Home
Governance

Risk management

Our knowledge and insight coupled with the right set of tools help us understand the factors that lead to risk and allow us to manage them effectively. Identifying and managing risks and opportunities is key to the successful delivery of our strategy. We operate in challenging environments and understand that risks are an inherent part of our business.

Our system of risk governance comprises several committees and management processes which bring together reports on the management of risk at various levels. The Group Risk Committee (GRC) is responsible for the oversight of the Enterprise Risk Management framework agreed by the Board, including review of Group policies and the management of the Group’s Delegated Authorities.

Risk Management framework

Risk Governance framework

Risk 

Mitigation and management examples 

Assessment 

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. 

Increased  

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. 

Unchanged  

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. 

Unchanged  

We have made good progress on all our strategic initiatives.  

Risk

Mitigation and management examples

Assessment

Operational and project performance

Our portfolio typically includes a relatively small number of large value contracts, a larger number of smaller value contracts, and sizeable oil and gas assets. Cost or schedule overruns on any of the large value contracts, or operational issues affecting production within our key assets could negatively impact the Group’s profitability, cash flows and relationships with key stakeholders.

Key risks to delivery are initially identified at the tender stage, through the risk review process by relevant risk review committees and escalated to the GRC or Board, as required. On award, detailed execution strategies are further developed and during the execution phase, emerging risks and opportunities are managed through assurance and operational reviews. Lessons learned are cascaded through leadership lines and our quality initiatives are focused on a ‘right first time’ approach.

The main project risks are the application of contractual liquidated damages by clients and failure to secure assessed variation orders. We regularly review these exposures and are satisfied that the risks are balanced across the E&C portfolio. We work closely with our clients to resolve contractual elements for our substantially completed and ongoing projects.

Project recovery plans have been established and project delivery remained a significant area of focus for the Board and executive management to ensure that we maintained our attention on managing this key risk.

Increased 

The divestment of our assets in Mexico has reduced several operational risks. However, the COVID-19 pandemic has created new execution challenges and had a substantial impact on our operational risks.

Insufficient IT resilience

The Group’s performance is increasingly dependent on the ongoing capability and reliability of our IT platforms. We (as with all companies) continue to be exposed to external cyber-security threats.

We operate a Group-wide information/cyber security programme and utilise a ‘cloud’ strategy to maintain a resilient IT platform. In 2020 we introduced a Global Security Operations Centre, and focused on detecting and preventing exposures due to increased work from home arrangements.

Unchanged 

A number of initiatives were implemented specifically to enhance our resilience in a ‘working from home’ environment.

HSSEIA incidents

There are several factors that could impact our ability to operate safely. These include safety and asset integrity risks and extend to a range of environmental risks. The risk is the potential harm to our people, and the commercial and/or reputational damage that could be caused.

This risk is governed largely by our operating framework, Group policies, and systems that cover all elements of occupational health and safety, security, environment and asset integrity programmes.

In 2020 we maintained our focus on the Group Safety Improvement Plan, and at the same time aimed to respond effectively to the COVID-19 pandemic. Due to two work-related incidents in 2020 a detailed review of our practices has been performed along with a number of safety deep dive sessions with Executive Management and senior project personnel.

Increased 

Despite effective execution of the Group Safety improvement plan, we have observed deterioration in our safety performance. The risk level has been increased mainly due to COVID-19 pandemic related distractions which diverted attention away from routine safety considerations at the work-sites.

Risk

Mitigation and management examples

Assessment

Loss of financial capacity

Failure to maintain adequate liquidity or provide guarantees to our customers could adversely affect our ability to deliver our strategy and may ultimately result in financial loss and/or ability to comply with our financial covenants.

Costs of debt may rise as a result of rating agency downgrades or reduced access to funding.

Access to funding is critical to our sustainability and future growth. Reduced access to funding could hamper the Group’s growth and/or adversely affect the Group’s financial performance.

We maintain an adequate level of liquidity in the form of readily available cash, short-term investments, or committed credit facilities and ensure minimum level of liquidity as defined by the Audit Committee is maintained.

Debt, cash and liquidity balances are monitored on a daily basis and we prepare quarterly cash flow forecasts, aligned to our financial re-forecasts, to identify any funding requirements early. Our financial policy targets BBB investment grade credit metrics over the long term.

We continue to employ a conservative and flexible funding strategy, robust across a range of business plan scenarios.

Increased 

The risk has increased since our last update due to the reduction in lending appetite to the oil and gas sector. We continued to focus on reducing our levels of gross debt, refinancing debt maturities where appropriate and managing working capital during 2020.

Misstatement of financial information

We execute complex projects in a dynamic environment across various jurisdictions with a variety of clients. Due to operational volatility and financial complexity, our assumptions and financial estimates may not accurately reflect our business performance and financial results, or provide inadequate information to key decisions. These may negatively impact investor confidence.

Our Financial Control Framework ensures that adequate controls are identified, implemented and monitored throughout all of our key financial activities. Adequacy of these controls are certified and reviewed by various assurance activities and overseen by the Audit Committee. 

External auditors review and test our financial accounts.

Unchanged 

During 2020 we have upgraded our IT systems and platforms to further enhance the operating effectiveness of the Group’s financial controls.

Risk

Mitigation and management examples

Assessment

Historic or future breaches of laws, regulations, and ethical standards

Non-compliance with laws, regulations and ethical standards due to failures in our compliance controls or unethical behaviour, including but not limited to bribery, corruption, money laundering, trade sanctions and labour rights. These could result in fines and/or adverse impact on our reputation.

We operate a Group level Compliance Programme overseen by the Compliance & Ethics Committee. We have continued to enhance this programme. 

We Finalised establishment of a Groupwide compliance team with a highly qualified leadership team in Sharjah and dedicated engagement officers in each major operational centre.

We invested in new technology integrated into our systems such as confidential reporting tool and due diligence screening tool.

We conducted an independent review and subsequent regular audit process on the effectiveness of our compliance processes and culture.

We enhanced our financial controls to ensure all third parties and vendors go through rigorous due diligence and approvals.

We issued a Non-Retaliation Policy that details our commitment to fostering a safe Speak Up environment and protecting anybody who raises a concern in good faith.

Decreased 

Risk of a future breach is reduced due to improvements in our Compliance Programme.

Risk

Mitigation and management examples

Assessment

Inadequate leadership and talent management

Our operations are heavily dependent on our ability to attract, retain and lead the right level of skilled and experienced personnel. Failure to do so could negatively impact our distinctive, delivery-focused culture, and prevent us from maintaining our operational capability and relationships with clients.

The Group’s organisational structure was revised in 2020, primarily relating to the organisation right-sizing initiatives as a result of reduced oil and gas industry activity.

Diversity and Inclusion mandatory e-learning and Diversity and Inclusion week were launched in 2020 to increase awareness of the importance and benefits of a diverse and inclusive culture to the individual, the team and to Petrofac as a whole. 

Based on our annual employee survey, we have seen improved scores in our key HR measures. The Workforce Forum meetings were conducted during 2020 to encourage employees to directly engage with Board Directors and senior management. 

We remain confident that our policies to attract, retain, train, promote and reward our people are appropriate for the Group, and will enable us to meet our strategic goals.

Unchanged 

Despite the impact of the COVID-19 pandemic on our people the overall risk level remains unchanged due to reduced uncertainty in our succession plans and improving diversity and inclusion practices.

Download

2020 Annual Report

Enabling our clients to meet the world’s evolving energy needs

Download