Petrofac pushes for post-pandemic rebound as Covid-19 bites into profits
Energy giant Petrofac is targeting a strong order intake in the second half of the year, as it grapples with lingering impact of the pandemic, which has resulted in cost increases and unfavourable commercial settlements with clients.
Its trading and expectations are in line with guidance provided earlier this year at its annual general meeting, with a strong order intake and backlog growth expected to power its rebound in the second half of the year.
As the macro environment improves, its engineering and construction division (E&C) is expected to do particularly well – with a rising order book in the second half and easing pandemic conditions powering its earnings.
First half E&C revenues in 2022 are expected to be around $600m, with similar sales expected in the second half of the year.
The division expects to report a first half EBIT loss of approximately $35-45m due to Covid-related costs raising the price of completion.
In the second half however, it is expected to report a marginal EBIT profit, partially offsetting the loss in the first half.
The outlook for new awards in E&C is also robust, supported by high energy prices and an increased focus on energy security.
Bidding activity is high and Petrofac’s 18-month pipeline is approximately $53bn – with $14bn scheduled for 2022 and $39bn in 2023.
E&C backlog is expected to grow in 2022 and is well positioned to deliver a sustained period of growth in backlog as markets continue to improve.
Net debt at the company was reported at $345m this month – a significant rise on last December’s $144m figure.
This reflects the payment of the $104m SFO penalty and a working capital outflow largely driven by slower payments from clients.
These costs were partially offset by the final $51m of proceeds from the Greater Stella Area divestment and $47m from the settlement related to the dispute on consideration payable from the divestment of the Mexico operations.
Liquidity levels have also dropped from $705m last December to $507m this month.
Net debt is expected to reduce in the second half of the year due to a reduction in working capital in E&C.
In its asset solutions division, the financial performance has been robust for the first half of the year – with expected revenues of $500m.
This is expected to be higher in the second half, supported by strong order intake in the year to date.
Its Integrated Energy Services (IES) has shown clear signs of growth, driven by a significant increase in production compared with prior year and higher oil prices.
Net production is expected to be over 500,000 barrels of oil for the first half of the year, reflecting the additional production from the East Cendor development and the partial reinstatement of the main Cendor field production with a temporary gas lift system post the outage that occurred in December 2020.
Assuming an average $100 Brent price for unhedged production for the remainder of 2022, Petrofac is expected to deliver an EBITDA of between $80-$90m for its IES division.
Sami Iskander, Petrofac’s Group Chief Executive, said: “We have made good progress in the first half of the year to position the business strategically to capitalise on the expected multi-year upcycle ahead, supported by a strong energy price environment and ambitious growth plans from clients in our core markets.”
“Looking forward, we expect Asset Solutions and IES to continue to deliver strong performance. Notwithstanding the short-term challenges in the existing E&C portfolio, we continue to expect the second half of 2022 to mark an inflection point for a sustained period of growth in backlog.”