15 December 2015
Petrofac issues the following pre-close trading update ahead of the announcement of its full year results for the year ending 31 December 2015 on 24 February 2016.
- Order intake for ECOM totals US$8.8 billion in the year to date, with a disciplined approach to securing new business
- ECOM backlog stood at record levels of US$18.5 billion at 30 November 2015 (31 December 2014: US$15.6 billion), giving excellent revenue visibility
- Operationally, our portfolio continues to perform in line with expectations(1)
- We recently achieved a major milestone on the Laggan-Tormore project with the completion of all main construction activities in preparation for the introduction of gas, which is currently targeted before the end of the year; we expect to close out the final commercial position by our full year results
- Net debt is expected to be broadly flat over the second half of the year (30 June 2015: US$1.0 billion; 31 December 2014: US$0.7 billion)
- A Group reorganisation is being implemented, effective from 1 January 2016, which aims to maintain our cost-effectiveness and sustain our strong competitive position
- Looking ahead, ECOM net profit for 2016 is expected to be broadly in line with expectations(2)
- Based on the current oil price forward curve(3) IES is expected to deliver a modest trading loss in 2016(4)
Ayman Asfari, Petrofac’s Group Chief Executive, commented:
“Against the backdrop of a difficult period for the industry, we remain well-positioned. Our ECOM backlog stands at record levels, giving us excellent revenue visibility for 2016 and beyond, and our pipeline of bidding opportunities remains robust, with ongoing investment by our clients in large strategic projects in our core markets.
“We have taken steps to maintain our cost-effectiveness and sustain our strong competitive position, which gives us confidence that we can continue to deliver value for both our clients and our shareholders.”
Engineering, Construction, Operations & Maintenance (ECOM)
Onshore Engineering & Construction (OEC)
We have recently achieved a major milestone on the Laggan-Tormore project with the completion of all main construction activities at the Shetland Gas Plant for our client Total E&P UK in preparation for the introduction of gas, which is currently targeted before the end of the year. As we close out the final commercial positions with our subcontractors and our client, there is a potential additional financial exposure of a few tens of millions of dollars over and above the amount provided in the first half of the year and we will update the market on the final position in respect of the project at our full year results announcement. We continue to make good progress across the rest of our portfolio of engineering, procurement and construction (EPC) projects.
The recent award by Saudi Aramco of a contract for the engineering, procurement and construction of a sulphur recovery plant as part of the Fadhili gas programme helps to take OEC’s order intake to approximately US$6 billion for the year to date, following awards earlier in the year in Kuwait. OEC backlog stands at record levels at US$13.2 billion, giving us excellent revenue visibility for 2016 and beyond. Our pipeline of bidding opportunities remains attractive, with ongoing investment by our clients in large strategic projects in our core markets.
Offshore Projects & Operations (OPO)
We have recently secured a number of contract extensions, including a US$100 million one-year extension with South Oil Company for support on its Iraq Crude Oil Expansion Project, and with a range of clients in the UK North Sea, including Centrica and EnQuest, totalling approximately US$400 million. These contract renewals are in addition to the US$400 million of UK North Sea contract renewals announced in June. Together with new contract wins, such as the installation of a new gas dehydration facility for Tatweer Petroleum in Bahrain, order intake for OPO totals US$1.5 billion in the year to date. We continue to help our clients address the challenges faced by the industry, particularly in the UK, through innovative commercial approaches to operations, a strong emphasis on cost management and through engaging our supply chain, while endeavouring to protect our margins.
As announced in October, we terminated the contract with the shipyard for the construction of the proprietary design Petrofac JSD6000 deepwater multi-purpose offshore vessel due to issues with the shipyard’s performance and the Board is reviewing its options.
Engineering & Consulting Services (ECS)
We are making good progress on our engineering, procurement and construction management (EPCm) contracts for Petroleum Development Oman (PDO) (the Rabab Harweel Integrated Project (RHIP) and Yibal Khuff) and the Al Shaheen alumina refinery in Abu Dhabi. Utilisation remains high across our engineering offices, particularly in our high value engineering centres in India, which predominantly support Onshore Engineering & Construction’s activities.
Integrated Energy Services (IES)
Equity Upstream Investments
Through Offshore Projects & Operations, we are progressing well with the commissioning of the topside systems on the FPF1 floating production facility. First production from the Greater Stella Area development is expected in summer 2016.
On Block PM304 in Malaysia, production levels have improved during the second half of the year as we drilled and tied back further wells on the field. Following periods of civil unrest during March and April, production from the Chergui gas concession in Tunisia has been steady through the second half of the year.
Production Enhancement Contracts
As part of the ongoing energy reforms in Mexico, we have the opportunity to migrate our Production Enhancement Contracts (PECs) to Production Sharing Contracts (PSCs). We continue to work towards migration of our four PECs, the first of which, Santuario, is expected to complete early in the New Year.
Risk Service Contracts
The Berantai Risk Service Contract continues to operate in line with expectations.
Group backlog stood at US$21.6 billion at 30 November 2015 (31 December 2014: US$18.9 billion):
30 November 2015
31 December 2014
Onshore Engineering & Construction
Offshore Projects & Operations
Engineering & Consulting Services
Integrated Energy Services
Net debt is expected to be broadly flat over the second half of the year (30 June 2015: US$1.0 billion; 31 December 2014: US$0.7 billion). The increase during 2015 primarily reflects investment in IES’s Greater Stella Area development and expenditure to date on the JSD6000 offshore installation vessel, payment of dividends and incremental costs on Laggan-Tormore.
We recently commenced a Group reorganisation which aims to improve our efficiency through de-layering and centralising back office services, while maintaining our focus on delivery and our responsiveness, both to market conditions and our clients’ needs. Under the leadership of Marwan Chedid, ECOM will have two external reporting segments:
- Engineering & Construction, which will include our lump-sum businesses (OEC and Offshore Capital Projects); and,
- Engineering & Production Services, which will include our reimbursable businesses (OPO and ECS) as well as Petrofac Training, SPD and Caltec, which will be transferred from IES
IES will continue to report as currently, led by IES Chief Operating Officer, Rob Jewkes and will remain focused on delivering value from its project portfolio.
The reorganisation will be effective from 1 January 2016. The Group intends to report its 2015 financial results under the existing reporting structure. Restated results for 2013 to 2015 (including 1H 2015) under the new reporting structure will be made available with our 2015 financial results on 24 February 2016.
In recognition of the Group’s re-focus on its core services, Marwan Chedid will be promoted to Group Chief Operating Officer effective 1 January 2016.
(1) According to Company compiled consensus of 20 analysts who have published forecasts since the announcement of the Group’s half year results, consensus net profit before exceptional items and certain re-measurements for 2015 is approximately US$170 million (after recognising the loss in the first half of the year on the Laggan-Tormore project of US$263 million, as previously announced).
(2) According to Company compiled consensus of 14 analysts who have published forecasts since the announcement of the Group’s half year results, consensus net profit before exceptional items and certain re-measurements for 2016 for the Group, excluding the IES reporting segment, is approximately US$460 million.
(3) An increase/decrease of US$1 in the price of oil would increase/decrease IES net profit in 2016 by around US$2.5 million.
(4) According to Company compiled consensus of 14 analysts who have published forecasts since the announcement of the Group’s half year results, consensus net profit before exceptional items and certain re-measurements for 2016 for the IES reporting segment is approximately US$30 million, based on an average oil price assumption of US$65 per barrel.
Tim Weller, Chief Financial Officer, will host a conference call for analysts and investors at 8am today. The participant details are as follows:
UK and international: +44 203 139 4830