Forum Energy's Q1 2025: Unpacking Contradictions in Market Share, Tariffs, and Subsea Growth

Market share gains and sales strength, tariff impact on sales and pricing strategy, share repurchase strategy, tariff impact on valve sales, and subsea business growth are the key contradictions discussed in Forum Energy's latest 2025Q1 earnings call.



Commodity Price Pressures and Market Uncertainty:
- Oil prices have declined dramatically and are hovering near four-year lows. FET's activity-based sales are highly correlated to rig count, which typically lags commodity prices by three to six months.
- The combination of US trade and tariff policies, along with faster supply growth from OPEC+, is putting pressure on commodity prices, potentially leading to a decline in revenue starting in the third quarter.

Subsea Market Strength and Product Innovation:
- Subsea product line bookings increased by 50% quarter over quarter due to customer adoption of new products and additional orders in April.
- The strength is attributed to increased demand for remote-operated vehicles and launch and recovery systems in offshore oil and gas, offshore wind, and defense markets.

Cost Management and Tariff Mitigation Efforts:
- FET is proactively managing costs and aligning its cost structure to potential lower activity levels, with approximately 80% to 85% of costs being variable.
- The company is leveraging its global footprint to mitigate tariffs by increasing assembly activities in international markets and reducing dependency on specific countries.

Free Cash Flow and Shareholder Returns:
- FET generated $7 million in free cash flow in Q1, up three times from the prior year, marking its seventh consecutive quarter of positive free cash flow.
- The company plans to use free cash flow for share buybacks and significant debt reduction, with a goal of reducing net debt to below 1.5 times net leverage ratio.

Geographic Diversification and Market Resilience:
- The strength in the Subsea business, particularly in the Eastern Hemisphere and South America, is due to increasing orders and a broader market reach, including offshore wind and defense sectors.
- This geographical diversification allows FET to offset potential weakness in the US short cycle market and provides more stable demand in certain regions.