Petrofac claims solid start to year as backlog shrinks

Petrofac issued a pre-close trading update on Tuesday morning, ahead of the announcement of its half year results for the six months to 30 June on 30 August, claiming underlying net profit for the first half of 2017 was expected to be between $135m and $145m, with full year net profit expected to be weighted to the second half of the year.

The FTSE 250 company reported a new order intake of $1.7bn in the year to date, with a backlog of $13.0bn at 31 May.

Net debt was forecast to be around $1.1bn at 30 June, which would be in line with expectations.

“We have made a positive start to the year, driven by good project execution and financial discipline,” said group chief executive Ayman Asfari.

“Our core business continues to trade in line with expectations and we remain competitive, securing new contract awards in both our E&C and EPS divisions throughout the last six months.”

Asfari said the “high level” of tendering activity was evidence of greater confidence in the company’s core markets, and the board continued to have a “very good” pipeline of bidding opportunities.

“In IES, performance in the first half of 2017 has been impacted by lower realised oil prices, lower capital investment in Mexico and our delayed entry onto the Greater Stella Area development licence.

“Our clear strategy – focused on best in class execution, maintaining our cost-competitiveness to secure new awards and reducing capital intensity – positions us well for the remainder of the year.”

Looking at Petrofac’s divisional performance, its engineering and construction unit delivered “good progress” on its portfolio of lump-sum engineering and construction projects during the first half of the year, the board said, including substantially completing the Sohar Refinery Improvement Project and Khazzan central processing facility in Oman.

Petrofac secured new project awards since bidding activity picked up in late 2016, including the GC-32 project in Kuwait for $1.3bn in March, and the division continued to see a “high level” of tendering activity in its core markets.

At engineering and production services, Petrofac’s reimbursable business continued to perform in line with expectations.

The board said it secured awards and extensions with new and existing clients worth approximately $0.3bn year-to-date, predominantly in the UK, Iraq and Kuwait.

In addition, it recently secured a 10-year framework agreement with Petroleum Development Oman for the provision of Engineering, Procurement and Construction Management (EPCm) support services for major oil and gas projects, which it claimed would further increase backlog as projects were sanctioned.

In integrated energy services (IES), the Greater Stella Area (GSA) development commenced production in February, although the ramp-up in production and Petrofac’s formal entry onto the licence had reportedly been slower than expected.

The Chergui gas plant in Tunisia recently recommenced production after an extensive shut-in due to civil unrest.

Lower investment in the company’s Mexican production enhancement contracts (PECs) also impacted underlying performance, although production in Malaysia at PM304 was said to be in line with expectations.

Looking forward, IES’ full year EBITDA was now expected to be in the range $80mn to $100mn, which the board said principally reflected lower current forward curve oil prices, a lower contribution from GSA and lower investment in Mexico.

Migration of the first of Petrofac’s Mexican PECs to a production sharing contract was expected in the second half of the year.

On the financial front, group backlog stood at $13bn at 31 May, down from $14.3bn on 31 December.

Of that, engineering and construction had a backlog of $7.6bn, down from $8.2bn, while engineering and production services saw its backlog reduce to $2.9bn from $3.5bn.

Integrated Energy Services was broadly in line, with its backlog coming in at $2.5bn against $2.6bn at the end of December.

Net debt was expected to be around $1.1bn at 30 June, reflecting working capital movements and payment of the 2016 final dividend.

The board said net debt was expected to reduce during the second half of the year.

“Everyone within Petrofac is completely focused on delivering operational excellence for our clients and winning new contracts,” said chairman Rijnhard van Tets.

“In addition, we are committed to maintaining our strong balance sheet and reducing net debt.”

Van Tets said the board had “great confidence” in Petrofac’s ability to continue to deliver, and was “fully supportive” of the work being done to serve its clients and deliver its strategy.

“An independent committee of the board will continue to engage with the SFO and its investigation.”

Digital Look

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