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TechnipFMC PLC (NYSE:FTI)
Q4 2018 Earnings Conference Call
Feb. 21, 2019, 8:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good morning, my name is Shelley, and I will be your conference operator today. At this time, I would like to welcome everyone to the TechnipFMC Fourth Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press *1 on your telephone keypad. And please, limit yourself to one question and one follow-up. If you would like to withdraw your question, you may press the #. Thank you.

Matt Seinsheimer, you may begin your conference.

Matthew Seinsheimer -- Director Investor Relations

Thank you. Good afternoon and welcome to TechnipFMC's Fourth Quarter 2018 Earnings Conference Call. Our news release and financial statements issued yesterday can be found on our website.

I'd like to caution you with respect to any forward-looking statements made during this call. Although, these forward-looking statements are based on our current expectations, beliefs, and assumptions regarding future developments and business conditions, they are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by these statements. Known material factors that could cause our actual results to differ from our projected results are described in our most recent 10-K, most recent 10-Q, and other periodic filings with the U.S. Securities and Exchange Commission, the French AMF, and the U.K. Financial Conduct Authority.

We wish to 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.

I will now turn the call over to Doug Pferdehirt, TechnipFMC's Chief Executive Officer.

Douglas Pferdehirt -- Chief Executive Officer

Thank you, Matt. Good afternoon, and good morning. Thank you, for participating in our fourth quarter earnings call. Let me start by providing an update on our ongoing efforts and cooperation with authorities to resolve investigations involving legacy projects. These matters have progressed to a point where we have made a prevision of the probable estimate for an aggregate settlement, with all authorities.

Let me be clear, these historical individual actions are unacceptable. Since our first day as TechnipFMC, integrity has been a foundational belief that drives the behaviors of the 37,000 women and men of our company. How we do business is as important as why we do business, and helps us to recognize and address the ethical dimensions to our everyday decisions. Our strong compliance program promotes a culture of accountability that gives me confidence in how TechnipFMC will always conduct business.

Now, turning our attention to the market and our operational performance. Market adoption of the new commercial model that we pioneered is accelerating. And in many cases, the integrated model has become the industry standard for subsea projects. We have also restored growth in total company backlog, with a continued focus on project selectivity, positioning our company for future profitable growth. This provides us with a strong foundation for 2019, and beyond.

Total company orders succeeded $14 billion for the year, a 40% increase, compared to the prior year. Orders, succeeded revenues in all segments, with onshore/offshore particularly successful in securing several key downstream in petrochemical awards. In subsea, book-to-bill was above 1.1, with considerable growth in iEPCI project inbound, including our largest, most comprehensive integrated award to-date, for energy ends, Karish Field Development. In surface technologies, orders grew 36%, when compared to the prior year, driven by nearly 70% growth outside of the Americas. The impressive order intake for the total company drove a double-digit increase in backlog to $14.6 billion.

We exceeded total company financial objectives for consecutive year. Total company adjusted EBITDA margin of 12.2%, declined just 93 basis points from the prior year. Despite the revenue decline of 17%. This performance was largely driven by continued strength in onshore/offshore execution, as evidenced by the early delivery of Trains 2 and 3 on Yamal LNG. In fact, the third train on Yamal was delivered more than 12 months ahead of the original schedule, a fee unprecedented in the LNG industry.

Notable execution milestones in subsea included the delivery of the industry's first three full cycle iEPCI projects. Our results were further supported by the delivery of merger and other cost savings initiatives, and we remain on track to generate $450 million in annualized merger savings by the end of 2019.

Finally, collaboration with our customers and partners led to the development of several strategic growth initiatives during 2018, which seek to strengthen and differentiate our competitive position, and further expand our market opportunity set. Let me highlight a few of these initiatives. In surface technologies, we announced the frame agreement with Chevron, that leverages the value we can create through our integrated drilling and completion offering. This preferred supplier agreement, enables us to further support Chevron's development program across the U.S., and Canada through the provision of surface wellheads, production trees, and related services well into the next decade.

In subsea, I want to highlight 2 achievements. First, we sought into global strategic collaboration agreement with Ecuador, which further expands upon our recent iEPCI successes. The agreement emphasizes collaboration from early engagement through the full project lifecycle on Ecuador's global offshore portfolio. It also encompasses our full scope of products and services, the most comprehensive in the industry, including integrated project execution, next generation technology, and digitalization.

Second, our subsea services business, was awarded a master services agreement by Petrobras. This represents the industry's first integrated services agreement in Brazil, a market where we have the largest installed base of subsea trees manifolds, and flexible pipelines. It also reinforces -- to Petrobras, as well as supporting the growth and outlook for our subsea services business. Collaboration, is essential to the success of our strategy, and we are working to secure additional agreements to further strengthen and differentiate our market position.

With the subsea market recovery entering its third year, we are rebuilding our backlog in a disciplined way. The market for smaller awards, including brownfield and tie-back projects, remains very active. TechnipFMC has the industry's largest installed base, which uniquely positions us to capture a high share of this expanding market. In addition, many of these awards come through our alliance relationships, and are often the result of a direct award.

Since the formation of TechnipFMC in January of 2017, we have secured over $10 billion of subsea order inbound. The majority of this reflects smaller awards in subsea services work, demonstrating that we are not overly reliant on large competitive tenders to support our business. Subsea services returned to growth in 2018. We anticipate double-digit growth this year driven by an improving subsea market, as well as strategic investments we have made in this business.

TechnipFMC, pioneered the integrated model, and has delivered the industry's only full cycle projects. The savings in both cost and time are now being realized. This gives us confidence we will see further market growth, and integrated projects in 2019. This year, we have already secured new projects from BP and Lundin. Both, first-time iEPCI customers. Our expanding list of project references, when combined with our unique breadth and differentiation of our integrated offering, positions us well for continued growth in iEPCI backlog, in the coming year. This will be driven in part by a further broadening of iEPCI alliance partners.

Now, let me provide a quick update on the subsea outlook. As evidenced by our recent awards, the deep-water market has moved into 2019 with strong momentum. We continue to anticipate another year of activity growth, with integrated awards becoming an even larger component of the subsea mix, for both, TechnipFMC, and the broader market. In our updated subsea opportunities list, we have made several project additions that are reflective of more recent activity trends. With continued project sanctioning, and expanding opportunities in Asia Pacific, and Brazil, as well as growing momentum across Africa, we have added 4 new projects to the list. As previously discussed, there is a substantial market beyond large competitive tenders, including work in the brownfield and tie-back markets, subsea service, and other strategic project opportunities for TechnipFMC.

Our comprehensive capabilities, positions us well to capitalize on all of these market opportunities. It is also important to note that several projects on the list will serve to feed existing LNG infrastructure, while others will create new opportunities for large-scale gas monetization.

Turning to onshore/offshore, I want to reemphasize some of the strategic differentiators that we believe distinguishes us, and drives our industry leading returns. We take a selective approach, targeting projects where we have a real competitive advantage, or the ability to create one. We do this through early customer engagement, with our demonstrated engineering competencies and proprietary technologies through strong client relationships and local presence, and with robust project execution.

Now, let me illustrate how these strategic differentiators contributed to our success in 2018. Inbound orders of $7.4 billion, nearly doubled when compared to the prior year, and backlog grew 27%. Over the last decade, this is the second highest inbound level for onshore/offshore. And perhaps most importantly, we have sustained the same level of anticipated profitability from our non-Yamal LNG backlog, during this period of significant inbound growth. A testament, to our ability to both replace, and further grow backlog without compromising project selectivity.

We will use the same strategy to successfully navigate the LNG market, where projects are often large, requiring highly complex logistics. These project characteristics play to our strengths, and we will remain disciplined and selective. Stronger-than-expected, demand for LNG is being driven by Asia Pacific, with China, notably importing over 40% more LNG in 2018, than in 2017. This has reenergized the LNG market, and momentum on file investment decisions is now stronger than we envisioned during 2018.

When assessing the future opportunity set, we are currently tracking more than 20 projects in the LNG space, globally. While, we do not expect all these prospects to move forward, we see potential for significant new capacity to be sanctioned over the next 18 to 24 months. This near-term potential is well above historical growth rates, and provides us with unique portfolio of opportunities. We will leverage our most extensive reference projects, and common positions, and global client relationships toward those projects that are most strategic to TechnipFMC, and offer the highest probability of successful execution.

In summary, 2018 was a year of many successful milestones for our company, and we acknowledge and appreciate this steadfast commitment of the women and men of TechnipFMC, and their achievements. We enter 2019 with an improved backlog, and even greater visibility on inbound activity than we had a year ago. Driven by the strengthening momentum we see in international surface activity, the next wave of LNG projects, and the accelerated pace of subsea project sanctioning.

I will now turn the call over to Maryanne, to discuss the financial results in more detail.

Maryann Mannen -- Chief Financial Officer

Thanks, Doug. Let me start by addressing several special items we incurred in the quarter. I'll walk you through these items individually, to provide some clarity to the strength to the underlying results. Impacting the quarter, were after-tax charges and credits totaling $2.2 billion. Which, included the following items of note.

First, impairment. In our subsea business, we recorded non-cash impairment charges of $1.7 billion. Consisting of $1.4 billion for goodwill, and the remainder related to the carrying value of certain vessels within our fleet. This is a result of our normal annual impairment testing. We carried $5.4 billion of subsea goodwill, as of the end of 2017, with less than half of that, a result of our merger. The subsea recovery, was slower to evolve than we had envisioned at the time of the merger. The impairment test also coincided with a period of very high market volatility, which impacted both the discount rate, and the market valuations used in the test. The resulting impairment does not change our longer view of the subsea market, our leading position in subsea, or the demonstrated strength of our integrated strategy.

Also, in the quarter, we took a provision of $280 million, representing the probable estimate for the aggregate settlement of outstanding investigations. We have been informed that the U.S., Brazilian, and French authorities have been coordinating their investigations, which could result in a global resolution. As we move closer to final resolution on our legal matters, we will provide further clarity on this estimated charge, and the potential timing of any payment.

Finally, we incurred charges and credits totaling $37.3 million for restructuring and other severance charges, business combination charges, and purchase price accounting adjustment. These, are similar to what we have incurred in prior quarters. Beyond the operating segment, we also had special items impacting our tax provision in the quarter, including a $12 million true-up for U.S. tax reform, and $202 million evaluation allowances. The evaluation allowances, reflect the probability that in certain jurisdictions, deferred tax assets may not generate a tax benefit in future periods. As certain geographic markets recover, our views of these deferred tax assets could change. There is no cash impact of this charge. Excluding these items, we reported an adjusted net loss of $39 million, or $0.09 per share. Exhibits 8 and 9, in our release detail all charges and credits taken in the quarter, both, on a pre-tax, and after-tax basis.

As we have communicated in the past, other pre-tax items of significance impacting the quarter, for which we do not provide guidance, included the following, $35 million, or $0.05 per diluted share of foreign exchange losses, included in corporate expense, largely reflecting currency effects. $109 million, or $0.24 per diluted share related to an increase in the liability payable to join Venture Partners, that is included in interest expense. Full year interest expense of $361 million, include $322 million for the increase in the liability to join Venture Partners, in 2018. The underlying interest expense was $39 million.

Turning to operational highlights in the fourth quarter. Total company revenue was $3.3 billion. Adjusted EBITDA, was $342 million, with a margin of 10.3%. Let's look at the performance by segment. Subsea activity, was largely as we anticipated in the quarter. Although, the strengthening of the U.S. dollar versus the Brazilian real, provided a headwind to revenue in the quarter. Execution continues to be strong, while margin was impacted by more competitively priced backlog, consistent with our previous comments regarding the outlook. Onshore/offshore, delivered robust performance. A higher revenue mix of lower margin work was largely offset by strong project execution, and a bonus for completion of further milestones on Yamal LNG.

In surface technologies, the margin decreased versus the prior year, was primarily due to the rapid decline in completions activity, resulting in an unfavorable product mix. However, this was partially offset by increased activity levels, and market share gains in North America.

Turning to cash flow. We generated positive operating cash flow in the period, of $159 million. As anticipated in the second half of the year, we generated $300 million in cash from operations, significantly offsetting the $485 million cash-out flow experience, in the first half; largely related to accelerated project delivery on Yamal LNG. Beyond the operating line, capital expenditures were $113 million in the quarter, bringing full-year expenditures to $368 million, primarily due to the acquisition of a dive support vessel.

Looking at the other major discretionary items in the period, we distributed a total of $118 million to shareholders, by a share repurchase and dividends. Also, in the quarter, we made cash distributions of $102 million to joint venture partners in the Yamal LNG project, taking the full year distributions to $226 million. The balance sheet remained very strong at quarter-end. Cash, was essentially unchanged at $5.5 billion. We ended the period with a net cash balance of $1.3 billion. Focusing further on capital allocation, in December, we provided our 2019 forecast for capital expenditures of $400 million. We are now revising that guidance to lower, to $350 million. Let me discuss a few of the key growth initiatives planned for this year. In subsea, we remain committed to sustaining the competitive advantage the fleet provides us, as a critical element of project delivery.

As part of our fleet, optimization strategy, we had the opportunity to acquire a new dive support vessel to replace the vessel we retired. The acquisition was opportunistic, but allowed us to obtain a high quality, top-tier vessel, significantly below new-build cost, and without a protracted delivery schedule. The vessel, will operate primarily in the dive construction, inspection, maintenance and repair markets in the North Sea, and can also support our iEPCI initiatives in the region. In fact, we have already secured significant backlog for the vessel and see strong potential to add more in the near-term. In Brazil, we're investing in a spoolbase, to build upon the significant local content we have today, in-country, and to support and differentiate our current and future bidding strategy.

In surface technologies, we have ongoing capital commitments for a new facility in Saudi Arabia to support an expansion of our product line in the kingdom. These strategic initiatives will allow us to expand and support the growth activities we see in these particular end-markets. I also want to highlight the completion of our previous $500 million share repurchase program that was implemented in September of 2017. Our board of directors approved an additional $300 million share repurchase program in early December.

In summary, while the fourth quarter was impacted by several special items, we are pleased with our overall operational performance in 2018. We exceeded total company financial objectives for a second consecutive year. Despite a revenue decline of 17% from prior year, our EBITDA margins were resilient, losing only 93 basis points over the prior year. Our solid project execution and risk management combined with synergies and cost reductions supported our financial performance. Total company order inbound increased by 40% with growth in all 3 segments, driving backlog improvement of 12%, over 2018.

Operating cash flow performance in the second half of the year of $300 million was much improved from the first half, despite the working capital headwinds of major projects nearing completion. And we returned $681 million to shareholders through quarterly dividends, and share repurchase activity. We begin 2019 with good business momentum. Order inbound, year-to-date, has been strong, notably, in subsea, and we have improved visibility on near-term award potential, including additional iEPCI awards. The LNG outlook has further improved, and several LNG projects we are tracking are making good progress toward final investment decisions. And surface technology activity continues to strengthen outside the Americas, as evidenced by growth in our backlog.

With our company integration now largely complete, we are resolute we focused on initiatives to drive growth, as well as disciplined capital allocations to drive returns. We have reduced our capital spending intentions while still allowing growth investments to continue. We reaffirm the remaining items of our 2019 financial guidance, and remain very confident in the outlook for our company.

...

Operator, you may now open the call for questions.

Questions and Answers:

Operator

At this time, I would like to remind everyone, in order to ask a question, please press *1 on your telephone keypad, and please, limit yourself to one question, and one follow-up. Thank you.

Your first question comes from the line of Sean Meakim, from JP Morgan. Your line is now open.

Sean Meakim -- JP Morgan -- Analyst

Thank you. Starting out maybe in subsea. Is there anything else to highlight in terms of the revenue shortfall in the quarter, relative to guidance? Maryann, I think, mentioned something about FX Brazil, but just curious if there are any project deliveries worth mentioning into the next quarter. Thinking about how that influenced margins in 4Q, and just thinking about the implication for, that 11% full year margin floor in 19, is that a baseline quarter-to-quarter, or is it still too early to say?

Maryann Mannen -- Chief Financial Officer

Hey, thanks, Sean. So, let me try to address the topic around the revenue numbers. From an activity standpoint, our expectations in terms of how we provided guidance for Full Year 18, and including our margins were largely consistent. As you know, certain milestones -- get achieved, certain milestones, may slip to a different quarter. Overall, all activity levels in the fourth quarter were largely as expected. I think you know, there was strength in the dollar. I call out the Brazilian real because, we certainly have quite a bit of activity. You know, the dollar strengthened against the nok, as well. So, we certainly saw that a headwind with respect to revenue, obviously didn't change the margin's percent.

As we think about 2019, no change here. You know, there's always some seasonality and some sequential change in the revenue profile of subsea. We don't expect that to be any different than we've seen in prior years, frankly. No change to our guidance for 2019, with respect to those margins. We still see margins of at least 11% for subsea, for all of 2019. So, nothing in particular to call out that gives rise to any change for 2019.

Sean Meakim -- JP Morgan -- Analyst

Fair enough, thank you for that feedback. Curious if we could switch over to on/off, how we should think about future potential Yamal JV partner liability reevaluations and the settlement payments that we had in the third train delivery -- I'm not sure if that changes anything. Last quarter, you quantified the expected impact of Yamal on cash from ops. How we think about payouts on the mandatory -- liability impacting cash for financing in 19.

Maryann Mannen -- Chief Financial Officer

Sure, Sean, thank you. We will come back in the first quarter, and give you a better look for the full year of 2019. Having said that, you should expect that in 2019, given where we are against the completion of the project, that we would expect to make additional payments to cover partner liability. So, you should expect that 2019 will see further payments. I'll come back in the first quarter and give you a little more clarity around how that will unfold for the balance of 2019.

Sean Meakim -- JP Morgan -- Analyst

Thank you.

Operator

Your next question comes from the line of James Evans, from Exane BNP Paribas. Your line is now open.

James Evans -- Exane BNP Paribas -- Analyst

Hi, thanks for taking my questions. The first one, is on subsea. Following the wins on Marro, and hopefully, confirmed on Golfinho fairly soon, it looks like you're pretty busy from 21 to 23, on some large baseload projects. So, is that enough now to lift your expectations, or pricing, or discipline further on surf work, or do we need to do some further winds, I guess, to lift things a bit further? Thanks.

Douglas Pferdehirt -- Chief Executive Officer

Thank you, James, for the question. Rest assured, we have remained very disciplined throughout this period. In prior quarters, I had described how we are confident because of the success that we have, and the baseload that we have already because of our installed base with our subsea services activity, direct award from many alliance partners, and more importantly, the iEPCI opportunity set that is proprietary to our company because of the integrated FEED work that we have been doing. Whereas, we have had the opportunity to add some additional awards, and we're room excited about those awards.

The real question is how does it stack up for the rest of the market in front of our competitors, and will that reduce some of the level of predatory pricing going forward, particularly, in the area of the installation contracts. As there have been a series of awards that have been won by us, but as well as by our competition, we think that does indeed setup well, and we would expect to see that normalization of pricing. Again, I just want to conclude my ensuring that we have had a strategy all along, to maintain our assets to be able to use them where we can create the greatest value for our clients, and the greatest differentiation for TechnipFMC, and that is on the iEPCI projects. And that is why we have been patient, and we have been very, very disciplined along the way.

James Evans -- Exane BNP Paribas -- Analyst

I'd like to switch gears, on to onshore/offshore, and talk a little bit about LNG, I mean, obviously, it's a great pipeline. But are you seeing any additional LNG intake opportunities arise because of financial distress elsewhere in the sector? Or is that not likely to have an influence on you, directly?

Douglas Pferdehirt -- Chief Executive Officer

James, interesting question. It certainly is a benefit, and we have always been quite disciplined from a financial point of view to maintain that, the strength of our balance sheet, and that certainly plays to our competitive advantage. That being said, we have maintained our process of selectivity that we have done throughout our portfolio, including on our downstream portfolio in petrochemicals, refining, and fertilizers that you saw us secure very successfully in 2018. So, in regards to LNG, we think we are well-positioned. We are tracking over 20 projects, globally. We have focused on 5 strategic projects. Interestingly, there are over 5 different countries, we have 7 different partners, or potential partnerships across the projects. That's the way that we will make sure that our portfolios is properly represented, and carries the right opportunities and risk profile, as we move forward.

James Evans -- Exane BNP Paribas -- Analyst

Thank you very much.

Operator

Your next question comes from James West, from Evercore ISI. Your line is now open.

James West -- Evercore ISI -- Analyst

Hey, good afternoon, guys. Doug, when looking at the LNG opportunity set, as we've done our work on LNG, we're looking at some 100 million tons per annum, receiving FID, this year. So, a record-year, clearly, for LNG, in our minds. Curious as to, as you guys look at the opportunity set, are we too high, too low? How do you guys see or size the market opportunity? And maybe, might want to take it longer-term, 18-24 months.

Douglas Pferdehirt -- Chief Executive Officer

If you go 18-24 months, I think it's a realistic expectation, James. I was going to make the comment. If you look at it over any 12-month period, or even the 10 months remaining in 2019, as you know, these are big, big projects. They will move around, predicting the actual timing of a project, I don't think is beneficial in this environment, or in any environment just because of the size of the project. So, we remain a bit prudent. We have a strategic list of projects, we work those very diligently. We have a very strong level of front-end engineering activity, and detailed engineering. Which, as you know, is meaning we're getting close to potentially moving forward with project FIDs. And we monitor those very closely, and we have a very dynamic approach, and selective approach to the way that we look at the opportunity. So, always difficult because of the potential timing, but I could concur that there are certainly an opportunity set out there that could meet the metric that you've laid out.

James West -- Evercore Group LLC -- Analyst

Great, thanks. Switching gears here, on the subsea side, with the volatility we saw in commodity prices late last year, any pause in the activity set, or your work on that side in tendering, and project progression? Or has really, the training kind of left the station here, on subsea, and offshore deep water, and pretty much, where all systems go?

Douglas Pferdehirt -- Chief Executive Officer

Well, this will be interesting to see how it plays out. I can only relay to you what we're seeing in our activity. We have not seen a change in the momentum; if anything, we've seen an acceleration. You may note, we have already announced several projects in the first quarter. The value of those projects exceeds the total value inbounded in the fourth quarter of 2018, already, in the first quarter of 2019, of just the announced projects. And as you know, we always have a very strong foundation of subsea services, and other activity that's direct awarded mainly in the brownfield and tie-back arena.

We are very confident in the level of iEPCI awards, we'll be accelerating. Why is that, James? We have a unique proprietary set of projects that we only have exposure to because of the activity that we've been doing over the last years, with the integrated FEED projects, which are then converted to a direct iEPCI award. We've already announced 3 iEPCI awards in 2019, to-date. Two, for Lundin, and one, for BP. Both, new customers to the iEPCI model. So, we remain quite enthusiastic about 2019, and the opportunities that will be presented. And we think the first half is setting up to be a really strong performance for our company.

James West -- Evercore Group LLC -- Analyst

Thanks, Doug.

Operator

Your next question comes from Rob Pulleyn, from Morgan Stanley. Your line is now open.

Robert Pulleyn -- Morgan Stanley -- Analyst

Hi. Good morning. Thank you. If I can just ask regarding the exposure to Russia, not so much Yamal-related, but as we think ahead to Arctic LNG 2, which I believe you're interested in being involved in. Do you foresee any challenges relating to this proposed bill in the U.S. senate, regarding additional sanctions on Russia, and Russian energy, in particular? Secondly, just a very quick one for Maryann, just the impact on goodwill assets, lead to a lower depreciation charge. Thank you, guys.

Douglas Pferdehirt -- Chief Executive Officer

Thank you, for the question, Rob. Indeed, Arctic LNG 2 is a strategic opportunity for our company. We have been performing the FEED study, and we are now in the detailed engineering phase of that project. We think we have a significant amount to contribute to that project, following the very successful Yamal LNG project. As we did in the Yamal LNG project, we will continue to move forward, while respecting and acknowledging sanctions that are in place, or potential sanctions that could be in place. But at this time, we continue to actively engage, and would be very proud to be part of the Arctic LNG 2 project, and have another successful project, as we did on Yamal LNG.

Maryann Mannen -- Chief Financial Officer

Hey, Rob, Maryann here. No change to depreciation on goodwill because, there isn't any. But certain, on the portion of the asset impairment regarding fleet, we will see some lower results there for 2019.

Robert Pulleyn -- Morgan Stanley -- Analyst

Thank you, very much.

Operator

Your next question comes from Bill Herbert, from Simmons. Your line is now open.

William Herbert -- Simmons & Company -- Analyst

Good morning. Question for Maryann and Doug. Seems like you've upgraded your outlook for subsea services, which carries a significantly higher margin in subsea as a whole, yet you maintained your overall subsea margin guidance. Maryann, can you talk about the interplay between those two?

Douglas Pferdehirt -- Chief Executive Officer

Let me start, Bill, and I'll turn it over to Maryann. We had anticipated an increase in our subsea services activity, when we did our forecasting. We're obviously just validating that and providing some additional color around that, at this time. So, I just want to make sure that that's clear. Indeed, you are correct, it is a very important portion of our portfolios, and a real differentiator for our company, as we have the largest installed base of subsea equipment and flexible pipes in the industry.

Maryann Mannen -- Chief Financial Officer

Bill, Maryann here. With respect to margins, certainly, as we look at the subsea services piece, it typically carries a much stronger margin, as you know, than the project portfolio for several reasons. As we look at our 2019 guidance, we have reflected that growth, as Doug said, into our margin assumptions. So, that would be, currently, a part of our 2019 guidance around margins.

William Herbert -- Simmons & Company -- Analyst

Thank you. And the second question, Maryann, we haven't discussed the outlook for free cash flow in 2019. Would you expect to be generating free cash this year?

Maryann Mannen -- Chief Financial Officer

Bill, let me try to address it in a couple of parts. As you know, as we talked about 2019 on our December call, we offered what we believed to be the view from an operating cash flow level, and that is positive.If you allow me to exclude the impact from Yamal, here, as we talked about, what I shared with all of you is $400-$500 million of the non-Yamal businesses, meaning subsea surface, the remaining onshore/offshore in corporate. As we look at 2019, we can talk about the pieces here, as well. We just declared CapEx in and around $350 million now, for 2019. We just announced our dividend for the last quarter. It would be our expectation that we would see similar dividend payments throughout the year.

As I said, we also announced the $300 million buyback. One of the things we haven't given you detail on is how we would expect that $300 million to be repurchased. And part of that is, as I mentioned in my remarks as well, we are highly focused on improving our returns. We will use our ability here, our cash flow, to be sure that we are opportunistic, and where we can put that to work. The last thing, keep in mind, and I'll give you some more color in the first quarter, as we are completing the Yamal project, one of the outflows that we will see is the beginning of the payments associated with that MRL, and we will have more cash flow for the MRL, as well.

William Herbert -- Simmons & Company -- Analyst

Thanks, very much.

Operator

Your next question comes from the line of Amy Wang, from UBS. Your line is now open.

Amy Wang -- UBS-- Analyst

Hi, good afternoon. I have a couple of questions, please. The first one is in the onshore/offshore, the order intake was actually quite strong, so -- was some good FEED, good reimbursables in there. Could you give us some more color into what you think some of these contracts can lead to into further follow-on work? Maybe, just LNG, what it could lead to. My second question is a bit more housekeeping, just if you can talk a bit about the IFRS 16 adjustments to your financial statements. Ty.

Douglas Pferdehirt -- Chief Executive Officer

Sure, so I'll take the onshore/offshore. Amy, thank you for the question. Indeed, we had strong reimbursable activity associated with some of our ongoing projects. Keep in mind, what I said earlier on some of our LNG activity, we've had very strong activity, including moving into the detailed engineering phase, which would mean additional activity, and additional revenues associated with it. We also had previously announced, and we continue to increase the work that we're doing on a reimbursable basis on the ExxonMobile Blade project, in the U.S. Actually, quite a bit of activity, as you pointed out that was not, if you will name projects, but very strong level of activity based on our existing portfolio projects. Plus, a couple of new reimbursable projects, as pointed out, and more activity moving from FEED to detailed engineering on our LNG opportunity list.

Maryann Mannen -- Chief Financial Officer

Amy, your second question around lease accounting for 16 adjustments, I think, we'll give you the detail as we come out on the first quarter. We're largely through a lot of that work, but not yet complete. I'll give you a couple of high-level comments here. This juncture, based on the work we've done, we don't see any significant impact on the P&L, just given the way that our leases are structured. Obviously, we'll have a bit of a balance sheet impact as we put some of that in PP&E. We are not expecting at this juncture, any significant P&L impact from that. We'll come back in the first quarter and give you much more color, as we complete that exercise.

Amy Wang -- UBS—Analyst

All right, thank you, very much.

Operator

Your next question comes from David Anderson, from Barclays.

David Anderson -- Barclays -- Analyst

Hey, Doug, you do a great job of kind of highlighting all the projects -- and the subsea market. And now, we're talking about these 20 LNG projects. Could you just kind of help us understand kind of the size of the scope of these projects range? I don't know if you could put in like a small, medium, large, like you do on the subsea side. But just give us a sense as to kind of the size of these awards, and what they could potentially be.

Douglas Pferdehirt -- Chief Executive Officer

Sure, David, thank you for the question. I guess, you'd have to say medium-to-large; there is no real opportunity set in LNG that would be small, and you can look at that based upon the projects that we're currently operating, or that we have delivered in the past. But let's put it in size of number of potential trains. There is a project we're looking at right now, that we're working with our partner KBR to deliver the FEED study, and that would be for the Nigeria LNG Train 7.

In that case, it's a brownfield project. There's 6 existing trains, so this would be the addition of one train. In several of the other greenfield projects that we're looking at, we're looking at up to 3 to 4 trains on those projects. And then, you take a brownfield project like Qatar gas expansion, which because of the size of the trains, and the number of trains in the expansion, could actually be as large as any of the greenfield projects that are being investigated at this time.

What you further should consider when you think about from how it impacts, if you will, our profile going forward is as I said earlier, on those 5 strategic projects that we're following, we're looking at 7-plus different partners, sometimes multiple partners on a project, or one other partner on a project. And that's a good way for us to also ensure that we can use our resources, or we can create the greatest value on each and every one of those projects, while partnering with very competent partners to provide other portions of the scope. It also allows us to further diversify our portfolio, and our exposure to any one of those projects. If you want to try to put it into dollar terms, you're looking at, it's billions of dollars, up to tens of billions of dollars, realizing again, that it would be unlikely that we would take the scope of a full 10-plus billion-dollar project without a partner.

David Anderson -- Barclays -- Analyst

I can't imagine any of this turns into revenue in 19. Right? This is revenue that starts in 2020, and beyond?

Douglas Pferdehirt -- Chief Executive Officer

Depending upon the timing of the sanctioning. Again, we tend to be a big conservative, back to the earlier question on LNG opportunities. There are some projects that could move forward earlier in the year, and we could see some benefit from that. Keep in mind to the earlier comment or question from Amy, we're doing on some of these projects, we've moved from the FEED to the detailed engineering, which can bring a very sizable engineering contract in the hundreds of millions of dollars of detailed engineering work. So, there are sizable opportunities for our company that come up just prior to a potential project FID. So, if it came early enough, it's possible, but lots of detailed engineering, additional detailed engineering we could be doing throughout the remainder of the year, and with a potential sanctioning, if it happened earlier in the year, there could be some revenue from the project. But you are correct in saying that that would likely come over a period of years.

David Anderson -- Barclays -- Analyst

Doug, one final question, here. On the $280 million global settlement you talked about here, that you announced, of what you think the sum could be, is there any talk about a compliance monitor here in place? Are you confident that this is simply going to be a fine, and we can all just kind of move on from this?

Douglas Pferdehirt -- Chief Executive Officer

So, we're still early in the discussions. As you know, when these types of things -- when the settlement is reached, there is multiple aspects to a settlement. It's very early for us to comment on it at this time. And yes, there could be other elements to the settlement. Although, I have to say, we are very pleased with the level of cooperation and discussion that we're having, and we will continue to work in a very collaborative way to resolve these historical issues.

David Anderson -- Barclays -- Analyst

Thanks for the comments, Doug.

Operator

Your next question comes from the line of Jean-Luc Romain, from CM-CIC Market Solutions. Your line is now open.

Jean-Luc Romain -- CM-CIC Market Solutions -- Analyst

Thanks for taking my question. I have two questions about the impairment. The first, is how much did you change -- discounting rates you used -- how much discounted rate impact from the impairment. You are saying that -- long-term outlook for your business is unchanged, and that your position is unchanged. Do you think about further one quarter of your goodwill, is that a very big chunk of your goodwill that you raised for just a few months of volatility?

Maryann Mannen -- Chief Financial Officer

Thanks, for the question, Jean-Luc. So, let me try to answer it. You've got a couple of questions there, so let me try to take them in pieces, and hopefully, I can address everything that you're asking me.

First and foremost, obviously, the timing of impairment is critical. Most of the change that we saw was largely in the discount rate. We certainly have impact from the discount rate. When we talk about the fact that our view is unchanged, if you remember when we did our merger, we had a view of the market, back a few years ago. And frankly, what has happened is the view over the long-term has not changed, but certainly, our ability to deliver in the short-term is different. We sat here, a few years ago, and would have thought, as I shared earlier, that 2018 was a year of recovery. As we think about the value, you said, it's roughly a little bit more than 20% of the value in the goodwill in subsea. You know, some of that goodwill was original goodwill, if you will, and not much of that goodwill was added as a result of the merger.

Just a few things to keep in mind, so everything me try to summarize again. Yes, there is certainly a significant piece of our impairment that has to do with discount rate. Look at the timing of that, and look at the market conditions, as well. Long-term view, we still have a very similar view as we look at the margins in our profile, as we think about subsea over the long-term.

Jean-Luc Romain -- CM-CIC Market Solutions -- Analyst

Thank you, can you tell me what the discount rate was this time?

Maryann Mannen -- Chief Financial Officer

Yeah. For subsea, we'll actually be including that in our K, so if you will allow us to issue the K, we'll provide you that discount rate in the K.

Jean-Luc Romain -- CM-CIC Market Solutions -- Analyst

Thank you.

Operator

Your next question comes from the line of Kurt Hallead, from RBC. Your line is now open.

Kurt Hallead -- RBC -- Analyst

Good afternoon. If I may, on the first question here, I want to come back around to some commentary, I think, that was provided coming out of the analysts, and shortly thereafter, that either a line of sight or target, or otherwise. I don't want to put words in your mouth, so feel free to correct. iEPC orders making up roughly 25% of inbound. Just wanted to get maybe an update on that, and how you think that could progress in 2019, and within the confines of that, I think, the other dynamic that you discussed at varying times was by utilizing, by launching the Subsea 2.0, and then, the iEPCI dynamic around it, that there could be a number of projects that would not have been deemed economic, that would be pulled off the shelf. I wonder if you might be able to comment on how successful that's been, as well.

Douglas Pferdehirt -- Chief Executive Officer

Kurt, thank you, very much. On the first one, on the iEPCI, as a percentage of a revenue, I'll tell you what, I got that one wrong. The good news is, I got it wrong in the right way, Kurt. We feel quite strongly that in 2019 the iEPCI will exceed that 25% target. And in terms of this Subsea 2.0, we talked about it earlier, most, the highest percentage of our FEED studies now include Subsea 2.0 technology in those FEED studies. They are now beginning to be converted into projects, which gives us increased confidence in the ability to be able to have more demonstrated success of that technology in the marketplace.

When you commercialize a platform, a change in the platform like we did with Subsea 2.0, you have to go through a series of qualifications with your clients before they're made to be part of their standard procedures going forward. We've now accomplished that with the majority, the vast majority of the major subsea operators. So, we're actually quite excited about the progress that we've made. And as I said, it's in the FEED studies, now, and now being included into the tenders. Thank you.

Kurt Hallead -- RBC -- Analyst

Great. Thanks, Doug. I want to follow-up in the conversation around the growth in LNG opportunities. I wonder if you can give us a refresher on two things. The first, being, what's typically the revenue recognition period for LNG projects? Secondarily, can you give us some general sense as to what the margin differential is on LNG projects relative to, let's say, the average downstream onshore/offshore type of project?

Douglas Pferdehirt -- Chief Executive Officer

Kurt, again, it really depends, as I said, when you're looking at a one-train expansion of a brownfield site, you can obviously accelerate that because, a lot of the utilities is already in place, and a lot of the permitting, and infrastructure, including, potentially, some foundation activity is already in place. When you're looking at a pure greenfield site, there is certainly, it's spread over a longer period of time. Typically, if you look at a pure greenfield remote site, it can be 5-7 years. If you look at an FLNG opportunity, it tends to be in the range of 60 months. If you look at these brownfield activities, it could potentially be in that 60-month range, as well. So, it's pretty broad because, again, the opportunity set that we're looking at goes across all of those categories just mentioned. So, I guess, if you wanted to summarize it, you'd say around 4-7 years depending upon other project type.

Kurt Hallead -- RBC -- Analyst

And any margin differential on those projects relative to say, your typical downstream onshore/offshore project?

Douglas Pferdehirt -- Chief Executive Officer

Clearly, there is a -- those, at least, that have demonstrated the ability to be able to deliver these projects, and to deliver these projects not only on schedule, but in some cases, ahead of schedule, it's a list of a few companies. And we're very, very proud to be on that list. I recognize the women and men of our onshore/offshore global business unit who have been able to achieve such an outstanding performance. So, because of that, we would expect on these very large projects, that the customer would recognize that, and we would be rewarded accordingly. What does that mean, if it's a couple of hundred basis points or something in that range, that's probably realistic to assume.

Kurt Hallead -- RBC -- Analyst

Thanks, Doug, appreciate that.

Operator

Your next question comes from Michael Alsford, from Citi, London. Your line is now open.

Michael J. Alsford -- Citigroup Global Markets -- Analyst

Hi, there. Thanks for taking my questions. I've just got a couple, as well, please. So just firstly on the fleet, and I guess the long-term investment requirements of the business. You mentioned obviously, the CapEx has come down to 350 for 2019. I'm just wondering, if you could talk a little bit about how you see the fleet in terms of the outlook versus your pipeline of projects that you potentially could be awarded, and I guess, where you see longer-term investment levels for the business. My first question. Thanks.

Douglas Pferdehirt -- Chief Executive Officer

Sure. As you would expect, Michael, we have an ongoing fleet strategy. It's important for us, as you say, to understand what is our opportunity set versus our capacity and our capabilities. We've been very conservative in not chasing work that would tie up our fleet that we could not leverage on our iEPCI opportunities, and I think that's playing out very well in our favor. We will see the benefit from that for the years to come. So, that's Point No.1.

Point No. 2, we continue to invest in our existing fleet, where we have opportunities, and long-term contracts like we recently announced in Brazil, we were able to add a vessel under a long-term contract with our partner, DOF, under our JV, and we were able to replace one of our existing dive support vessels with a vessel with much higher capabilities, at an opportunistic commercial model, and bring in a new dive support vessel into our fleet. I think, looking forward, though, the whole industry hast to reflect upon the situation that we have created for ourselves.

As long as we focus on having the biggest, largest, and highest quantity of large fixed assets, regardless if it's vessels, rigs, or frack units, for that matter, we'll continue to underperform the level of returns that is expected from our investors. We are prepared to step up, take leadership in this area, much as we have across the subsea space, certainly, with the creation of the integrated model that we have now created and has been adopted broadly across the industry. We will do the same thing in regards to our fleet. So, you should expect us to be very prudent, to work well with others, to be willing to collaborate with others in order to be able to ensure that there is an overall level of capital and assets in the industry that can deliver reasonable and acceptable returns to the investment community through cycle.

Michael J. Alsford -- Citigroup Global Markets -- Analyst

Thanks, Doug. And just a follow-up on -- to Maryann, on working capital. Maybe I missed this earlier. Maryann, could you just give a bit of color as to the phasing of working capital outflow through 19, if you could? Thank you.

Maryann Mannen -- Chief Financial Officer

Hey, Michael, Maryann, here. I think, when we talked about our cash flow from operations at the end of 2018, I didn't specifically give working capital color, but rather color around cash flow from operations. I would expect that throughout the year, we will see, and probably particularly more front-end loaded, given the completion around Yamal, those outflows happening earlier in the year rather than later in the year. So, that would be the way that I would characterize cash flow from operations, meaning the working capital impact would be more heavily weighted in the first half of the year than the back-half.

Michael J. Alsford -- Citigroup Global Markets -- Analyst

Thanks. So, a similar profile, sort of 18, and would you say, on operating cash flow?

Maryann Mannen -- Chief Financial Officer

That would be fair, Michael, yes.

Michael J. Alsford -- Citigroup Global Markets -- Analyst

Great. Thank you.

Operator

Your final question comes from the line of Mike Urban, from Seaport Global. Your line is now open.

Michael Urban -- Seaport Global Securities -- Analyst

Thanks. Good afternoon. Thanks for sticking me in. Wanted to follow-up a little bit on, I think it was Kurt's question. I think everybody agrees, you guys have done a good job in bringing in the business, executing the business, and one of the big push-backs I get is just understanding the long-term margin profile for onshore/offshore. Definitely, helpful on the color in terms of the margin uplift you get from LNG. Is there anything you've done through the merger that are execution projects election we should talk about, in terms of a structural uplift in the normalized margin for the mid-and-downstream, the traditional E&C work. I think the concern is that over time, the margin just kind of migrates back to that kind of mid-single-digit EBITDA that you've been at, or that you were at historically.

Douglas Pferdehirt -- Chief Executive Officer

Michael, thank you for the question. Look, I think what we've done as a result of the merger is support the onshore/offshore GBU, and continue to provide the tools and resources that they need to execute their work. This is a high-performing part of the business, and has been for a long time. So, humbly, I would say, what we've done is continue to support them. We have some of the very best project managers in the industry. We have the best leadership in the industry. And they've proven themselves year, after year, by performing some of the world's most complex projects and delivering financial performance that outperforms their peer group.

Michael Urban -- Seaport Global Securities -- Analyst

Okay. I guess, given that outperformance versus peers, hopefully that means better margins. I guess, to follow-up, a bit of a housekeeping question. Good to hear the improved outlook for subsea services. Is the baseline for that double-digit growth, you talked about, kind of roughly a $1 billion in revenue in 18. Is that about where you came in?

Douglas Pferdehirt -- Chief Executive Officer

That's a reasonable assumption, yes.

Michael Urban -- Seaport Global Securities -- Analyst

That's all for me, thank you.

Operator

No further questions at this time. I would like to turn the call back over to Matt Seinsheimer.

Matthew Seinsheimer -- Director Investor Relations

This concludes our fourth quarter conference call. A replay of the call will be available on our website, beginning at approximately 8:00 p.m., Greenwich Mean Time, today. If you have any further questions, please feel free to contact the investor relations team. Thank you for joining us. Shelly, you may end the call.

...

Operator

This concludes today's conference call. You may now disconnect.

Duration: 65 minutes

Call participants:

Matthew Seinsheimer -- Director Investor Relations

Douglas Pferdehirt -- Chief Executive Officer

Maryann Mannen -- Chief Financial Officer

Sean Meakim -- JP Morgan -- Analyst

James Evans -- Exane BNP Paribas -- Analyst

James West -- Evercore ISI -- Analyst

Robert Pulleyn -- Morgan Stanley -- Analyst

William Herbert -- Simmons & Company -- Analyst

Amy Wang -- UBS-- Analyst

David Anderson -- Barclays -- Analyst

Jean-Luc Romain -- CM-CIC Market Solutions -- Analyst

Kurt Hallead -- RBC -- Analyst

Michael J. Alsford -- Citigroup Global Markets -- Analyst

Michael Urban -- Seaport Global Securities -- Analyst

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