Petrofac News 1700X397
24 November 2014

Update on 2014 expectations and outlook for 2015

• On track to deliver full year 2014 net profit towards the lower end of the US$580 million to US$600 million range provided in previous guidance

• Strong order intake of US$10 billion in the year to date and backlog at a record level of approximately US$21 billion

• Lower oil price environment and expectations of delivery on certain IES projects, coupled with anticipated outcome on Laggan-Tormore is likely to result in net profit in 2015 of around US$500 million

• Our guidance for 2015 reflects:

  • current 2015 forward curve for oil price expected to reduce IES net profit by around US$45 million compared with previous guidance and current market expectations(1)
  • our latest view of cost and the timing of first oil in respect of the Greater Stella Area project in the UK North Sea
  • rephasing of certain field development activities under our existing Mexico PECs pending conclusion of the potential contract migration process
  • managing our field investment on the Ticleni PEC in Romania as we continue to work towards a revised Field Development Plan
  • an expected final commercial settlement in respect of the Laggan-Tormore project in Shetland resulting in no profit or loss being recognised in 2015 on the project

Ayman Asfari, Petrofac’s Group Chief Executive, commented:
“This has been a difficult period for Petrofac and the industry. The Board has analysed the potential impact of a lower oil price environment on our IES business and also made a critical assessment of our expectations for project delivery in 2015. In the main our project portfolio is in good shape, but it is clear that on a small number of projects our execution has fallen short of the high standards we set for ourselves. We have faced these difficulties and have taken robust action to address them and believe this leaves us on a surer footing for the future.

“The foundations of the business remain strong. Our ECOM division is in very good shape, with good progress made on the resolution of a number of ECOM commercial settlements, a record level of backlog and an attractive pipeline of bidding opportunities. We are implementing clear and robust plans to improve project delivery and drive value from the IES contract portfolio.

“I am confident that Petrofac will meet the challenges presented by certain projects in our portfolio and the medium-term growth prospects for our business remain strong.”

Engineering, Construction, Operations & Maintenance (ECOM)

Onshore Engineering & Construction
Activity levels on our portfolio of engineering and construction projects have increased substantially during the second half of the year as we have moved into the execution phase on a number of projects secured over recent months.

In respect of the Laggan-Tormore project in Shetland, in line with our latest assessment of project cost-to-complete and the potential commercial outcome of the contract, we have recognised a provision for a loss on the project in 2014 and no longer anticipate recognising any margin on the project in 2015 and have adjusted our Onshore Engineering & Construction expectations accordingly. The impact in 2014 is expected to be partially mitigated by the positive outcome in respect of a small number of tax exposures elsewhere in the contract portfolio.

Notwithstanding the current lower oil price environment, our pipeline of bidding opportunities in our core geographies remains attractive.

Offshore Projects & Operations
We continue to perform well on our portfolio of operations support contracts and offshore capital projects. We have had a successful year to date in terms of contract renewals and new awards, including in the North Sea and Iraq, which has seen backlog increase to US$3.7 billion.

Engineering & Consulting Services
We continue to see good activity levels on projects for external clients and in support of the rest of the Group’s activities.

Operations in Iraq
Our operations in Iraq are south and east of Baghdad and represent less than 5% of the Group’s expected annual revenues. While we continue to monitor events closely, there has been no significant impact on our operations to date.

Integrated Energy Services (IES)
Equity Upstream Investments
On the Greater Stella Area (GSA) development in the UK North Sea, recent development well activity has further de-risked the initial annualised gross production forecast for the field of approximately 30,000 barrels of oil equivalent per day (boepd), 6,000 boepd net to Petrofac. We continue to advance construction activities on the FPF1 modification and anticipate first production from GSA in the third quarter of 2015. We have also updated our forecast of profit from the project in the 2015 start-up phase to reflect reduced oil price and our latest view of overall project cost.

As previously noted, first oil was achieved from Cendor phase 2 on Block PM304 in early September, and we expect to ramp up production in the near-term as the facilities are fully commissioned and new wells are brought on line.

In Tunisia, we have commenced production from a fifth well, and successfully completed debottlenecking of the plant during a short planned shutdown of the central processing facility on the Chergui gas concession.

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 have been working with Pemex over the last few months to facilitate the potential contract migration process, which Pemex is targeting to complete early in 2015. At this stage, the detailed commercial terms of the new contractual arrangements are unknown and we cannot therefore forecast the financial impact, but anticipate being able to provide further clarity with our full year results announcement in February 2015. We have rephased certain field development activities under the existing PECs pending conclusion of the contract migration process, temporarily reducing field investment and production. We have therefore revised down our expectations of net income and cash generation in 2015 from the Mexican PEC portfolio.

As previously indicated, we continue to work towards agreeing a revised Field Development Plan and contractual framework in respect of the Ticleni PEC in Romania. Whilst these negotiations have been progressing we have been managing our field investment prudently and production has reduced to around 3,900 boepd. We anticipate agreeing the revised Field Development Plan shortly, but do not now expect this to have a substantial beneficial impact on production until late 2015 and have revised down our 2015 net income expectations from Ticleni accordingly.

Risk Service Contracts
The Berantai risk service contract continues to perform in line with expectations and we continue to progress early activities on OML119 in Nigeria.

PetroFirst transaction
As a result of final adjustments to the FPSO valuations in respect of the PetroFirst transaction which we announced in June 2014, we now anticipate recognising a further gain on the transaction of around US$20 million in the second half of 2014.

Financial position
As previously indicated, Group backlog has increased substantially over the year to date to stand at US$21.2 billion at 30 September 2014 (31 December 2013: US$15.0 billion), reflecting our most successful year for new awards and giving very good revenue visibility for 2015 and beyond:

30 September 2014

31 December 2013

US$ billion

US$ billion

Onshore Engineering & Construction



Offshore Projects & Operations



Engineering & Consulting Services



Integrated Energy Services






As previously indicated, net debt stood at US$1.1 billion at 30 September 2014 (31 December 2013: US$0.7 billion).

As a result of the favourable tax settlements expected in respect of certain Onshore Engineering & Construction projects noted above, we now expect the Group’s effective tax rate in the full year 2014 to be around 5%.

(1) Our previous guidance in relation to IES was with reference to the IES data pack published in June 2013, which was prepared on the basis of an oil price of US$100 per barrel. The earnings guidance in this announcement reflects the current 2015 forward curve for oil price. The impact on IES net profit for 2015 is expected to be around US$45 million based on the current 2015 forward curve for oil price (approximately US$2 million for every US$1 increase or decrease in oil price). Based on Company compiled consensus, current market expectations for IES in 2015 are based on an average oil price assumption of US$100.

Conference call
A conference call for analysts and investors will be held at 8am today. The participant details are as follows:

UK: 0808 237 0030
International: +44 203 139 4830
Passcode: 97112022#

A playback facility will be available as follows:
UK: 0808 237 0026
International: +44 203 426 2807
Passcode: 652410#