Low order intake
The risk is that our clients exercise capital discipline which impacts the demand for our services through the cancellation or delay of
planned investments. The potential impact is that the Group could fail to deliver its anticipated backlog and growth targets.
The Group wins most of its work through a competitive bidding process, and as competition increases, there is a risk that we could fail to maintain differentiated margins.
Our order intake is driven by our strategy, the development of which is overseen by the Board. Our service lines work together to identify, review, and win opportunities. We regularly analyse our business development activities, bid-to-win ratios and our competition. We responded to the reduced number of awards in all our key markets in 2020 by right-sizing our businesses and preparing Petrofac for a recovery by addressing client objectives such as increased in-country value and improving sustainability.
Notwithstanding the challenging environment, we continued to secure new orders, including projects in Oman, the UK, and the Caspian region. We continue to focus on converting opportunities in target adjacent geographies and sectors. In the MENA region, our core market, we see a good pipeline of bidding opportunities.
Tendering activity is picking up in response to a recovery in the oil price and increased capital investment by clients.
The risk has increased since our last update as new awards in the industry have been delayed due to the COVID-19 pandemic and subsequent lower oil price and a weaker macro-economic environment.
Adverse geopolitical and macro-economic changes in key geographies
The Group’s backlog is concentrated in the Middle East and North Africa, which may increase our vulnerability to adverse geopolitical events in the region. Recent global economic conditions have had an impact in countries whose economies are exposed to the downturn in commodities, placing greater pressure on governments to find alternative means of raising revenues and increasing the risk of social and labour unrest.
The impact of adverse geopolitical changes in our key geographies include risks to the successful delivery of our strategy, our operations and associated impact on margins, the safety of our people, security issues, material logistics, and travel restrictions.
The Group Risk Committee and the Board actively monitor political developments and seek to avoid or minimise our exposure to jurisdictions with risk levels beyond our appetite. A detailed risk analysis is conducted before entering any new country and while pursuing and executing projects in new geographies.
We have good experience in project execution and maintain positive relationships with key stakeholders. Careful consideration is given to contractual terms and security conditions through our detailed risk review process and we seek external advice on specialist issues as required.
The delivery model is modified to suit each project and we limit exposure to single sources of supply and service. We limit our fixed asset commitment within each contract and closely monitor and manage our cash flow and commitments.
Our Business Continuity Management System considers response to and recovery from geopolitical incidents. There is also continued focus on evacuation and emergency response and operations are assessed and executed in accordance with our security policy and security standards.
The risk is level with our last update as the shock caused by the pandemic give way to a partial recovery with vaccines becoming more widely available.
Failure to deliver strategic initiatives
Each of our strategic priorities is supported by various strategic initiatives that are overseen by senior management and the Board.
To build enterprise value, we ensure each initiative is de-risked and respective success goals are met, assuring shareholders and opinion formers that we are pursuing an appropriate strategy capable of delivering shareholder value.
The impact is reflected in the appetite for new investors to buy into the Group and consequently our valuation.
Each strategic initiative is governed by a stage-gate process and overseen by a formal Group level steering committee. The Board regularly assesses our strategic initiatives and overall strategic plan to satisfy itself that the right mix of risk, capability and reward is established. We conduct detailed sensitivity analysis to assess the robustness of our plans.
The GRC reviews all material new business opportunities and projects, new country entries, joint ventures, investments, acquisitions, and disposals.
We initiated a major programme to respond to economic and industry downturn due COVID-19 pandemic and established a substantial business saving through these right-sizing initiatives.
We enhanced our Energy Transition Strategy and established ‘New Energy Services’ organisation to coordinate our efforts in this area.
We continue to secure new orders in targeted ‘growth’ geographies such as the USA, Libya, and the Caspian region and new sectors that include wind, and well plugging and abandonment.
We progressed our divestment plan, finalising the sale of our Mexican assets.
We have made good progress on all our strategic initiatives.