Hello, everyone. If everybody could grab their seats, please. Thank you. Next up, we have Mr. Doug Pferdehirt, is Chairman and CEO of TechnipFMC. Doug has been CEO of FMC Technologies since 2016, and CEO of the combined company since the merger in 2017. For the last several years, TechnipFMC has reshaped the subsea industry with its integrated offering and iEPCI approach that led to commanding market share in recent years, as well as industry-leading visibility. Doug has some slides to present first, and then, we're going to do a little Q&A at the end. Doug, please.
Thanks, Dave. Thank you, Dave, and thanks to the entire Barclays team for allowing us to be here today, and it's great to see the level of interest both in the industry as well as in our company. Before I begin, I'd like to remind you that some of my comments today may include forward-looking statements. For additional information on the factors that may cause our actual results to differ materially, please refer to our regulatory filings with the SEC, which can be found on our website. Today, I will focus on what we believe to be the three primary investment drivers for TechnipFMC. First, we are a pure play on the international expansion. More than 90% of our total inbound and revenue is generated outside the North America land market. Second, we intend to capitalize on this growth opportunity.
Our preliminary outlook for total company Adjusted EBITDA for the next year represents a CAGR of more than 30% from 2022, and we expect further growth in 2025. And third, we expect this significant growth in EBITDA to translate into strong growth in free cash flow, and we are committed to returning more than 60% of this cash flow to shareholders through at least 2025. Looking ahead, we remain confident in the strength of this upcycle and believe that the offshore and Middle East markets will continue to lead the next leg of expansion. Focusing first on offshore, the FEED pipeline for subsea developments continues to expand across all major basins, with more projects in advanced stages moving towards FID.
We are forecasting our subsea inbound orders this year to grow nearly 35% versus 2022, driven in part by improved project economics that continue to benefit from lower cost and accelerated time to first production. In the first half of this year, we have already inbound $6.7 billion of subsea orders, providing us further confidence in our ability to achieve approximately $25 billion of orders through 2025. It is also important to note that our order outlook assumes little to no benefit from new offshore frontiers. While strengthening offshore activity is likely to be our primary driver of revenue growth, we also expect significant investment to continue in land-based resources, particularly in the Middle East.
Here we have a strong market position, and we have expanded our footprint to further leverage our in-country talent in markets such as the United Arab Emirates and the Kingdom of Saudi Arabia. Taken together, we believe the significant spend that will occur in these growth area markets will benefit our company, as more than 90% of our revenue is generated outside the North America land market. The order growth we have experienced has also driven our subsea backlog to more than $12.1 billion, up more than 50% year-over-year. This is the highest level of subsea backlog that TechnipFMC has ever carried, of which more than 80% will be converted into revenue beyond the current year.
The strength and quality of our backlog provide us the visibility and confidence to achieve subsea Adjusted EBITDA of approximately $1.4 billion in 2025, an increase of nearly 130% versus 2022, driven in part by an estimated 650 basis points of margin expansion to 18% in just three years. We are confident in our ability to achieve this level of profitability, as much of the improvement will be achieved through internal initiatives, some of which are already impacting our results today. And more importantly, we see 18% as a major milestone, but certainly not the highest level we can achieve. What we have done has created a truly unique and differentiated offering that has further extended our industry leadership.
We introduced a unique commercial model to the market, which we call iEPCI, and it has become the industry standard today for integrated project execution. The strength of our customer relationships, particularly those of our alliance partners, has also proven to be of significant value, leading to a greater share of direct awards for TechnipFMC. As the subsea market grows, so too will our market-leading installed base, which provides resilient long-term services activity that is margin accretive to our business. The changes we have made also provide sustainable benefits to our company. Through simplification and standardization, we are accomplishing more than just lower costs and shorter cycle times. We are de-risking project execution. Our Subsea 2.0 product portfolio is one of the most visible examples of this success, where the benefits go beyond the product itself.
The real value comes from our ability to generate material volumes that we can leverage into a Configure-to-Order model, which creates incremental manufacturing capacity without the need for additional capital expenditure. We've also changed the way we manage our fleet with the creation of our pipe-lay vessel ecosystem. By collaborating with industry peers, we have expanded our iEPCI opportunities while providing greater capital efficiency. The actions we have taken have fundamentally changed the way we do business. They provide market differentiation, they provide greater capital efficiency, and they provide real and sustainable benefits. And this is reflected in our commercial success, where in 2023, we expect the combination of iEPCI, subsea services, and all other direct awards to account for 70% of subsea inbound. Next, I'll speak to our capital allocation policy, which we believe is fully aligned with shareholders' interests.
First, we believe that returning capital to our shareholders should be viewed as fundamental to any investment thesis for TechnipFMC. In July, we doubled our share repurchase authorization to a total of $800 million, while also initiating a quarterly dividend. When the buyback and dividend are taken together, we have committed to distributions that will exceed 60% of our annual free cash flow generation through at least 2025. We also expect shareholder distributions to grow in line or better than the growth in total company EBITDA in 2024. Second, there is the investment in our business. As we have stated before, we will maintain a disciplined approach to new investment. We have demonstrated for some time now that the strategic assets we own today can be managed and maintained in a capital-efficient manner.
We have established a long-term target for capital expenditures of 3.5%-4.5% of revenue, which we believe should remain at the low end of this range, given the changes made to our operating model, even in the current period of growth. Lastly, there is the balance sheet. We remain focused on achieving investment-grade metrics and are confident that our current financial plan can achieve that. The strength of our balance sheet today allows us to be more focused on capital investment and shareholder distributions. Importantly, this framework is not aspirational. It is a commitment, one that is supported by changes to our business and execution models, both of which are driving sustainable improvement in our financial performance.
Lastly, I would like to take a moment to address the resiliency and durability of this cycle, which is obviously an important element of the investment thesis in our company. We first shared our intermediate-term outlook nearly two years ago when we outlined a period of growth that we believe would extend through at least 2025. Today, nearly all major drivers point to continued strength in oil and gas investment well beyond that timeframe. This outlook is corroborated by others, and here we show a view from a well-established independent research firm. What's most notable is their expectation that deepwater and the Middle East will take a greater share of the global production mix over the next 10 years. During this period, incremental production from these two sources is forecast to increase 40% to approximately 12 million equivalent barrels.
This will result in increased market share, with production from deepwater in the Middle East expected to represent approximately 40% of global and oil and gas production by the end of 2033. This acceleration in growth comes as no surprise to us, as these assets provide both attractive returns and low carbon footprint to our customers. With that, I would like to thank you for your interest in TechnipFMC, and I look forward to your questions.
Great. Thanks, Doug. So let me just start with just the cycle overall. You just came off your record order book, $4.1 billion the second quarter. Naturally, a lot of the questions we got were: Well, it's peak, where to go from here? So maybe just kind of talk a little bit about where you think we are in kind of the broader cycle. You were sort of touching on it before, but. How would you kind of characterize where we are and kind of push back on that notion of peaking already nine months into it, nine months from when, when we really kind of just started kicking?
Sure. No, thanks, Dave. And I do think it's important that we spend some time on it and, you know, try to add clarification. That's why we wanted to have the prepared remarks today, to try to add some data behind the comments. But I can say with a great degree of certainty that we did not experience peak, which would be the shortest cycle ever. You know, it was a great quarter. The timing of certain awards, you know, came in that quarter versus being spread out throughout the year. But it wasn't an acceleration. We weren't pulling anything forward. It was just a natural order flow, but certainly sets up the $25 billion target very nicely.
And we continue to see actually an increased level of client interest, not only in that period that we've already provided guidance out to 2025, but now well beyond 2025. And I'll give kind of two anecdotes there. One is, we've had clients now come to us and not only award the upcoming project, and think of a subsea project in the timeframe of two to three years. So they, you know, they're not talking about, you know, the 2024-2026 range for the next project, but then they're wanting to book the project beyond that. So you're talking about the 2028-2030 range. The other point that I would make, and we said it in the script, but I just want to reemphasize it, is there is a set of emerging markets out there.
Countries where the exploration has already been done, you, you've all read about it, you know what we're talking about, that appear to have very prolific, resources of natural gas and/or oil. And in our numbers that we're showing and in the forecast, in the $25 billion by 2025, we're not accounting for that, because that's going to happen beyond that time period. Some of it may be pulled into the latter part, but most of it's going to happen beyond that time period. Again, why we feel very confident that, there's a significant amount of additional work to be done, both in the existing basins, but when we start factoring some of these rather prolific new basins, I think... And the economics, the economics are just there. And as long as the economics are there, it's going to attract the capital.
Our singular focus as a company is to make those offshore investments, be it traditional energy or new energy, as economic as possible. And our way, the biggest contribution that we can make as a company, is to shorten that cycle time and improve the delivery certainty, so our customers know that when they go with iEPCI and Subsea 2.0, direct award with TechnipFMC, they know it's going to be delivered on time and on budget.
So the customers know you can execute it well. They know the cost, there's a lot of certainty in there for the, for the customers, but we've seen a surge of awards. Were you surprised at, at the pace of awards, I guess, really over the last nine months? And does that say something about the customer behavior? In other words, if I go back three years ago, I mean, most people were talking about, you know, oil demand peaking in 2025 or 2026. It feels like there's been a change of view. Are you seeing that from your customers and the customer behavior?
Well, yes, but for a couple of factors. You know, one is purely project economics, and, you know, when they're ready, you know, it takes a long time, and our customers go through a very structured, meticulous process before a project FID. They, you know, they do a lot of good engineering upfront, et cetera. But once it's time to move that project forward, they have every incentive to get that project FID. So that's just kind of the natural dynamic, and again, you know, we saw a lot of that in the first half of this year. The other element is our customers are focused on securing quality capacity. Obviously, there's a finite capacity out there, but within that finite capacity, there's, you know, higher quality and maybe lesser quality.
What has been proven to be a very effective delivery model is the iEPCI with Subsea 2.0, where we start at the integrated FEED, then it's a direct award for the project, and then the delivery of the project up to one year earlier than what the rest of the market can deliver the project in. And that and it's, it's not only the year earlier that improves the project returns, but it's their confidence that we'll do it, Dave. And as you said, that's been our reputation. That's how we built it. And now with the new operating model, with the configure-to-order and the Subsea 2.0, our own confidence in the ability to be able to deliver it per commitment is even greater than it was in the past.
So I want to get back into some of the stuff that FMC has done, but before we get there, can you talk a little bit about the broader subsea market? I've been covering FMC for almost 20 years, it's hard to believe, but back in kind of that 2005, 2006 timeframe, which is sort of the Wild West of subsea, when Deepwater was just coming out and. Can you just talk about kind of that market back then to what it is today? It seems to me there's probably more structural change in this market than any other part of the services where I can tell. Can you talk about what the differences you see and why that's so much better for you today?
Well, I'll try to be brief. I can think of a whole bunch of different ways I want to go with that. Thank you. So what are some of the fundamental differences? First of all, back then, you were really only talking about four basins globally. So that entire offshore world was really in four basins. Since then, it's, you know, more than doubled, and again, think about all the emerging basins that you read about, that are going to grow that subsea market even further than it is today. So on just the expansion by basin or geographically, if you will, has been quite material. Secondly, the... The client mix has actually evolved, and at the time, it was really driven by actually, not much more than a handful of clients.
And today, in our, like, we, in a quarter, our revenue is normally from between 30 and 40 unique customers. So a handful in the past, five to seven , I know that's more than a handful, but about five to seven in the past, to about 30 to 40 today. So there's a lot more customers out there, some of which you may not even be aware of, that are doing offshore projects. One of the reasons they're able to do it is the opportunities are becoming available to them, but also because we give them the capability to be able to do an offshore project. In the past, they had to have their own subsea team, their own engineers, their own, we, you know, we think of ourselves as an architect. They had to do their own architecture.
We now do that for them, and now with the integrated offering, we take it all the way through the installation and commissioning. So I think that's also been a big change in the market dynamic.
So essentially, I mean, through the iEPCI model, it feels like you, you've almost been an enabler of subsea development for a lot of independents. Is that kind of how you, you view that, as kind of being able to... So talk a little bit about the iEPCI model. So how early are you starting? So like you say, two to three years for a subsea project, but you're in there way in advance.
Correct.
Can you maybe just give us an example of kind of how that works? Maybe not, no, no customer specifically.
No, no, no.
Just generally how it works.
No, I mean, that's a fair question. I would say on average, we are involved in the project two years, in some cases even earlier than that. But at least two years before that project ever, I was going to say, goes out to tender, but again, most are direct awarded to our company, so they don't go out to tender, but before their FID. And that's called the front-end engineering and design phase. We do that for them. It's, you know, we, we, you know, we're paid to do that work. It's a very highly technical group of very experienced industry-leading experts, now being supported by AI. So this is where we're actually bringing in the AI capability in.
Because we have such a large portion of all subsea developments that have ever been done historically, we're now able to put all of that into basically a database and use artificial intelligence to mine all that information. Now, most of our engineers are really good at doing it by themselves, but the support of AI helps them even bring the answer maybe more quickly or a more comprehensive solution as well. But that's kind of that phase where we're at the table one-on-one with the client, working on the development of the architecture, but we're also looking at the project economics. So we have an open and frank conversation. What's it going to take for this project to go forward? We're not a body shop. We just don't do engineering work. There's some other companies who do that, and they do it very well.
But we're, you know, we're about projects. That's what drives the company. So we're only going to engage in those front-end engineering studies that we believe are highly likely going to result in a project, not just, if you will, a science project, but an actual project that's going to deliver energy. So the way we do that is we sit down, we understand, are there expectations realistic? What is the quality of the reservoir? What is the likelihood of this moving forward? And then we're working in a very transparent way because it's going to be a direct award. So there's no competitive tender along that path.
Once we come up with the architecture and it meets or exceeds their project economics, then there's a direct award to us. So typically, two years before the award and then the two to three years during the delivery of the project.
That's kind of what builds these intimate client relationships. We're not... You know, some of these companies do a job, you know, several, you know, hundreds of jobs a day, you know, different little jobs around. These are long, intimate relationships. This is a significant amount of capital for them to entrust with any partner. We're humbled that they entrust it with us, and we maintain our relationship and their confidence in us by continuing to deliver.
If you go back 10-15 years, everything was bespoke.
Correct.
Every offshore development, 50 shades of yellow paint, and all that. Now we're at this, you're now in the Subsea 2.0 era. Can you talk a little bit about what you're expecting that to get out of your business? In other words, it seems like there was a lot of lost time, a lot of wasted time in the old model. Subsea 2.0 kind of changes everything. Kind of what percentage of your business do you think will be on Subsea 2.0, and should that... I mean, is the idea that will manifest itself into margins going forward? What do you, what's your aim? What's your goal to get out of that?
You're going to have to cut me short on this one, because this is one I get really excited about. But let's start with kind of the whole philosophy behind Subsea 2.0. So the industry realized that this bespoke model was not sustainable a long time ago, a long time ago, before we created the company, TechnipFMC. It was well understood that this needed to change, but even for the same client, even in the same basin, even if it was just a tieback to the existing project, it would be a brand-new set of specifications. So we would typically not be involved in that two-year process that I just described. We would simply get handed, "Here's what we want you to build." It had never been built before.
Sometimes it was a small tweak, but even a small tweak would change a small change. So even a welding specification would make us go back and engineer the entire product. And remember, we talk about subsea trees , that's 10% of the architecture. This is a city on the seafloor, so you're having to redesign everything. It would typically be nine to 12 months of detailed engineering, post-award, before you would place a single purchase order. With Subsea 2.0, then the industry said, "Well, we got to come up with a standard." The problem was, none of the clients could agree on a standard because they all wanted their standard, and the supply industry wouldn't agree on a standard unless it was there. So it wasn't going to work, and we were never going to come up with a single standard.
What we shifted to from the idea of getting to standardization, was getting to configurability. Think about it like the auto industry. When you order an automobile, there are zero engineering hours when you place your order. Now, you, you believe that because you went through a series of drop-down menus, and at the end, it spit out, it said, "Build your own," and you really thought they were going to go build that for you. Every single, every single component that they allowed you, options that were in the drop-down menu, have been pre-engineered, pre-configured, done. Zero engineering hours. That's Subsea 2.0. We have an app called Subsea Studio. That's what our clients use with a series of drop-down menus, but instead of, you know, cloth or leather interior, it's 5,000 or 10,000 PSI.
It's a set of different options, but at the end, it spits out a unique tree to them, but it's not one that we have to do any engineering on, because all of those components were pre-engineered. So instead of nine to 12 months of detailed engineering before the first purchase order, day one, we go into assembly and test, hence delivering Subsea projects up to a year earlier. Sounds simple, I realize that. Sounds really simple, but this was a four-year, rather expensive engineering effort we went through from 2014 to 2018. It was not easy to do because you've got to come up with an architecture that the customers are going to adopt and accept and give up some, you know, bespokeness, if you will, but they see the benefit now of Subsea 2.0.
It took a while for our orders to reach 20% of Subsea 2.0, probably about four or five years. But then to go from 20 to 50 happened in 48 months. So if you will, that adoption, as you would expect, that technology adoption curve is hyperbolic. So, we're now at 50% of our orders today. That doesn't mean 50% is flowing through the bank, right? We're still only at about the 20%, 'cause it takes a while at post order, then it goes through the plant, which gives us confidence in that 650 basis point improvement in margins. But, yeah, so the Subsea 2.0 is now at 50%. It's a fair question, Dave. Where could it go to? Theoretically, it could go to 100%.
I don't know that the whole market will go to 100%, but we could certainly take our business to 100%. But clearly, it's going to go well beyond 50%. And it's just. It gives the customers, just like you, when you order your car, it gives you optionality. You don't have to take what your neighbor bought, but realize they're probably building more than just that one they're building for you. They're probably building 1,000 of them, and you don't know it till yours gets delivered, and you feel really great, and then your daughter starts pointing out all the other cars that look just like your car. Yeah.
So as it relates to your margin target of 18% in Subsea by 2025, you'll have essentially 50% working through Subsea 2.0. So 18% is essentially a baseline expectation, otherwise, you wouldn't be throwing that number out there in 2025. So how does that number go about? What, what's the upside? Where do you get the upside in margins from? Is it through better performance from Subsea 2.0, that you're—that maybe there's more efficiencies? Is it from better pricing? How, how do you see the upside from there?
At the most, like, to simplify it, I would really focus on two things. One is the quality of the inbound. So when you hear us talk about our inbound, we'll specifically call out if it was iEPCI, if it was 2.0, or if it was a direct award. And typically, it's the three of those, which is, you know, the iEPCI. Honestly, it's the best for the operator because it gives them the greatest certainty and the best project returns, and it's obviously best for us as well. So it's a win-win, but not all of them meet that combination. So it's the quality of the inbound, and we call that out. We let you know what percentage, as you just talked about, the Subsea 2.0 is now 50% of the inbound.
So as that grows beyond, you know, 2023, which will start to impact, you know, 2026, 2027, 2028, that will be obviously an upside, as well as the iEPCI and 2.0, what the word, that whole combination. And then the other part, sure, there's the overall market dynamic and the project economics and, you know, everything that's happening in the market today. But again, we're, we're building the company to have sustainable through-cycle project returns, so much than focusing on, let's say, supply and demand cycle. I mean, that's there. You know, let's not ignore it. It's, it's there, and it's real, but it's really about the quality of the inbound, that we, that we bring in today, that's really going to start to drive those margins.
Now, you bring up another very interesting point, which is: Do we ourselves truly understand the economic value of Subsea 2.0 Configure-to-Order? And this is terrible for me to say, certainly not sitting on this stage with the bright lights and on a live microphone, but we actually don't know. It's better than what we thought, meaning we're getting more efficiency, more throughput through the same capital infrastructure than we even thought was theoretically possible. So we're learning from this journey, and we think we're going to continue to see upside as we learn more from it, and we convert more of our manufacturing into capacity into-
Great. Great note to end on. Doug Pferdehirt, thank you. Thank you very much. Thanks, Dave.