Petrofac News 1700X397
28 June 2022

Petrofac Limited trading update

Petrofac issues the following pre-close trading update for the six months ending 30 June 2022.

  • Trading and expectations in line with guidance provided in the AGM statement
  • Given the improved macro environment, E&C is expected to secure strong order intake in the second half and deliver backlog growth year on year
  • Continued robust performance and order intake in Asset Solutions; on track to deliver full year EBIT margin of 5-6%, in line with guidance
  • Strong IES performance driven by higher production and stronger oil price
  • Well positioned with a healthy Group pipeline scheduled for award in the next 18 months
  • Net debt of US$345 million(4) and liquidity of US$507 million(5) at 23 June 2022, with net debt expected to reduce in the second half

Sami Iskander, Petrofac's Group Chief Executive, commented:

"We have made good progress in the first half of the year to position the business strategically to capitalise on the expected multi-year upcycle ahead, supported by a strong energy price environment and ambitious growth plans from clients in our core markets. Bidding activity in E&C is high and Asset Solutions has secured a strong order intake in the year to date. IES has delivered a significant increase in production and is benefitting from high oil prices. As previously reported, first half financial performance has been adversely impacted by delays and cost-overruns in our small and mature existing E&C portfolio.

“Looking forward, we expect Asset Solutions and IES to continue to deliver strong performance. Notwithstanding the short-term challenges in the existing E&C portfolio, we continue to expect the second half of 2022 to mark an inflection point for a sustained period of growth in backlog. We have a healthy 18 month Group bidding pipeline and we expect to grow the E&C backlog in 2022 and to secure significant new orders in 2023, underpinned by opportunities in the UAE and offshore wind.”

Divisional highlights

Engineering & Construction (E&C)

E&C continues to be impacted by the lingering impact of the pandemic as described in the AGM statement, that has resulted in cost increases and some relatively unfavourable commercial settlements with clients. These dynamics will largely play out within the year, with a number of projects scheduled for completion over the course of the year and early 2023.

First half revenues in 2022 are expected to be around US$0.6 billion reflecting the lower levels of activity compared with the prior year period and project delays. Second half revenue is expected to be broadly in line with the first half. E&C is expected to report a first half EBIT loss of approximately US$35-45 million due to the immediate recognition of the additional Covid-related project costs to completion. In the second half, subject to the outcome of the final commercial settlements, it is expected to report a marginal EBIT profit, partially offsetting the loss in the first half.

The outlook for new awards in E&C is robust, supported by high energy prices and increased focus on energy security. Bidding activity is high and the 18 month pipeline is approximately US$53 billion with US$14 billion scheduled for award in 2022 and US$39 billion in 2023. Order intake (1) in the first half comprised US$125 million of variation orders on existing contracts with the majority of new contracts scheduled for award in the second half of the year. E&C backlog is expected to grow in 2022 and is well positioned to deliver a sustained period of growth in backlog as markets continue to improve.

Asset Solutions (AS)

The financial performance in the first half of 2022 has been robust, with revenue expected to be approximately US$0.5 billion. Revenue is expected to be higher in the second half, supported by strong order intake in the year to date.

The EBIT margin for the first six months of 2022 is currently expected to be between 6.0% and 6.5%, while full year EBIT margin guidance remains 5-6%, with lower margins in the second half due to contract mix.

Order intake (1) has been strong with US$0.8 billion contract awards and extensions secured in the first half, including significant awards in the Wells & Decommissioning service line in Australia, the Gulf of Mexico and Mauritania. Asset Operations and Asset Developments have secured awards in the UK and India. While order intake is expected to be first-half weighted, AS is expected to deliver a full year book-to-bill of greater than 1.0x, supporting revenue growth in 2023.

In New Energy Services, the strong momentum in 2021 has continued to increase in 2022 with a series of early-stage awards and we are making material progress with developing further strategic alliances with technology providers. In line with our strategy, a number of the early-stage opportunities we have performed engineering works on in new energy sectors beyond offshore wind are maturing and we are well positioned to secure execution phase project work later this year.

Integrated Energy Services (IES)

IES financial performance in the first half of the year has been strong, with a significant increase in production compared with prior year and higher oil prices. Net production is expected to be over 500 thousand barrels of oil (kbbls) for the first half of the year (H1 2021: 210 kbbls), reflecting the additional production from the East Cendor development, which commenced in June 2021 and the partial reinstatement of the main Cendor field production with a temporary gas lift system post the outage that occurred in December 2020. Net production in the second half is expected to increase further, with guidance for full year average production maintained at 3.0-3.5 kbbls/d (H1 2022 average net production: 2.9 kbbls/d).

The average realised oil price (net of royalties) (3) for the first half is expected to be approximately US$100/bbl (H1 2021: US$70/bbl), including the impact of hedging.

As previously guided, assuming an average US$100 Brent price for unhedged production for the remainder of 2022, IES is expected to deliver EBITDA of between US$80 million and US$90 million. Depreciation, which is highly correlated to production, is expected to be approximately US$45/bbl, in line with prior year.

Order backlog

The Group's backlog (2) is expected to decrease marginally to US$3.8 billion at 30 June 2022 (31 December 2021: US$4.0 billion), reflecting progress delivered on the existing project portfolio and low new order intake in E&C, partially offset by strong order intake in Asset Solutions.

30 June 2022

US$ billion

31 December 2021

US$ billion

Engineering & Construction1.92.4
Asset Solutions1.9 1.6
Group backlog  3.84.0

Cash flow, net debt and liquidity

Net debt (4) was US$345 million at 23 June 2022 (31 December 2021: US$144 million) reflecting the payment of the US$104 million SFO penalty and a working capital outflow largely driven by slower payments from clients, partially offset by the final US$51 million of proceeds from the Greater Stella Area divestment and US$47 million from the settlement related to the dispute on consideration payable from the divestment of the Mexico operations. Liquidity (5) was US$507 million at 23 June 2022 (31 December 2021: US$705 million).

Net debt is expected to reduce in the second half of the year due to a reduction in working capital in E&C. As previously guided, principally as a result of the E&C performance and despite delays in cash collections due to extended commercial settlements, the Group expects to have a modest free cash outflow in the year.

Conference call

Afonso Reis e Sousa, Chief Financial Officer, will host a conference call for analysts and investors at 8.30am today.

Analysts and investors can access the call on: +44(0)330 336 9601, confirmation code: 1605431

The Group’s half-year results for period ended 30 June 2022 are scheduled to be announced on 11 August 2022.


(1) New order intake is defined as new contract awards and extensions, net variation orders and the rolling increment attributable to Asset Solutions contracts which extend beyond five years.
(2) Backlog consists of: the estimated revenue attributable to the uncompleted portion of Engineering & Construction division projects; and, for the Asset Solutions division, the estimated revenue attributable to the lesser of the remaining term of the contract and five years.
(3) Average net realised price is net of royalties and hedging gains or losses. It is based on sales volumes, which may differ from production due to under/over-lifting in the period.
(4) Net debt comprises interest-bearing loans and borrowings less cash and short-term deposits (i.e. excludes IFRS 16 lease liabilities).
(5) Liquidity of US$507 million consists of US$426 million of gross cash and US$81 million of undrawn committed facilities. Gross cash includes US$37 million held in certain countries whose exchange controls significantly restrict or delay the remittance of these amounts to foreign jurisdictions. It also includes US$220 million in joint operation bank accounts which are generally available to meet the working capital requirements of those joint operations, but which can only be made available to the Group for its general corporate use with the agreement of the joint operation partners.