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    Petrofac Write-downs Turn Profit to Loss


But the outlook could be worse and the company is keeping a close eye on savings.

by: William Powell

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Natural Gas & LNG News, Premium, Corporate, Financials, Contracts and tenders

Petrofac Write-downs Turn Profit to Loss

UK engineering firm Petrofac reported a net loss of $78mn on its first-half 2020 business August 11, down from a profit last year. Impairments and remeasurements of $99mn – including a charge of $64mn (post-tax) for its investment in Block PM304 in Malaysia – dragged the $21mn profit into the red, 

Last year the equivalent figure was $139mn profit, after just $15mn of impairments. Revenues of $2.103bn were however down by a quarter on last year’s $2.82bn.

The share price bounced back above £1.75 ($2.29), up from £1.45 at the start, as CEO Ayman Asfari gave a guardedly optimistic outlook. He said the results “reflect the deterioration in market conditions triggered by the Covid-19 pandemic and subsequent decline in oil prices.” But Petrofac is doing what it can to conserve cash, including the unpopular dividend freeze until “there is a sustained recovery in new order intake.” This measure will, along with others, contribute to cash savings of $200mn next year.

"These swift and decisive actions are structurally reducing costs, conserving cash and maintaining our competitiveness.  At the same time, we have preserved core capability whilst continuing to invest in digitalisation and client relationships,” he said.  

The decline in oil prices led clients to cut costs, resulting in delays in tender awards, the termination of the $1.65bn Dalma contracts with Adnoc and a tighter commercial environment.  Engineering and construction saw a 28% cut in revenue to $1.6bn and the net margin down 4.4 percentage points to 2.1. Net profit for the division was down 76% to $35mn.

Petrofac also announced targets as part of its evolving sustainability agenda, including the ambition to reach net zero in Scope 1 and 2 emissions by 2030.

It said there were "early signs of improvements in the supply chain and government related restrictions are easing," but the order book was $6.2bn at June 30, down from $7.4bn six months earlier. It expects $1.7bn for execution in the second half of 2020. And while it is actively bidding on several large opportunities, it is assuming that capital discipline by clients will delay the majority of awards until 2021.

"Longer term, we expect to continue to benefit from a strong competitive position and a differentiated in-country value proposition in the Middle East where the cost of production is low. Furthermore, our growth in the renewables and low-carbon sectors has been underpinned by recent offshore wind and carbon capture and storage awards [in the UK]. This has the potential to deliver attractive growth as the energy transition evolves," it said.