Good operational performance and on track to deliver modest net profit growth in 2013
EPC contract portfolio remains in excellent shape reflecting our disciplined approach to business development and project execution
ECOM order intake of US$5.9 billion in the year to date and our pipeline of bidding opportunities remains strong
Group backlog(1) maintained at US$14.3 billion at 31 October 2013 (30 June 2013: US$14.3 billion)
Ayman Asfari, Petrofac’s Group Chief Executive, commented: “We continue to deliver good operational performance across our portfolio of projects and are on track to achieve our guidance of modest growth in net profit in 2013. The Group has continued to secure new awards during the second half and we expect to exit 2013 with our highest ever year-end backlog.
“We expect Group net income in 2014 to show flat to modest growth year-on-year reflecting the rephasing of both the Upper Zakum project in Abu Dhabi and the second stage of the Berantai project in Malaysia. Given the earnings growth expected in 2015 from IES, driven by the anticipated step-up in production from our equity upstream investments, we continue to expect strong year-on-year growth in Group net income in that year, although the achievement of our 2015 earnings target(2) will also be dependent on the timing of potential ECOM contract awards during 2014.
“We remain confident of the long-term growth trajectory for Petrofac given our record backlog, the robustness of our contract portfolio and the strength of our bidding pipeline, underpinned by our disciplined approach to business development and our relentless focus on project execution.”
Engineering, Construction, Operations & Maintenance (ECOM)
Onshore Engineering & Construction
We continue to make good progress on our portfolio of projects which remains in excellent shape. A number of our projects are in the commissioning phase, including our major projects in Abu Dhabi, Algeria and Turkmenistan. We have commenced early work on our recently awarded projects in Abu Dhabi, including on the Upper Zakum field development, where we have been undertaking capacity enhancement studies. These studies have the potential to increase the scale and duration of the Upper Zakum contract and the revised phasing of the project is now expected to result in the deferral of significant revenue and margin from 2014 into 2015 and beyond. We continue to make progress at the In Salah southern fields development site and are working closely with our client regarding continued mobilisation of resources.
We recently secured a US$650 million project for the Alrar gas field in Algeria, with our joint venture partner Bonatti, taking our order intake for Onshore Engineering & Construction to US$4.8 billion in the year to date. Our pipeline of bidding opportunities for the remainder of 2013 and for 2014 is strong and we remain confident in growing Onshore Engineering & Construction backlog over the course of 2013, before taking into account the increase in our interest in Petrofac Emirates(3).
We were also recently awarded (in consortium with Linde AG and GS Engineering & Construction Corporation) a contract to provide engineering services in relation to development of KLPE’s Integrated Petrochemicals Complex and Infrastructure project, Kazakhstan. We will lead the consortium for the execution of the project and subject to satisfactory conclusion of an open book estimate and successful contract conversion, it is contemplated that the project will move into a second phase, worth in excess of US$3.5 billion (for the consortium).
Offshore Projects & Operations
Offshore Projects & Operations continues to perform well on its portfolio of operations support contracts and offshore capital projects. We continue to see an attractive pipeline of bidding opportunities and we recently secured a US$95 million maintenance contract with Gazprom for the Badra oil field in Iraq. We have also recently secured a number of contract extensions, including a US$99 million contract extension with South Oil Company in Iraq for the operation and maintenance of offshore facilities and a number of smaller contract extensions in the UK North Sea.
As highlighted in our half year announcement, our results for the six months ended 30 June 2013 included a one-off gain of US$22 million reflecting the recognition, on granting a finance lease over the FPF5 to the partners on the PM304 PSC in Malaysia, of margin from the modification and upgrade of FPF5 by Offshore Projects & Operations which was eliminated on consolidation in prior periods.
Engineering & Consulting Services
Engineering & Consulting Services’ activity levels remain high as it continues to support ECOM and IES, as well as undertaking a number of conceptual engineering and front-end engineering and design (FEED) studies for external customers, including significant projects for Pemex and Petronas.
Integrated Energy Services (IES)
Production Enhancement Contracts
We continue to make good progress on our production enhancement contracts in Mexico, where we have drilled the first horizontal wells on Magallanes and Santuario with good initial results. We are undertaking new seismic studies on the Ticleni field in Romania prior to further drilling activities in 2014.
Risk Service Contracts
In Malaysia, we brought all wells from phase one of the Berantai development on line during the first half of the year. We are currently undertaking concept engineering studies for the second stage of the development which point to a rephasing of the execution likely to result in the deferral of revenue and margin from 2014 to later years. We continue to support Bowleven with concept/FEED engineering for the Etinde Permit in Cameroon.
Equity Upstream Investments
We are making good progress on our equity upstream investments, with good initial production from West Desaru on Block PM304 in Malaysia. On Cendor phase 2, also in Block PM304, the floating production storage and offloading (FPSO) vessel is expected to arrive in the first half of 2014 with first production expected shortly thereafter. Through Offshore Projects & Operations, we have recently completed the dry dock related marine system refurbishment and hull life extension works on the FPF1 floating production facility and the vessel has now been successfully refloated. This marks a major milestone in execution of the FPF1 modifications programme and will allow the main topsides processing plant construction and installation activities to commence. The FPF1 will be deployed on the Greater Stella Area in the UK North Sea, with production expected to commence in the second half of 2014. The Chergui gas plant continues to perform in line with expectations.
Group backlog stood at US$14.3 billion at 31 October 2013 (30 June 2013: US$14.3 billion), comprising US$11.0 billion from ECOM (30 June 2013: US$11.1 billion) and US$3.3 billion from IES (30 June 2013: US$3.2 billion).
Our net debt position was US$0.5 billion at 31 October 2013 (30 June 2013: US$0.4 billion). In October we successfully raised US$750 million from our debut bond issue. The majority of the net proceeds from the offering have been used to reduce the amount outstanding under our existing Revolving Credit Facility and the rest is available for general corporate purposes.
As a result of the ongoing investment we are making in IES and the anticipated investment we expect to make in our offshore installation vessel, we anticipate remaining in a net debt position for the remainder of 2013 and throughout 2014 which will result in a significant increase in year-on-year interest costs in 2014.
(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.
(2) Our Group earnings target is net profit after tax of more than US$862 million in 2015, a doubling of 2010 recurring earnings.
(3) We increased our economic interest in Petrofac Emirates to 75% with effect from January 2013. As a result, we will report 100% of the revenue and backlog on all current and future Petrofac Emirates’ projects (with Nama’s 25% economic interest reported as ‘profit for the year attributable to non-controlling interests’). This had the impact of increasing backlog at 30 June 2013 by US$1.8 billion.