Positioning

Petrofac is well positioned and has strong credentials in promising sectors of the market

Although upstream capital spending is thought to have fallen by 23% in 2015 and 22% in 2016,1 modest growth is forecast for 2017, and we do expect a return to more significant long-term growth over the coming years. Also, certain segments of the market are poised for higher levels of investment, from which Petrofac is well positioned to benefit.

Good prospects in markets where Petrofac is well established

Petrofac’s operations tend to be concentrated in those regions that are expected to make the most significant contribution to long-term energy supplies.

Petrofac is particularly strong in the Middle East and North Africa (MENA). In mid-2016, in its annual ranking of EPC contractors servicing the oil and gas industry, Arabian Oil and Gas Magazine once again named Petrofac the region’s top EPC Contractor. Petrofac has topped the table for the past two years, and five times in the past six years.

According to the IEA, meeting long-term demand will depend increasingly on the larger resource-holders in the region. By 2040, for example, oil production from the OPEC members located in the Middle East is forecast to rise by more than 8 million barrels per day to 36.9 million barrels per day in 20402.

Continued investment from National Oil Companies (NOCs) – where Petrofac can draw on strong relationships

NOCs collectively control around 80% of the world’s combined conventional and unconventional reserves. Given that NOCs are typically less sensitive to short-term financial pressures and are relatively immune to market sentiment, many continue to invest in long-term strategic projects.

By building on strong, well-established relationships with many of the world’s leading NOCs, particularly in MENA, Petrofac is well positioned. Many Middle East countries are short of gas and are burning liquids for power generation, which could otherwise be exported. Significant investment is expected over the next few years in expanding gas processing capacity.

In addition to sustained spending on upstream oil and gas projects, Petrofac is well placed to participate in a market of downstream opportunities in the refining and petrochemicals sectors. Once again, many of the MENA-based NOCs are continuing to invest in large strategic projects, and have signalled their intent to capture more of the downstream market in order to secure more of the value chain. As a report from McKinsey & Company states: “Major crude exporters in the Middle East continue to add to refining capacity, motivated by a number of factors. Firstly, ensuring security of domestic supply remains a top political priority… Second, Middle East players are motivated by maintaining their competitiveness in the global crude markets.”3

To complement our ability to deliver large, demanding projects in the MENA, and to extend our established relationships across the industry, Petrofac has been building its credentials in the refining sector. For example, in 2014 we were selected as a 50/50 partner in the US$2.1 billion refinery improvement programme in Sohar, Oman, and we are leading the US$3.7 billion refinery upgrade package on the Clean Fuels Project in Kuwait. Further afield, we continue to work on the sizeable engineering, procurement, construction and commissioning contract (EPCC) for a refinery package in the new Refinery and Petrochemicals Integrated Development (RAPID) project in Johor, Malaysia.

As noted by the Middle East Economic Digest: “Petrofac’s success comes from being able to diversify its business across several sectors within the hydrocarbons industry, as well as operating across a geographic footprint that covers the entire MENA region.”4

We continue to grow in adjacent renewable sectors. For example, we are supporting the Galloper Offshore Wind Farm project and are providing the engineering, procurement, construction and offshore installation of the BorWin3 platform.

1 Barclays Upstream Spending Survey 2016

2 International Energy Agency, World Energy Outlook 2016

3 Profitability in a world of over capacity, McKinsey & Company, May 2015

4 Oil price drop reshapes top 10 contractors, Middle East Economic Digest, 11 May 2015