Norway's specialist Subsea play

Subsea 7 transformed itself with its January 2011 merger with London-based Acergy. The two companies were combined in the wake of the BP Gulf of Mexico oil spill as the disaster meant that oil services providers would have to become bigger and geographically diversified. The newly merged group had a strong presence in the North Sea and the west African offshore industry. But the enlarged Subsea 7 has won major contracts in Latin America, and is looking to establish a foothold in the highly promising east African oil and gas industry.

Recent contract awards include $135m (£89m) from Shell UK for the Fram oil and gas project in the central North Sea and a $140m deal with Mexico's state-owned energy giant, PEMEX. However, the deal that could really move Subsea 7's share price is a $5bn tender process to build six pipe-laying support vessels to be supplied to Brazil's Petrobras.

Subsea 7, along with France's Technip and Italy's Saipem, are the industry's main seabed engineers, although Subsea is the only dedicated specialist. This segment of the oil and gas industry has high barriers to entry because it requires lots of technical expertise and capital. Subsea 7's bosses reckon their group's chief strength - and one not readily replicable - is the accumulated project management expertise at its disposal. Specialist deepwater subsea engineers work in a sector of the energy market that was deemed 'niche' until recently, so experienced workers are thin on the ground. The capital barrier is easy to understand, given the cost of building specialist ships that can deliver complex engineering projects, often in atrocious offshore environments - this is the heaviest-duty kit and the Norwegian operators are pre-eminent in designing and building it.

The power of oil and gas producers - Subsea 7's customers - means that contractors have to put up lots of capital. This produces problems when contracts fall victim to delays and Subsea 7 has warned that "supply chain bottlenecks" could weigh on the sector this year. The prediction was quickly followed by a profits warning from rival Saipem that was partially blamed on contract delays. The warning - by Europe's biggest oil services provider - prompted a heavy markdown in share prices across the sector.

Meanwhile, Subsea 7 has yet to formalise its dividend policy, but shareholders have already got a 60¢ special dividend for 2011. In addition, last year it made $200m-worth of share buybacks (worth another 60¢ a share). And Subsea shareholders got shares on a one-for-10 basis in Veripos, an Oslo-listed satellite navigation business that was spun out of Subsea. The Veripos award is currently worth 40.5¢ for each Subsea share, so the effective yield for the total payouts for 2011 was 6.5 per cent (based on Subsea's current price). Of course, that yield isn't an indication of 2012's likely payout, but it suggests Subsea 7 will be a better income generator than our table suggests.