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Explaining FTI’s Strategies: Will Its Returns Improve?

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FTI’s return and key drivers

Oilfield equipment and services companies like FMC Technologies (FTI) are affected by crude oil and natural gas rig counts and energy prices. The price of West Texas Intermediate (or WTI) crude oil has fallen by ~6% in the past year.

FTI’s one-year return of -18.7% has been lower than the industry ETF. The VanEck Vectors Oil Services ETF (OIH) had a -8% return during this period.

However, FTI did perform better than the US rig count, which fell by 44% in the past year. The SPDR S&P 500 ETF (SPY) produced a 12.7% one-year return in the past year. SPY provides investors with exposure to the broader market through investing in the S&P 500 Index.

FTI’s peer Halliburton (HAL) has also outperformed FTI, producing an ~17% return in the past year.

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Analyzing FTI’s strategies

Upstream companies have been aggressively cutting exploration and production budgets, as well as renegotiating contracts with the oilfield equipment service and equipment (or OFS) providers. Lower crude oil prices made many offshore and deepwater projects unviable. This made the going difficult for FMC Technologies.

However, as crude oil prices started to recover in 2016, some of FTI’s concerns are looking to dissipate. With higher efficiency, some large offshore projects are expected to be implemented, although not before 2017. This can boost demand for FTI’s subsea project orders.

FTI has undertaken various restructuring activities, which will also result in savings. FMC Technologies’s proposed merger with Technip, if successful, can be a game changer for FMC Technologies.

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