Petrofac downgrades profit forecast to $460m

Petrofac expects a lower than forecast net profit of US$460 million this year owing to a fall in prices, which pushed the London-listed oil and gas company to post a 10.6 per cent drop in net profit last year.

In November, the firm forecast net profit of about $500m this year based on an average oil price of $82 a barrel, but the near-halving of Brent oil to less than $60 per barrel since last June has lowered its forecast for this year.

“While the operating environment remains uncertain with the industry adjusting to a lower oil price environment, we are well positioned and will maintain our bidding discipline and focus on our areas of core strength,” said Petrofac. “At this stage, clients in our core onshore markets in the Middle East and North Africa are continuing to commit to ongoing investment in large strategic projects.”

Petrofac, which has most of its work in the region, expects governments and national oil companies to continue investing in their energy sectors, its chief executive Ayman Asfari said in a webcast.

“We have identified $25 billion of high-priority upstream and downstream prospects that we are bidding for, predominantly in our core markets,” said Mr Asfari.

The company posted a 10.6 per cent decline in its full year net profit last year to $581m, coming in the lower range of its profit forecast of $580m to $600m, which it stated in November. Full year net profit declined because of lower oil prices and project delays. Revenue fell 1.6 per cent to $6.2bn last year from $6.3bn in 2013.

Despite the oil price drop, the firm’s order book increased to a record $18.9bn last year, with intake for this year at $3.5bn.

Petrofac shares gained 8 per cent to 880 pence in London afternoon trading.

The firm posted a $180m cumulative loss on the Laggan-Tormore gas plant project on the Shetland Islands in the UK. It has agreed on a commercial settlement which should lead to no further profit or loss on the project.

Petrofac is also discussing exit options from an enhancement production contract for Ticleni oilfield in Romania. It is also facing delays in the Greater Stella Area project in the North Sea.

“We have recorded impairment charges of $460m across a number of IES [integrated energy services] projects, but over 80 per cent of those impairments related to Greater Stella and Ticleni project contracts,” said Mr Asfari.

Most of the problems occurred in its IES division, a unit responsible for investments in energy production. The firm has learnt from its mistakes in investing too rapidly, losing discipline in capital investments and failing to deliver on targeted returns, the chief executive said. It is reassessing its IES project portfolio, which has a net book value of $1.8bn.

“We aim to lower the capital intensity of IES by reducing the invested capital,” said Mr Asfari. “Given the lower oil price environment and challenges we have identified in the portfolio, we have taken the opportunity to undertake a detailed review on a project-by-project basis. As part of our drive to lower the capital intensity of IES, we will not enter into new financial commitments for new projects until the existing portfolio is performing successfully.”

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Dania Saadi

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