Petrofac Limited ( PFC)
Petrofac issues the following pre-close trading update for the six months ending 30 June 2022.
Sami Iskander, Petrofac's Group Chief Executive, commented:
“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. We have a healthy 18 month Group bidding pipeline and we expect to grow the E&C backlog in 2022 and to secure significant new orders in 2023, underpinned by opportunities in the UAE and offshore wind.”
Engineering & Construction (E&C)
E&C continues to be impacted by the lingering impact of the pandemic as described in the AGM statement that has resulted in cost increases and some relatively unfavourable commercial settlements with clients. These dynamics will largely play out within the year, with a number of projects scheduled for completion over the course of the year and early 2023.
First half revenues in 2022 are expected to be around US$0.6 billion reflecting the lower levels of activity compared with the prior year period and project delays. Second half revenue is expected to be broadly in line with the first half. E&C is expected to report a first half EBIT loss of approximately US$35-45 million due to the immediate recognition of the additional Covid-related project costs to completion. In the second half, subject to the outcome of the final commercial settlements, 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 robust, supported by high energy prices and increased focus on energy security. Bidding activity is high and the 18 month pipeline is approximately US$53 billion with US$14 billion scheduled for award in 2022 and US$39 billion in 2023. Order intake (1) in the first half comprised US$125 million of variation orders on existing contracts with the majority of new contracts scheduled for award in the second half of the year. 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.
Asset Solutions (AS)
The financial performance in the first half of 2022 has been robust, with revenue expected to be approximately US$0.5 billion. Revenue is expected to be higher in the second half, supported by strong order intake in the year to date.
The EBIT margin for the first six months of 2022 is currently expected to be between 6.0% and 6.5%, while full year EBIT margin guidance remains 5-6%, with lower margins in the second half due to contract mix.
Order intake (1) has been strong with US$0.8 billion contract awards and extensions secured in the first half, including significant awards in the Wells & Decommissioning service line in Australia, the Gulf of Mexico and Mauritania. Asset Operations and Asset Developments have secured awards in the UK and India. While order intake is expected to be first-half weighted, AS is expected to deliver a full year book-to-bill of greater than 1.0x, supporting revenue growth in 2023.
In New Energy Services, the strong momentum in 2021 has continued to increase in 2022 with a series of early-stage awards and we are making material progress with developing further strategic alliances with technology providers. In line with our strategy, a number of the early-stage opportunities we have performed engineering works on in new energy sectors beyond offshore wind are maturing and we are well positioned to secure execution phase project work later this year.
Integrated Energy Services (IES)
IES financial performance in the first half of the year has been strong, with a significant increase in production compared with prior year and higher oil prices. Net production is expected to be over 500 thousand barrels of oil (kbbls) for the first half of the year (H1 2021: 210 kbbls), reflecting the additional production from the East Cendor development, which commenced in June 2021 and the partial reinstatement of the main Cendor field production with a temporary gas lift system post the outage that occurred in December 2020. Net production in the second half is expected to increase further, with guidance for full year average production maintained at 3.0-3.5 kbbls/d (H1 2022 average net production: 2.9 kbbls/d).
The average realised oil price (net of royalties) (3) for the first half is expected to be approximately US$100/bbl (H1 2021: US$70/bbl), including the impact of hedging.
As previously guided, assuming an average US$100 Brent price for unhedged production for the remainder of 2022, IES is expected to deliver EBITDA of between US$80 million and US$90 million. Depreciation, which is highly correlated to production, is expected to be approximately US$45/bbl, in line with prior year.
The Group's backlog (2) is expected to decrease marginally to US$3.8 billion at 30 June 2022 (31 December 2021: US$4.0 billion), reflecting progress delivered on the existing project portfolio and low new order intake in E&C, partially offset by strong order intake in Asset Solutions.
CASH FLOW, NET DEBT AND LIQUIDITY
Net debt (4) was US$345 million at 23 June 2022 (31 December 2021: US$144 million) reflecting the payment of the US$104 million SFO penalty and a working capital outflow largely driven by slower payments from clients, partially offset by the final US$51 million of proceeds from the Greater Stella Area divestment and US$47 million from the settlement related to the dispute on consideration payable from the divestment of the Mexico operations. Liquidity (5) was US$507 million at 23 June 2022 (31 December 2021: US$705 million).
Net debt is expected to reduce in the second half of the year due to a reduction in working capital in E&C. As previously guided, principally as a result of the E&C performance and despite delays in cash collections due to extended commercial settlements, the Group expects to have a modest free cash outflow in the year.
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 half year results for period ended 30 June 2022 are scheduled to be announced on 11 August 2022.
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 made on the basis of current knowledge and assumptions and involve risks and uncertainties. Various factors could cause actual future results, performance or events to differ materially from those expressed 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) 20 7811 4900
Jonathan Yarr, Head of Investor Relations
Alison Flynn, Group Head of Communications
+44 (0) 20 7811 4913
Tulchan Communications Group
+44 (0) 20 7353 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 8,200 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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