Petrofac issues the following pre-close update for the six months ending 30 June 2021.
- Trading overall in line with our expectations
- Strong growth in the EPS division and new energies
- Continuing impact of Covid-19 on E&C project schedules
Sami Iskander, Petrofac’s Group Chief Executive, commented:
We have continued to deliver projects and operations safely for our clients worldwide despite challenging market conditions. While financial performance in our E&C business has been impacted by the ongoing Covid-19 pandemic, our EPS business has demonstrated its resilience by growing both revenue and margins.
We are making good progress on our strategic objectives to rebalance, reshape and rebuild our business. We are continuing to drive technical and functional excellence, efficiency and consistent delivery to a single global standard of execution quality for our clients. We also remain on track to deliver our targeted US$250 million cost savings, which is significantly improving our cost-competitiveness and productivity.
This provides a strong platform from which we are pursuing growth. As expected, new orders are likely to remain depressed in E&C in the current year, but the Group has an active bidding pipeline of $48 billion of opportunities due for award in the next 18 months. We are making good progress in new energies, where we have secured early-stage positions in key target market projects and where we expect to deliver significant growth in the medium term. By continuing to deliver against our near-term strategic priorities, I am confident we will be successful in rebuilding our order backlog as the market recovers.
Engineering & Construction (E&C)
E&C financial performance has continued to be impacted by challenging market conditions. First half revenues in 2021 are expected to be around US$1.0 billion reflecting lower levels of activity, a mutually agreed rescoping of the Sakhalin contract and other disruption to project schedules caused by the Covid-19 pandemic. Despite this, we have reached key milestones on the HKZ Beta offshore wind project, the OQ Liquefied Petroleum Gas project in Oman and the KNPC Clean Fuels Project in Kuwait. Furthermore, lower tax and a reduction in project support and overhead costs will mitigate the decline in revenue, with E&C currently expecting to report higher first half business performance net margins of between 2.0% and 2.5%.
As expected, the recovery in oil prices has yet to manifest itself in a significant expansion in capital spending by our clients. Year to date we have secured new awards worth US$0.1 billion in E&C (2020: US$0.4 billion), comprising the EPC contract for the Marmul Main Production Station Gas Compression project in Oman. We continue to prudently assume that capital discipline by clients will delay some awards in the near term, with new orders likely to remain depressed in E&C in the current year. Management therefore remains focused on delivering operational and functional excellence, investing to improve productivity and taking measures to improve its cost-competitiveness. These actions will mitigate the impact of current challenging market conditions and best position E&C for a recovery in market conditions.
Engineering & Production Services (EPS)
EPS’ financial performance in the first half of 2021 has benefitted from robust order intake (1) and cost discipline. First half revenue is expected to be approximately US$0.5 billion, primarily reflecting strong year-on-year growth in Operations and Projects. In addition, EPS’ net margin for the first six months of 2021 is currently expected to be between 5.25% and 5.75%, driven by an increase in brownfield project contract margins and a lower overhead ratio. We have secured US$0.4 billion of awards and extensions in the year to date (1H 2020: US$0.6 billion) - principally in the UK North Sea, Iraq and Oman – and are well positioned on a number of other tenders. Continued good momentum in securing contract awards across all business lines reflects improvements in both underlying market conditions and EPS’ cost-competitiveness. We have also made good progress in new energies, with further scopes of work secured on the Acorn CCUS project in the UK and funding secured for Storegga’s Dreamcatcher Project, which has the potential to be the UK’s first large-scale direct air capture with storage facility. In total, we have secured 10 contracts covering carbon capture and storage, blue and green hydrogen and waste-to-fuels in the first half of the year. These early stage concept and FEED contracts have the potential to develop into material project awards, leveraging Petrofac’s differentiated life-of-asset client offering.
Integrated Energy Services (IES)
Net production is expected to be approximately 0.2 million barrels of oil equivalent (mmboe) for the first half of the year (1H 2020: 0.5 mmboe excluding asset sales), reflecting an extended unplanned outage in PM304 and the sale of the Group’s interests in Mexico in November 2020. The average realised oil price (net of royalties) for the first half is expected to be approximately US$65 per barrel of oil equivalent (1H 2020: US$37/boe), reflecting the recovery of oil prices. Year-on-year performance has also benefitted from a reduction in depreciation and finance costs.
Group order backlog (2) was US$4.0 billion on 31 May 2021, principally reflecting low new awards in E&C following our recent suspension from competing for new awards in the UAE and as clients continue to defer awards in other markets.
31 May 2021
31 December 2020
|Engineering & Construction||2.3||3.3|
|Engineering & Production Services||1.7||1.7|
The Group currently has US$3.0 billion (3) of secured revenue for the full year 2021, comprising US$2.0 billion in E&C and US$1.1 billion in EPS. In addition, the Group has a pipeline of around US$48 billion scheduled for award in the next 18 months. Notwithstanding this, we are prudently assuming that capital discipline by clients will continue to delay awards in the near term, with new orders likely to remain depressed in E&C in the current year.
Net debt (4) was approximately US$290 million as at 24 June 2021 (31 December 2020: US$116 million) reflecting the reversal of temporary favourable working capital movements at the end of 2020. Liquidity (5) was approximately US$0.9 billion at 24 June 2021 (31 December 2020: US$1.1 billion), reflecting the extension and partial prepayment of the Group’s revolving credit facility and ADCB term loan in April.
We remain committed to exercising capital discipline, cutting costs and conserving cash. We are taking additional measures to reshape the business and continue to target a US$250 million (6) reduction in overhead and project support costs in 2021 relative to pre-pandemic levels. In addition, dividends remain suspended pending a recovery in new order intake. These actions seek to protect the balance sheet and improve our cost competitiveness as we seek to rebuild the backlog.
Alastair Cochran, Chief Financial Officer, will host a conference call for analysts and investors at 8.30am today.
This announcement contains forward-looking statements relating to the business, financial performance and results of Petrofac and the industry in which Petrofac operates. These statements may be identified by words such as “expect”, “believe”, “estimate”, “plan”, “target”, or “forecast” and similar expressions, or by their context. These statements are made on the basis of current knowledge and assumptions and involve risks and uncertainties. Various factors could cause actual future results, performance or events to differ materially from those expressed in these statements and neither Petrofac nor any other person accepts any responsibility for the accuracy of the opinions expressed in this presentation or the underlying assumptions. No obligation is assumed to update any forward-looking statements.