Covid Continues to Impact Petrofac E&C Division

Covid-19 disruption continues to impact Petrofac’s engineering and construction (E&C) project schedules and costs, the company has revealed in a new trading update.

Petrofac outlined that its full year E&C revenues are expected to be approximately $1.9 billion, compared with $3.1 billion in 2020. The reduction is said to be 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 figures due to unrecoverable Covid-19 related cost increases, which were partly mitigated by management actions to reduce costs and by tax provision releases, Petrofac noted. These tax releases are expected to contribute between $25 million and $30 million to net profit in the year.

In the year to date, Petrofac revealed that its E&C division has secured new orders worth $1.1 billion, comprising EPC contracts in Oman, Libya and Lithuania, as well as positive net variation orders. This figure was $0.7 billion last year, Petrofac highlighted.

Looking at its engineering and production services division, Petrofac said growth in both revenue and margins had driven a strong financial performance in the segment.

Petrofac outlined that the overall group delivered a “resilient” performance in the second half of 2021, “despite the continued challenges and uncertainty related to Covid-19”. The company said management expects to report group revenue of approximately $3 billion and full-year net profit broadly in line with 2020 and with market expectations. The company revealed that it remains on track to reduce gross overhead and project support costs by the targeted $250 million by the end of 2021.

“During … [2021] 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,” Sami Iskander, Petrofac’s group chief executive, said in a company statement.

“Operationally, we are making good progress in reshaping the organization to consistently deliver to best in class global standards through local execution. Our priority is to now rebuild our order backlog. We secured $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,” Iskander added in the statement.

“While challenges will persist in 2022, I remain confident about the prospects for Petrofac over the medium-term as we capitalize 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 chief executive went on to say.

Petrofac flagged a continuing impact of Covid-19 on E&C project schedules back in June this year and noted that the pandemic and collapse in oil prices had a material impact on the industry in 2020 in a December 2020 trading update.

As of December 16, 5.51pm CET, there have been 271.3 million confirmed cases of Covid-19, with 5.3 million deaths, according to the latest information from the World Health Organization (WHO). A total of 8.3 billion vaccine doses have been administered around the world as of December 16, WHO data shows.

Covid-19 cases on WHO’s Covid dashboard have risen for the last eight consecutive weeks, while a new variant of concern was identified by the organization at the end of last month.

Petrofac describes itself as a leading international service provider to the energy industry. The company has 8,500 employees and more than 30 offices worldwide, according to its website.

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