News

Interim Management Statement


09 May 2014

  • Good operational performance from ECOM with strong progress across the EPC portfolio
  • Strong ECOM order intake of US$4.4 billion in the first quarter, taking Group backlog to record levels of US$18.6 billion at 31 March 2014 (31 December 2013: US$15.0 billion), augmented by US$1 billion of order intake, including the BorWin 3 award in April
  • We have recently completed a review of IES, resulting in a re-focusing of our business development plans, which has seen us step back from certain business development opportunities and reduce our capital expenditure plans
  • The review has evidenced good progress on certain projects, in particular in Mexico and Malaysia, but also identified a number of operational challenges that are being addressed, in particular on the Greater Stella Area project and the Ticleni project in Romania
  • Net profit for the full year 2014 is expected to be between US$580 million and US$600 million, predominantly reflecting lower than expected earnings from IES due to the delay to the Greater Stella Area project, lower than expected production on Ticleni, the dilution of our equity interest in Seven Energy and no significant contribution from new awards
  • Net debt of US$0.9 billion at 31 March 2014 (31 December 2013: US$0.7 billion)

Ayman Asfari, Petrofac’s Group Chief Executive, commented:
“We continue to deliver good operational performance in ECOM and we have had a very strong start to the year in terms of new awards, with more than US$5.5 billion of order intake in the year to date. The Group’s backlog stood at record levels of US$18.6 billion at 31 March 2014 giving us good revenue visibility for 2014 and beyond.

“In IES, following a review of our existing and prospective projects, we are working hard to deliver improvements in operational performance on the existing portfolio and are re-focusing our IES business development plans. We have stepped back from certain business development opportunities and, going forward, we will prioritise IES opportunities which best lever our existing core areas of strength, which offer clear synergies with ECOM, and which deliver attractive returns on capital employed.”


Engineering, Construction, Operations & Maintenance (ECOM)

Onshore Engineering & Construction
We continue to make good progress on our portfolio of projects, including on the In Salah southern fields development in Algeria, where we have fully remobilised, and on the Upper Zakum project in Abu Dhabi, where we have agreed capacity enhancements with the client.

We have enjoyed early success in 2014, with approximately US$3 billion of new awards in the year to date in Kuwait (clean fuels project for KNPC) and Oman (Khazzan gas development for BP), which, together with our opening backlog position, gives us good revenue visibility for 2014 and beyond. Our pipeline of bidding opportunities remains strong and, given our competitive position, we are confident of growing Onshore Engineering & Construction backlog across 2014.

Offshore Projects & Operations
We continue to perform well on our portfolio of operations support contracts and offshore capital projects. Through Offshore Capital Projects, we recently secured our largest offshore engineering, procurement, construction and installation (EPCI) project to date (in consortium with Siemens) with the award of a major contract from TenneT, the German-Dutch transmission grid operator, for the BorWin3 offshore wind farm grid connection in the North Sea. We continue to make good progress on the construction of our deepwater EPCI installation vessel, the Petrofac JSD 6000.

Engineering & Consulting Services
Engineering & Consulting Services has made a good start to the year, with its largest ever award for an engineering, procurement and construction management contract (EPCm) for Petroleum Development Oman (PDO) to provide services for its Rabab Harweel Integrated Project (RHIP) in Oman. Petrofac will provide detailed engineering and construction and commissioning management support services on a reimbursable basis and procurement on an incentivised pass-through basis. The total contract value is expected to be more than US$1 billion with around one quarter of the revenues relating to professional services (engineering and construction and commissioning management).

Integrated Energy Services (IES)
Equity Upstream Investments
Through Offshore Projects & Operations, the heavy lift operations to install the pre-assembled units and key equipment on the main deck of the FPF1 floating production facility were commenced in January and will continue through to end of May. With marine work at an advanced stage of completion, the primary focus of the ongoing works is the topsides processing plant. We no longer expect to be able to sailaway the FPF1 ahead of the winter weather window without completing significant work offshore. We therefore plan to sailaway the FPF1 in spring 2015 with first production on the Greater Stella Area development now expected in mid-2015.

Following on from the initial start-up of West Desaru on Block PM304 in Malaysia in August 2013, we now have eight wells tied in and producing, with water injection and gas lift facilities in the process of being commissioned. The floating production storage and offloading (FPSO) vessel for the second phase of Cendor on Block PM304 sailed from the yard at the end of March and was moored on location in early April. Commissioning is proceeding on schedule and first production through the Phase 2 FPSO is expected early in the second half of the year. The Chergui gas concession in Tunisia continues to perform in line with expectations.

Production Enhancement Contracts
We continue to make good progress on our production enhancement contracts in Mexico, with encouraging results from the testing of the first near-field appraisal area on the Santuario block and overall reserves on Santuario further enhanced by the successful drilling of a second near-field appraisal well.

Production from the Ticleni field in Romania remains below expectations. We spent the latter part of 2013 shooting additional seismic studies to improve our understanding of the field, and these have helped us to prepare a revised Field Development Plan. Drilling activities are expected to resume once the revised Plan has been agreed with Petrom.

Risk Service Contracts
The Berantai risk service contract continues to perform in line with expectations and we continue to work towards a second phase. We have commenced early activities on OML119 in Nigeria but do not expect material investment until the Field Development Plan has been finalised and agreed. We continue to support Bowleven with concept/FEED engineering for the Etinde Permit in Cameroon.

Petrofac Training
In March, we signed an agreement with Oman Oil Company, to establish an industry-leading ‘Centre of Excellence’ to train Oman’s energy and energy-related workforce to international standards. Also in March, we opened the INSTEP training facilities in Malaysia, through our joint venture with Petronas. The facilities include two high-specification training facilities that Petrofac is building to support Petronas’ workforce capability enhancement programme.

Seven Energy
Following Seven Energy’s capital raising in April(1), our equity interest has been diluted to approximately 15%. Consequently, we are no longer accounting for Seven Energy as an associate and are therefore no longer recognising our share of profits of Seven Energy from this date.

IES’s earnings and free cash flow in 2015
Given the re-focusing of our IES business development plans, we do not expect a significant contribution from new awards in 2015. Earnings from the current IES portfolio are expected to be around the low end of the previous guidance range for 2015(2), predominantly reflecting the rescheduling of the Greater Stella Area project, lower than expected production on Ticleni and the dilution of our equity interest in Seven Energy. Notwithstanding this reduction, given our renewed focus on cash returns, we expect IES to improve from its current net cash absorbing position to being broadly free cash flow neutral in 2015.

Financial position
Group backlog stood at a record level of US$18.6 billion at 31 March 2014 (31 December 2013: US$15.0 billion):

 

31 March 2014

31 December 2013

 

US$ billion

US$ billion

Onshore Engineering & Construction

10.4

7.8

Offshore Projects & Operations

2.8

3.1

Engineering & Consulting Services

1.5

0.2

Integrated Energy Services

3.9

3.9

Group

18.6

15.0

Our net debt was US$0.9 billion at 31 March 2014 (31 December 2013: US$0.7 billion).


Notes
(1) On 15 April 2014, Seven Energy announced that it had secured US$255 million of new equity capital from Temasek, the Singapore investment company, and the International Finance Corporation, a member of the World Bank Group.
(2) In the IES data pack published in June 2013, we estimated net profit from our existing IES portfolio of between US$223 million and US$290 million in 2015: www.petrofac.com/investors/presentations 

Conference call
A conference call for analysts and investors will be held at 8am today. The participant details are as follows:

UK: 0808 237 0030
International: +44 203 139 4830
Passcode: 76250760#

A playback facility will be available as follows:
UK: 0808 237 0026
International: +44 203 426 2807
Passcode: 648152#



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