continued to perform poorly. Meanwhile, prospects in the SURF segment (Subsea, Umbilicali, Riseri and Flowlinei), where Saipem is currently engaged on the Usan, Kizomba and Bonga projects, remain positive, with a significant upturn in new contract awards expected in 2011.
In the Gulf of Mexico, the incident at the Macondo well had a significant impact in terms of postponed and lost offshore production compared with investment plans. As a result, oil production in the area is expected to drop by more than 10% in 2011.

On the other hand, sustained activity was seen during the year in the shallow water sector, driven in particular by the demand for subsea tiebacks in mature areas such as the North Sea.

2010 also saw the announcement of the merger between two of Saipem’s biggest competitors in the SURF sector - Acergy and Subsea 7, which was completed at the beginning of 2011.

The fixed platform market registered a considerable level of growth in 2010, with the most dynamic areas being Asia-Pacific and Africa and in particular Thailand, Malaysia and Indonesia, and West Africa. The largest increase was recorded in the smaller structures segment (i.e. with a topside weighing less than 1,000 tonnes).

2010 witnessed a global recovery in levels of activity in the large diameter pipeline sector, following a particularly slow 2009. The laying of the first pipeline on the Nord Stream project, which started in April, is proceeding in accordance with schedule.

In the FPSO sector, installation volumes were affected by the 2008-2009 crisis and remained low worldwide, with the exception of Brazil.
There was an upturn on the other hand in new contract awards that was driven by the Brazilian market, where important contracts were assigned by Petrobras for the development of the pre-salt area in Tupi. Levels of business also showed a recovery in the Asia-Pacific and North Sea areas, where the redeployment of upgraded FPSOs is becoming increasingly widespread. As a result, the backlog of orders for the entire FPSO sector rose to 35 floating platforms, of which 17 are new and 18 are conversions, thus bucking a downward trend that had been prevalent since 2007.
Market concentration increased during 2010 as a result of the merger between BW Offshore and Prosafe Production, which created the second biggest company in the sector in terms of fleet size. In addition, National Oilwell Varco acquired Advanced Production and Loading – the market leader in the production of turret mooring systems – from BW Offshore.

In the LNGi sector, Saipem submitted a FEED bid to Petrobras for a new FLNG unit in Brazil, in competition with other consortia, while in the regasification sector, Saipem continued with the construction of the FSRU Livorno, which will be the world’s first offshore terminal.