Petrofac issues the following pre-close trading update ahead of the announcement of its interim results for the six months ending 30 June 2015 on 25 August 2015.
- Construction activities on the Laggan-Tormore project are substantially complete; we are now busy with final completion and pre-commissioning-related activities and our focus remains on delivering first gas in Q3 2015; additional completion and pre-commissioning works are expected to lead to incremental pre-tax costs of approximately £30m; deferred tax asset recognised in respect of tax losses on the project of approximately £20m
- The rest of our portfolio continues to perform in line with our operational and financial expectations(1)
- Net profit(2) expected to be significantly weighted towards 2H 2015, reflecting phasing of project delivery, particularly in OEC, where a number of projects are expected to reach their percentage of completion threshold for initial profit recognition in 2H 2015
- ECOM order intake of US$4.7bn in the year to date, including the US$900m Yibal Khuff award in June 2015; Group backlog stood at record levels of US$20.5bn at 31 May 2015 (31 December 2014: US$18.9bn), with ECOM backlog up 12%
- Net debt of US$1.2bn at 31 May 2015 (31 December 2014: US$0.7bn), primarily reflecting ongoing investment in IES’s Greater Stella Area project and our offshore installation vessel, payment of the 2014 final dividend and incremental costs on Laggan-Tormore
Ayman Asfari, Petrofac’s Group Chief Executive, commented:
“We have had a good start to the year in ECOM, securing more than US$4.7 billion of order intake and, putting the challenges we have faced on Laggan-Tormore to one side, the rest of our portfolio continues to perform well. The Group’s backlog stands at record levels, giving us excellent revenue visibility for the rest of this year and beyond. Our pipeline of bidding opportunities remains attractive, and ongoing investment by our clients in large strategic projects in our core markets, together with our strong competitive position, should see us secure a number of further awards over the second half of the year.
“In Integrated Energy Services, our focus remains on generating value from the existing project portfolio and reducing the capital intensity of this business.”
Engineering, Construction, Operations & Maintenance (ECOM)
Onshore Engineering & Construction (OEC)
Construction activities on the Laggan-Tormore gas plant project are substantially complete, with planned welding activities more than 99% complete and more than 99% of electrical, instrumentation and telecommunications (EIT) cabling laid. However, direct construction manhours are higher than previously expected due to additional completion and pre-commissioning-related activities. The costs of the additional direct construction manhours, along with the associated indirect, subcontractor and material costs, are expected to result in incremental costs to complete of approximately £30 million.
Together with the incremental costs announced in April 2015 of around £130 million, and the recognition of a deferred tax asset in respect of tax losses on the project of approximately £20 million, this brings the loss in the year to date to around £140 million (around US$220 million). These additional costs reflect our continuing firm intention to devote the necessary resources to the project. We have a good working relationship with our client and look forward to finalising the outstanding commercial, technical and contractual issues with the client on or around completion in Q3 2015.
Our remaining operational focus is on the final completion and pre-commissioning-related activities such as piping system testing, EIT terminations and the close-out of punch-list items to enable the delivery of first gas from the plant in Q3 2015.
We continue to make good progress across the rest of our portfolio of engineering, procurement and construction (EPC) projects. We have started the year positively by securing new business, with around US$3 billion of order intake in the year to date, including the Lower Fars heavy oil project in Kuwait. Our backlog stands at record levels, which gives us excellent revenue visibility for 2015 and beyond. Our pipeline of bidding opportunities remains attractive, and we see continued ongoing investment by our clients in our core markets. Given our strong competitive position, we are confident of securing further Onshore Engineering & Construction awards during the remainder of the year.
Offshore Projects & Operations (OPO)
In early June, we announced that we had secured a Duty Holder Support Services contract to support Oranje-Nassau Energie (ONE), as the company has become operator of the Sean gas field in the Southern North Sea. The contract is worth US$45 million over three years, with the option of two one-year extensions.
We also recently announced that we have secured a number of contract extensions in the year to date totalling approximately US$400 million. The largest of these awards is for the provision of operations and maintenance teams for CNR International across its North Sea assets – the three platforms in the Ninian complex; Murchison; and Tiffany – for the next five years. In addition, in the East Irish Sea, we secured a two-year contract renewal from Eni, covering operations and maintenance services for the Douglas fixed platforms, Offshore Storage Installation and Point of Ayr terminal; and Duty Holder responsibility for the Irish Sea Pioneer operations support vessel.
In light of the current low oil price environment, we continue to work with our clients to address the cost pressures being experienced in the UK North Sea and generate value for them while protecting our margins.
Engineering & Consulting Services (ECS)
In June, Engineering & Consulting Services was awarded a four and a half year engineering, procurement and construction management contract (EPCm) for Petroleum Development Oman (PDO) to provide services for its Yibal Khuff project in Oman. The total contract value is expected to be around US$900 million with around one quarter of the revenues relating to professional services (engineering, construction and commissioning management).
Integrated Energy Services (IES)
Equity Upstream Investments
We are making continued progress on the Greater Stella Area development in the UK North Sea, with first production still expected mid-2016. Through Offshore Projects & Operations, work is ongoing on the FPF1 floating production facility, with sailaway of the FPF1 scheduled for the first quarter of 2016. On Block PM304 in Malaysia, production levels continue to ramp up as we drill and tie back further wells on the field. Year to date production from the Chergui gas concession in Tunisia is below expectations due to periods of civil unrest during March and April, but production in May has returned to full capacity.
Production Enhancement Contracts
As part of the ongoing energy reforms in Mexico, we have the opportunity to migrate our portfolio of Mexican Production Enhancement Contracts (PECs) to a new form of contract. We expect to be in a position to provide a further update later in the year. As noted at our full year results, we are in the process of exiting our position on the Ticleni field in Romania.
Risk Service Contracts
The Berantai risk service contract continues to operate in line with expectations.
Group backlog stood at US$20.5 billion at 31 May 2015 (31 December 2014: US$18.9 billion):
|31 May 2015 ||31 December 2014|
|US$ billion||US$ billion|
|Onshore Engineering & Construction||12.5||10.8|
|Offshore Projects & Operations||3.5||3.4|
|Engineering & Consulting Services||1.4||1.4|
|Integrated Energy Services||3.1||3.3|
Net debt was US$1.2 billion at 31 May 2015 (31 December 2014: US$0.7 billion), primarily reflecting ongoing investment in IES’s Greater Stella Area project and our offshore installation vessel, the Petrofac JSD 6000, payment of the 2014 final dividend and incremental costs on Laggan-Tormore.
(1) On 25 February 2015, we noted that based on an average oil price of around US$60 per barrel in 2015 (which is likely to be around the actual average oil price based on actual prices in the year to date, the forward curve and our hedged positions for the remainder of 2015), our net earnings were expected to be around US$460 million. After the loss in the year to date on the Laggan-Tormore project of around US$220 million, the Group’s net profit before exceptional items and certain re-measurements for 2015 is expected to be around US$240 million.
(2) Before recognition of the year to date loss on Laggan-Tormore.