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RNS Number : 8549Q
Petrofac Limited
24 June 2020
Press Release
24 June 2020
PETROFAC LIMITED
TRADING UPDATE
Petrofac issues the following pre-close update on trading ahead
of the announcement of its half year results on 11 August 2020, and
on the swift and decisive action the Company is taking to respond
to the COVID-19 pandemic and sharp fall in oil prices .
-- Continuing to safely deliver our projects and operations worldwide
-- On track to deliver US$125 million of cost savings in 2020 and up to US$200 million in 2021
-- Trading and awards materially impacted by COVID-19 and the sharp fall in oil and gas prices
-- New order intake (1) of US$1.0 billion in the year to date
-- Net debt (2) of c.US$139 million at 31 May 2020
Ayman Asfari, Petrofac's Group Chief Executive, commented:
"The health and well-being of our people, suppliers and our
communities continues to be our top priority. I want to personally
thank all of our employees for their hard work and dedication in
enabling us to deliver safely for our clients in the most
challenging market conditions. Nevertheless, despite all of our
efforts, the COVID-19 pandemic and sharp fall in oil prices have
materially impacted financial performance and new orders in the
first half of the year.
"In these unprecedented times, we are doing everything within
our control to protect the long-term health of the business. We
have taken swift, decisive action to structurally reduce costs,
preserve cash and maintain our competitiveness. In doing so, we
have preserved core capability whilst continuing to invest in
digitalisation and our client relationships. Looking ahead, it is
unclear how long market conditions will continue to disrupt
business activity and delay awards. Notwithstanding this, we have a
tendering pipeline of US$48 billion of opportunities scheduled for
award by the end of 2021 and an order book that gives us good
near-term revenue visibility.
"Over the last three years we have transitioned Petrofac back
into a more resilient, capital light business and strengthened the
balance sheet. We have also grown our position in gas, clean fuels,
renewables and carbon capture. This strategy, combined with the
accelerated and structural reduction of our cost base and continued
investment in capability, best positions Petrofac to weather the
current storm and emerge stronger as markets recover."
Engineering & Construction (E&C)
E&C financial performance for the first six months of 2020
has been significantly impacted by the deterioration in market
conditions. First half revenues are expected to be around US$1.6
billion, driven by COVID-19 related project delays. Furthermore, we
expect first half E&C business performance net margins to be
between 2.00% and 2.25% largely reflecting COVID-19 related costs,
project mix and commercial settlement of the Jazan project at
completion. Excluding this non-recurring settlement, the underlying
impact of current headwinds on E&C margins in the period was
c.1% due to swift management action to reduce costs.
COVID-19 has caused significant disruption to our E&C
projects year to date. Activity on our lump-sum projects in Iraq
and India was suspended in response to Government-enforced
lockdowns. Elsewhere, progress has been materially impaired due to
stringent health protocols, supply chain disruption and travel
restrictions. Whilst projects are still progressing, this has
inevitably resulted in material delays in construction activity,
which will not be recovered in 2020. Restrictions are beginning to
ease in several countries, but it is not possible to predict when
construction activity will return to pre-COVID levels.
We have secured new orders worth US$0.4 billion in E&C in
the year to date (1H 2019: US$1.6 billion), comprising the EPC
contract for the Seagreen project and net variation orders.
Seagreen will be Scotland's largest offshore wind farm and is a
landmark award in our continued diversification into renewable
energy. The US$1.5 billion Dalma project, which was awarded in
February 2020, was subsequently terminated by the Abu Dhabi
National Oil Company in April following the collapse of global oil
prices. Under the contract, Petrofac will be reimbursed for all
costs incurred.
Engineering & Production Services (EPS)
EPS is also being affected by the deterioration in market
conditions. First half revenue is expected to be around US$450
million, in line with the prior year comparable period. Modest
growth in Projects has been offset by a decline in operations
activity and the COVID-19 related closure of our training centres.
Net margins for the first six months of 2020 are expected to be
between 3.5% and 4.0% driven primarily by a contraction in
brownfield project contract margins. The year-on-year reduction in
margins has been partly mitigated by overhead cost reductions and a
first-time contribution from associates.
Operations and maintenance activity in EPS continues in all
regions, albeit COVID-19 related travel and social distancing
restrictions are having a modest impact on activity levels and our
training centres have been temporarily closed. In addition, the
decline in oil prices is expected to reduce brownfield projects
activity as upstream asset operators seek to defer capital
expenditure and reduce operating costs.
We have secured US$0.6 billion of awards and extensions in the
year to date (1H 2019: US$0.2 billion), a positive start to the
year with contract awards in the UK North Sea, Iraq, Bahrain and
the UAE. Of particular note was the award of an engineering and
project management support contract for the Acorn Carbon Capture
and Storage project, which will provide CO2 mitigation
infrastructure essential for meeting the Scottish and UK Government
Net Zero targets.
Integrated Energy Services (IES)
Net production is expected to be approximately 2.2 million
barrels of oil equivalent (mmboe) for the first half of the year
(1H 2019: 2.1 mmboe), in line with management expectations. The
average realised oil price (net of royalties) for the first half is
expected to be approximately US$39 per boe (1H 2019: US$69/boe),
largely reflecting the fall in oil prices in the second quarter.
Performance in the period has benefitted from a reduction in
operating and other cost savings. Associate income from the Group's
investment in PetroFirst Infrastructure Limited entities were
reclassified from IES to EPS from 1 January 2020.
Financial position
Group order backlog (3) was US$6.4 billion on 31 May 2020:
31 May 2020 31 December
2019
US$ billion US$ billion
Engineering & Construction 4.5 5.7
Engineering & Production Services 1.9 1.7
Group 6.4 7.4
Net debt (2) was approximately US$139 million as at 31 May 2020
(31 December 2019: US$15 million net cash) reflecting the
anticipated reversal of temporary favourable working capital
movements at the end of 2019, disposal proceeds (4) , the
suspension of the 2019 final dividend and a reduction in capital
expenditure. Liquidity was approximately US$1.2 billion at 31 May
2020 (5) (31 December 2019: US$1.5 billion (6) ) following the
repayment and retirement of US$75 million of facilities during the
period. At the beginning of June, the Group retired a further
US$200 million tranche of our US$1.2 billion revolving credit
facility as planned.
We are on track to reduce overhead and project support costs by
at least US$125 million in 2020 and by up to US$200 million in
2021. In addition, suspension of the final 2019 dividend payment
and a 40% reduction in capital investment will conserve an
incremental US$145 million of cash flow in the year.
Looking ahead, it remains unclear how long COVID-19 and low oil
prices will continue to disrupt business activity and impact
business performance. As a result, full year 2020 revenue and
margin guidance remains suspended. However, we remain confident
that the actions we have taken to strengthen the balance sheet,
invest in our core capability and reduce structural costs will best
position us for the recovery when it occurs.
Conference call
Alastair Cochran, Chief Financial Officer, will host a
conference call for analysts and investors at 8am today.
2020 Half Year Results
Petrofac is scheduled to announce its results for the six months
ending 30 June 2020 on 11 August 2020.
Notes
(1) New order intake comprises new contract awards and
extension, net variation orders and the rolling increment
attributable to EPS contracts which extend beyond five years
(2) Net debt comprises interest-bearing loans and borrowings
less cash and short-term deposits (i.e. excludes IFRS 16 lease
liabilities)
(3) Backlog consists of: the estimated revenue attributable to
the uncompleted portion of Engineering & Construction division
projects; and, for the Engineering & Production Services
division, the estimated revenue attributable to the lesser of the
remaining term of the contract and five years
(4) Greater Stella Area divestment: US$57 million of deferred
consideration was received in April 2020 ahead of the previously
scheduled payment date in October 2020
(5) Gross liquidity of US$1.2 billion as at 31 May 2020
consisted of US$0.8 billion of gross cash and US$0.4 billion of
undrawn committed facilities (difference due to rounding)
(6) Gross liquidity of US$1.5 billion as at 31 December 2019 has
been restated from US$1.6 billion. The difference of US$100 million
related to overdraft facilities, which the Group no longer
considers to be liquidity on the basis that it is repayable on
demand
S
Disclaimer
This announcement contains forward-looking statements relating
to the business, financial performance and results of Petrofac and
the industry in which Petrofac operates. These statements may be
identified by words such as "expect", "believe", "estimate",
"plan", "target", or "forecast" and similar expressions, or by
their context. These statements are made on the basis of current
knowledge and assumptions and involve risks and uncertainties.
Various factors could cause actual future results, performance or
events to differ materially from those expressed in these
statements and neither Petrofac nor any other person accepts any
responsibility for the accuracy of the opinions expressed in this
presentation or the underlying assumptions. No obligation is
assumed to update any forward-looking statements.
For further information contact:
Petrofac Limited
+44 (0) 207 811 4900
Jonathan Yarr, Head of Investor Relations
jonathan.yarr@petrofac.com
Aaron Clark, Investor Relations & Communications Manager
aaron.clark@petrofac.com
Alison Flynn, Group Head of Communications
alison.flynn@petrofac.com
Tulchan Communications Group
+44 (0) 207 353 4200
petrofac@tulchangroup.com
Martin Robinson
LEI 2138004624W8CKCSJ177
NOTES TO EDITORS
Petrofac
Petrofac is a leading international service provider to the
energy industry, with a diverse client portfolio including many of
the world's leading energy companies.
Petrofac designs, builds, manages and maintains oil, gas,
refining, petrochemicals and renewable energy infrastructure. Our
purpose is to enable our clients to meet the world's evolving
energy needs. Our six values - safe; ethical; innovative;
responsive; quality & cost conscious; driven to deliver - are
at the heart of everything we do.
Petrofac's core markets are in the Middle East and North Africa
(MENA) region and the UK North Sea, where we have built a long and
successful track record of safe, reliable and innovative execution,
underpinned by a cost effective and local delivery model with a
strong focus on in-country value. We operate in several other
significant markets, including India, South East Asia and the
United States. We have 11,500 employees based across 31 offices
globally.
Petrofac is quoted on the London Stock Exchange (symbol:
PFC).
For additional information, please refer to the Petrofac website
at www.petrofac.com
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END
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