16 May 2013
Interim Management Statement
• Good operational performance, project margins in line with expectations
• Remain on track to meet 2015 earnings target
• Modest growth in net profit expected in 2013 reflecting rephasing of In Salah project in Algeria
• ECOM order intake of US$2.0 billion in the year to date, including recent awards in Abu Dhabi(1); pipeline of bidding opportunities remain strong
• Group backlog(2) increased to US$12.1 billion at 30 April 2013 (31 December 2012: US$11.8 billion)
Ayman Asfari, Petrofac’s Group Chief Executive commented:
“We have made a good start to the year, with positive progress across our portfolio of active projects, which remains in excellent shape. We have secured a number of important new contract awards in the year to date and we continue to see many new and attractive opportunities across the Group. Following our client’s request in January to evacuate our personnel from the In Salah site in Algeria, we now expect to remobilise on the contract during the second half of the year.
“Our strategy for long-term sustainable growth is based on three key drivers: expanding our existing business into new geographies; developing our leading EPC offering offshore; and delivering on our plans for Integrated Energy Services. The award of the deepwater Lakach project management contract for PEMEX in Mexico and the SARB3 project in Abu Dhabi, our largest offshore EPIC project to date, are important milestones in further developing our offshore strategy.
“We expect to deliver modest growth in net profit in 2013 reflecting the In Salah rephasing, but remain on target to more than double our 2010 Group earnings by 2015(3).”
Engineering, Construction, Operations & Maintenance (ECOM)
Onshore Engineering & Construction
We have made a good start to the year across our portfolio of active projects, including the introduction of hydrocarbons on the Asab oil field development in Abu Dhabi and the gas processing facility at El Merk in Algeria. We continue to make good progress on the South Yoloten project in Turkmenistan and are on track to achieve initial gas processing in the middle of 2013 as planned.
We have a strong pipeline of bidding opportunities for onshore engineering and construction projects, particularly in the Middle East, Africa and the Commonwealth of Independent States, and, given our competitive positioning, we anticipate growth in our Onshore Engineering & Construction backlog during 2013. Backlog stood at US$5.8 billion at 30 April 2013 (31 December 2012: US$5.1 billion), which includes US$1.5 billion for Petrofac’s share of the Upper Zakum field development in Abu Dhabi. The contract was secured by Petrofac Emirates(4) in consortium with Daewoo Shipbuilding & Marine Engineering Co Ltd. Petrofac Emirates’ share of the contract is valued at approximately US$2.9 billion.
As noted in our 2012 full year results, following the terrorist attack which took place in January 2013 at the In Amenas natural gas site in Algeria, at the request of our client, we evacuated our staff on a temporary basis from the In Salah southern fields development in that country. Initially we expected to recommence activities on the site relatively quickly after our results announcement, but in light of recent discussions with our client, we now expect to recommence full site operations during the second half of 2013. This later remobilisation will result in the deferral of significant project revenue and margin from 2013 to 2014, but does not impact on our expectations for margins over the life of the project.
Offshore Projects & Operations
Offshore Projects & Operations continues to perform well on its portfolio of operations support contracts and offshore capital projects. Backlog stood at US$3.1 billion at 30 April 2013 (31 December 2012: US$3.5 billion), including the recent award of a US$515 million engineering, procurement, installation and commissioning (EPIC) contract by Abu Dhabi Marine Operating Company for package 3 of the Satah Al Razboot (SARB) project, offshore Abu Dhabi. This award is our largest offshore EPIC project to date and further demonstrates the demand we see for us to broaden our market-leading EPC capability offshore.
Engineering & Consulting Services
Engineering & Consulting Services has made a good start to the year, with the award, in partnership with Doris Engineering of Houston, of a project management contract by Petróleos Mexicanos (PEMEX) for the Lakach project, their first major deepwater development. Our services include specialised technical assistance, supervision for the construction, installation, commissioning, testing and start-up of deepwater wells and infrastructure, drilling activities and tie-ins to existing onshore facilities.
Integrated Energy Services (IES)
Integrated Energy Services continues to build its execution track record on its portfolio of existing projects and during the period achieved a number of important milestones in Mexico, where we have four long-term projects, and in Malaysia, where we are responsible for two major offshore developments.
In Mexico, we took over field operations on the Pánuco contract area in late March 2013 and we are making good progress on our transition activities on the Arenque contract area, where we expect to commence field operations in the middle of the year. On the Magallanes and Santuario production enhancement contracts, 27 new wells have been drilled and completed since we took over operations in February 2012, with four well drilling rigs and two well workover rigs active on the blocks.
In Malaysia, we have brought all thirteen wells online on the first phase of the Berantai risk service contract. On Block PM304, first production from West Desaru is expected around the middle of the year. We have recently drilled two wells as part of a near field appraisal programme on Block PM304 and the results from both wells are encouraging.
Bowleven has completed the appraisal drilling on the IM5 well on the Etinde permit in Cameroon, with encouraging results. We are engaging with Bowleven to establish a team to commence the FEED study for the development.
Group backlog increased to US$12.1 billion at 30 April 2013 (31 December 2012: US$11.8 billion), comprising US$9.2 billion from ECOM (31 December 2012: US$8.8 billion) and US$2.9 billion from IES (31 December 2012: US$3.0 billion).
Our net debt was US$0.1 billion at 30 April 2013 (31 December 2012: net cash US$0.3 billion), with the cash outflow over the first four months of the year being predominantly due to investment in IES projects and the unwinding of cash advances on Onshore Engineering & Construction projects. We expect to remain in a net debt position throughout the remainder of the year driven by the ongoing deployment of cash on IES projects and initial investment in our offshore strategy, albeit we expect to see continued volatility in working capital reflecting the size and timing of cash advances on new Onshore Engineering & Construction projects and the phasing of receipts and payments in respect of our existing portfolio of projects.
(1) In early April 2013, Onshore Engineering & Construction was awarded a contract for the Upper Zakum field development in Abu Dhabi and Offshore Projects & Operations was awarded a contract for package 3 of the Satah Al Razboot (SARB) project, offshore Abu Dhabi.
(2) 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.
(3) Our Group earnings target is net profit after tax of more than US$862 million in 2015, a doubling of 2010 recurring earnings.
(4) Petrofac Emirates is a joint venture established in 2008 between Petrofac (49%) and Mubadala Petroleum (51%). Mubadala Petroleum is owned by Mubadala Development Company, the Abu Dhabi state owned investment and development company.