Demand for oilfield services fuels profits as Petrofac unveils major contract
Oil and gas heavyweight Petrofac’s share price edged up this morning as the firm unveiled a new $600m (£466m) engineering contract alongside a strong half-year profits report.
Profits in the first six months of 2018 hit $190m, surging 20 per cent from the same period last year in the wake of rising demand for oilfield services.
The group, which designs, builds, and operates oil and gas facilities, also revealed an engineering contract worth $600 million at Algerian state-owned firm Sonatrach this morning.
Shares rose two per cent in early morning trading, and the firm announced a dividend return to investors of 12.7p per share.
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Nicholas Hyett, Equity Analyst at Hargreaves Lansdown, said: "Petrofac had a helping hand from higher oil prices in the first half of the year. That’s not really how it’s meant to work as a services business, but Petrofac actually has a decent slug of oil & gas assets of its own – $794m to be exact."
Hyett added: "Headline numbers at the core engineering businesses aren’t looking so pretty, although an improving oil price is helping here too. The order book continues to shrink, but the rate of decline is slowing and there have been substantial contract wins in Petrofac’s core North African and Middle Eastern markets in recent months, as oil companies loosen the purse strings again."
The announcement comes as the group readjusts its core focus towards onshore engineering and drilling and away from other oil-producing assets.
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The group is well placed on several bids due for award before the end of the year, it said.
"Our focus on operational excellence is reflected in improved margins and continued good progress across our project portfolio in the first half. Furthermore, we are well positioned for the second half with good revenue visibility, a strong competitive position and healthy liquidity," according to Petrofac boss Ayman Asfari.
The latest contract win comes less than a fortnight after the group secured a $292m deal to sell out of the Greater Stella development in the North Sea, which Asfari hailed as a "further milestone in the journey back to a capital-light business".
Earlier this month US investment bank Jefferies downgraded Petrofac, moving to ‘hold’ from ‘buy’, citing caution over the pace of major contract wins.