Petrofac Limited - Trading Update
18 December, 2008
Petrofac, the international oil & gas facilities service provider, issues the following pre-close trading update ahead of the announcement of its audited results for the year ending 31 December 2008, expected to be on 9 March 2009.
The group’s good operational performance has continued in the second half of the year and the Board anticipates that, in the absence of unforeseen circumstances, the group’s net profit for 2008 will be in line with current market expectations (see note below).
In the Engineering & Construction division the execution of projects in-hand is progressing well. Notwithstanding increased market uncertainty following the recent rapid fall in the oil price, the division’s bidding activity continues at a high level. At the time of the group’s Interim Results in August we referred to a bidding pipeline in excess of US$10 billion. Of these prospects, the division has secured a US$543 million contract with the Kuwait Oil Company for the engineering, procurement and construction of a gas pipeline to the Mina Al-Ahmadi refinery. All the other prospects referred to at the time of the Interim Results are still being actively pursued, as are a number of new bids. The outlook for the bidding pipeline for 2009 continues to be promising.
The Operations Services division continues to deliver sound operational performance across its portfolio of UKCS and international contracts although its financial performance has been impacted by the recent weakness of Sterling (with around three-quarters of the division’s revenues being Sterling denominated) and slower than anticipated build-up in activity in some of the new training centres opened during the year. The acquisition of Eclipse Petroleum Technology Limited and Caltec Limited during the second half of the year has enhanced the group’s ability to deliver solutions to customers to improve production, particularly for mature fields.
In the Energy Developments division, the Cendor field, offshore Peninsular Malaysia, has produced, on average, in excess of 14,000 barrels per day during the year to date. Development of the conceptual design work for the second phase of the Cendor field is progressing, with a final investment decision expected during the second half of 2009 and the recent appraisal drilling programme has yielded promising results. In Tunisia, the commercial export of gas from the Chergui gas plant commenced in August and the facility is now processing near its capacity of 20 million standard cubic feet per day (mmscfd). Work is underway to increase the capacity of the plant to 25 mmscfd. Significant progress was made during the year in developing the West Don and Don Southwest fields in the UK North Sea where first oil is expected to be achieved during the first half of 2009. The Northern Producer floating production facility is now on location and most of the subsea construction work has been completed. The development of the Don facilities is on budget and on schedule and the drilling programme has commenced with final completion operations underway on the first production well on West Don. As announced in April, the division has been evaluating taking a ten per cent equity interest in the Ebla development in Syria. After a thorough review of the opportunity the division has decided not to invest in the development.
As at 31 December 2008, total backlog is expected to be approximately US$4.0 billion (31 December 2007: US$4.4 billion) comprising approximately US$2.4 billion from the Engineering & Construction division (31 December 2007: US$2.5 billion) and approximately US$1.6 billion from the Operations Services division (31 December 2007: US$1.9 billion). The majority of the Operations Services division’s backlog is denominated in Sterling and on a constant currency basis (at 31 December 2007 exchange rates) increased marginally to US$2.0 billion. The group expects its gross cash balances at the end of the year to be around US$600 million.
Ayman Asfari, group chief executive of Petrofac, commented:
“We are very pleased with the performance of the group over the year which has delivered record revenue and profits.
"While we recognise that there will be some pressure on discretionary spending by some of our customers, our backlog gives us good revenue visibility. Furthermore, our Engineering & Construction division’s focus on onshore developments in the Middle East and North Africa and our effective cost structure gives us a strong competitive position. This, together with the strength of our bidding pipeline, gives us confidence in the outlook for 2009 and beyond.
"The group has a strong balance sheet and we are well positioned to take advantage of any opportunities that may arise from current market conditions.”
The current market expectations for Petrofac’s net profit for the year ending 31 December 2008, referred to earlier in this announcement, are based on forecasts provided to Petrofac by 13 equity analysts since publication of the group’s Interim Results in August 2008. The average of those forecasts is US$259.6 million.