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Petrofac Limited ( PFC)
Petrofac issues the following pre-close trading update for the year ending 31 December 2021.
Sami Iskander, Petrofac's Group Chief Executive, commented:
"In 2021 Petrofac has taken an important step forward, closing out the SFO investigation and embedding a strategy focused on future growth. During this period we have continued to deliver projects and operations safely for our clients worldwide, despite the ongoing challenges of the Covid-19 pandemic which continue to impact our current E&C portfolio.
"Earlier this year I set out a plan to rebalance, reshape and rebuild Petrofac. The recent refinancing has provided a long-term, stable capital structure for the business and largely completes the work to rebalance the Group. Operationally, we are making good progress in reshaping the organisation to consistently deliver to best-in-class global standards through local execution. Our priority is to now rebuild our order backlog. We secured US$1.5 billion of new awards in the second half to date and the outlook for awards is improving in a more supportive macro environment. Petrofac's cost competitive model and strong client relationships mean that we are well positioned with a healthy pipeline of opportunities scheduled for award in 2022.
"While challenges will persist in 2022, I remain confident about the prospects for Petrofac over the medium-term as we capitalise on our strong positions in attractive and growing markets and accelerate our progress in New Energies, where we see significant near and long-term growth in exciting areas such as offshore wind, carbon capture, waste to value and hydrogen."
The Group delivered a resilient performance in the second half of 2021 despite the continued challenges and uncertainty related to Covid-19. Management expects to report Group revenue of approximately US$3.0 billion and full-year net profit broadly in line with 2020 and with market expectations. The Group remains on track to reduce gross overhead and project support costs by the targeted US$250 million by the end of 2021, in order to maintain competitiveness whilst preserving core capability (3).
Engineering & Construction (E&C)
Full year E&C revenues are expected to be approximately US$1.9 billion, compared with US$3.1 billion in 2020, with the reduction due to the continuing impact of Covid-19 on project progress together with low order intake in previous years. Net margins are expected to be below prior year due to unrecoverable Covid-19 related cost increases, partly mitigated by management actions to reduce costs and by tax provision releases. These tax releases are expected to contribute US$25 million to US$30 million to net profit in the year.
Year to date, E&C has secured new orders worth US$1.1 billion (2020: US$0.7 billion), comprising EPC contracts in Oman, Libya and Lithuania, as well as positive net variation orders. In October, E&C signed a strategic partnership agreement with Gazprom's INTI - Russian Institute Oil/Gas Technology Initiatives, which positions us well to win future awards in Russia, one of the regions where we see a healthy pipeline of long-term opportunities. Backlog is expected to end the year above the 30 June 2021 position, and our bidding pipeline remains strong with more than US$32 billion of projects scheduled for award by the end of 2022.
Engineering & Production Services (EPS)
Growth in both revenue and margins has driven a strong financial performance in EPS. Full year revenue is expected to be approximately US$1.1 billion, significantly higher than in 2020. Revenue growth has been driven by strong performance in both Projects and Operations as a result of strong order intake.
Net margins are expected to benefit from tax provision releases, increasing by around two percentage points above the previous guidance of 5-6%. Previous guidance reflected higher revenues, a lower overhead ratio, higher contract margins on certain projects and higher income from associates (4).
EPS has had another strong year of order intake having secured US$0.9 billion of awards and extensions in the year to date (full year 2020: US$0.9 billion) and remains on target to deliver a book-to-bill of 1.0x for the full year. EPS is delivering on its strategy to deliver growth in small to medium size EPC brownfield projects internationally, with notable wins in Bahrain and Malaysia. A number of new operations and maintenance contracts and renewals were secured, including an extension of a significant contract in Iraq.
We have seen strong momentum in New Energies with significant growth in concept and FEED studies across hydrogen, carbon capture and storage, waste-to-value and offshore wind, and a number of new strategic partnerships with developers and technology providers. Several of these opportunities are expected to convert to EPC projects in the future.
Integrated Energy Services (IES)
Revenue and EBITDA are expected to be higher in the second half as a result of production from the East Cendor field, which commenced production in June 2021, together with higher oil prices. The average realised oil price (5) year to date has increased by 92% to US$75/boe (2020: US$39/boe). Equity production is expected to be approximately 650 thousand barrels of oil equivalent (kboe) in 2021 (2020 PM304: 983 kboe) with an exit rate net production of 2.9 kboe/d compared with an average of 1.8kboe/d for the full year.
As expected, IES full year revenue in 2021 will be materially lower than in 2020, reflecting disposal of our Mexico operations in the second half of 2020 and the unplanned outage in the main PM304 Cendor field since December 2020. IES expects to report a small net loss for the year.
Group order backlog (6) was US$4.0 billion on 30 November 2021:
Looking ahead, the Group currently has US$2.0 billion of secured revenue for 2022, comprising US$1.3billion in E&C and US$0.7 billion in EPS. In addition, the Group has a pipeline of around US$40 billion of bids scheduled for award by the end of 2022, comprising around US$32 billion of E&C opportunities and around US$8 billion of EPS opportunities. Approximately US$7 billion of the Group's bidding pipeline consists of New Energies opportunities.
In November, we successfully concluded a comprehensive refinancing to create a long term, sustainable capital structure. This included an equity raising of US$275 million, US$600 million of 9.75% senior secured notes due 2026 and a new US$180 million two-year revolving credit facility. An existing US$90 million bilateral term loan was repaid and replaced with a new US$50 million term loan, maturing in October 2023. As part of the refinancing, on 1 December we repaid our £300m Covid Corporate Financing Facility, which was due to mature on 31 January 2022.
Net debt(2) at 31 December 2021 is expected to be broadly flat versus Q3, at approximately US$0.2 billion. Liquidity at 31 December 2021 is expected to be approximately US$0.6 billion (7).
Following the refinancing, Group debt facilities consist of a US$600 million bond, a US$180 million revolving credit facility, and two US$50 million bilateral term loans. At 30 November, US$140 million of the revolving credit facility was undrawn.
Afonso Reis e Sousa, Chief Financial Officer, will host a conference call for analysts and investors at 8.30am today.
Analysts and investors can access the call on: +44 (0)330 336 9601, confirmation code: 1605431
The Group's full year results for year ended 31 December 2021 are scheduled to be announced on 15 March 2021.
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 based on current knowledge and assumptions and involve risks and uncertainties. Various factors could cause actual future results, performance or events to differ materially from those described 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:
+44 (0) 207 811 4900
Jonathan Yarr, Head of Investor Relations
Alison Flynn, Group Head of Communications
Tulchan Communications Group
+44 (0) 207 353 4200
NOTES TO EDITORS
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 four values - driven, agile, respectful and open - 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 8,500 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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