Petrofac hit by further £130m loss on Shetland gas project

LONDON (ShareCast) - Oilfield services outfit Petrofac has said it expects to recognise a further loss of $195m (£130m) in 2015 for the Laggan-Tormore gas plant project on Shetland. The company, which had already recognised a $230m loss on the project with client Total (Swiss: FP.SW - news) in 2014, told investors earlier this year that it did not foresee a further profit or loss over the remainder of the contract duration with completion expected in the third quarter of 2015.

While the project has recently ramped up and moved into the final construction and commissioning phase, adverse weather conditions in March and industrial action has delayed the ramp-up by nearly a month.

Petrofac said it will now need more man-hours to complete the project as a result of "low manpower productivity levels", as well as more rectification and reinstatement work than expected and sub-contractor delays.

"Whilst we still anticipate project completion in the third quarter of 2015, as a result of the significant amount of additional man-hours and associated support costs required over the remaining months of project execution, we now expect to recognise a further pre-tax loss on the project of around £130m ($195m at current exchange rates) in 2015," the group said in a statement.

Chief executive Ayman Asfari said he was "deeply disappointed" by the additional costs.

Laggan-Tormore is different from the rest of Petrofac's engineering, procurement and construction projects, where the group normally uses sub-contractors to deliver construction services.

"We had to take on this level of direct construction responsibility when some of our sub-contractors failed to deliver in line with their agreed scopes," Asfari said.

"Our lack of experience of operating a direct construction model in a wholly new geography for our Onshore Engineering & Construction business, particularly in a location where labour costs are much higher and productivity much lower than we are used to, has cost us dearly." He said he wanted to "avoid a similar experience" to Laggan-Tormore in the future.