19 October 2012
Interim Management Statement
• Good operational performance across our portfolio of Engineering, Construction, Operations & Maintenance (ECOM) and Integrated Energy Services (IES) projects in the year to date; we remain on course to deliver net profit growth in 2012 of at least 15%
• Group backlog(1) was US$9.4 billion at 30 September 2012 (30 June 2012: US$8.9 billion); Onshore Engineering & Construction backlog expected to be broadly flat over the second half of 2012 reflecting delays in certain Onshore Engineering & Construction tender processes that we have highlighted previously (30 June 2012: US$4.6 billion)
• IES declared the selected bidder for the Arenque production enhancement contract in Mexico in August 2012, which will be included in backlog after formal signing
• Net cash balances were US$0.5 billion at 30 September 2012 (30 June 2012: US$0.8 billion)
Ayman Asfari, Group Chief Executive, commented:
“We continue to deliver good operational performance and we remain on course to deliver net profit growth in 2012 of at least 15%.
“We are currently experiencing high levels of bidding activity, particularly in the Middle East, North Africa and the Commonwealth of Independent States. Given this bidding activity and our competitive positioning, we expect to grow Group backlog over the coming months. Together with our existing portfolio of ECOM and IES projects, this underpins our confidence that we will continue to deliver earnings growth in 2013 and beyond and that we will achieve our target of more than doubling our recurring Group 2010 earnings by 2015.”
Engineering, Construction, Operations & Maintenance (ECOM)
Onshore Engineering & Construction
We have made good progress across our portfolio of projects during the year to date, including on our major projects in Abu Dhabi, Turkmenistan and Algeria. Our order intake in the year to date is US$1.3 billion, having secured major awards in Iraq, Saudi Arabia and Kuwait. With slippage in the timing of certain contract tender processes and the anticipated delay in the award of some projects from 2012 to 2013, we expect Onshore Engineering & Construction backlog to remain broadly flat over the second half of the year. However, given our competitive positioning and the current high levels of bidding activity, particularly in the Middle East, North Africa and the Commonwealth of Independent States (CIS), and project awards delayed from 2012, we anticipate growth in our Onshore Engineering & Construction backlog during 2013.
Offshore Projects & Operations
Offshore Projects & Operations (OPO) continues to perform well on its portfolio of operations support contracts and offshore capital projects. The upgrade and modification of the FPF5 (formerly the Ocean Legend) Mobile Offshore Production Unit (MOPU) is nearing completion, and the unit will soon be deployed on the West Desaru fault block (see IES below). OPO has secured a number of contract wins and extensions during the year to date, which recently saw us build upon our operations and maintenance experience in Iraq with the award of a contract worth approximately US$100 million to provide offshore operations and maintenance services for the Iraq Crude Oil Expansion Project for South Oil Company (SOC). We continue to see high levels of bidding activity on both operations support contracts and offshore capital projects in the UK/Europe, the Middle East and Africa, the CIS and the Asia Pacific regions.
Engineering & Consulting Services
Recent awards of front-end engineering and design (FEED) and conceptual studies for external customers have led to increased activity levels for Engineering & Consulting Services. We are continuing to establish our Nigerian operations and we are evaluating options to establish further engineering offices in other countries to enhance our local delivery capabilities.
Integrated Energy Services (IES)
We recently secured our fourth production enhancement contract in Mexico, with Petrofac declared the selected bidder for the Arenque offshore contract area. This follows on from the award of the Pánuco contract area in August 2012, which will be undertaken jointly with Schlumberger, and the Magallanes and Santuario contract areas, which were awarded during the second half of 2011. Field operations on the Pánuco and Arenque contracts, which both run for 30 years, are expected to start in December 2012 and during Q1 2013, respectively. We have made a good start to our field operations on the Magallanes and Santuario production enhancement contracts, which include the deployment of three drilling rigs and two workover rigs on the blocks.
On the Ticleni production enhancement contract for Petrom in Romania, as well as progressing other key work items, we commenced a two rig drilling programme in July, together with a workover rig dedicated to sidetracks on the field.
In Malaysia, we have recently commenced the processing of gas on the Berantai project for PETRONAS and gas export is expected to commence shortly. On Block PM304, we are making good progress on the development of the West Desaru fault block.
Group backlog was US$9.4 billion at 30 September 2012 (30 June 2012: US$8.9 billion), comprising US$7.6 billion from ECOM (30 June 2012: US$7.4 billion) and US$1.8 billion from IES (30 June 2012: US$1.5 billion). Net cash balances were US$0.5 billion at 30 September 2012 (30 June 2012: US$0.8 billion).
(1) Backlog consists of the estimated revenue attributable to the uncompleted portion of lump-sum engineering, procurement and construction contracts and variation orders plus, with regard to engineering, operations, maintenance and Integrated Energy Services contracts, the estimated revenue attributable to the lesser of the remaining term of the contract and five years. Backlog will not be booked on Integrated Energy Services contracts where the Group has entitlement to reserves. The Group uses this key performance indicator as a measure of the visibility of future revenue. Backlog is not an audited measure.