Petrofac Share Prices Fall, Ambitions Remain

on Aug 14, 2012

Petrofac (PFC:LSE) (PFC:LSE), a leading provider of facilities solutions to the oil & gas production and processing industry, failed to impress as its shares fell more than 5 per cent even after publishing half-year reports showing figures beyond what analysts had predicted.

The company is considered a stock market darling with a total return of more than 550 per cent since its initial public offering in 2005. Forecasts predict that the stock will continue to outperform the market making it a smart position to hold on to.
Although Petrofac (PFC:LSE) seems to be geographically well diversified, almost half of its revenue comes from North African and Middle East countries such as Oman, Saudi Arabia, Kuwait and Algeria. These places were not amongst the most effected during the ‘Arab spring’ and investors are concerned over potentially still latent political disruption which could lead to possible disruptions that might affect national oil companies, which are the main source of revenue. The company expects to continue winning new business in the Middle East, the UK’s continental shelf and North Africa. Its presence, however, in the hottest production and exploration zones such as Brazil is negligible because its offshore expertise is limited mainly to shallower waters.

!m[](/uploads/story/257/thumbs/pic1_inline.png)Petrofac (PFC:LSE) has stated its ambition to double earnings from $433m (£276m) in 2010 to $866m (£552m) in 2015. Despite dips in its orders backlogs, chief executive Ayman Asfari is confident that the company will continue to make further progress towards that ambition with net profits expected to grow by at least 15 per cent this year. On Monday Petrofac (PFC:LSE) warned that once again there will be delays in winning new contracts. The announcement led to a decrease in the share prices down 6 per cent to £14.76. Main concerns come from the reduced backlog which went down from $11.4bn a year ago to $10.8bn in December 2011 and finally hit $8.9bn at the end of June 2012. “In Iraq we have seen delays, and significant tenders in Saudi Arabia are falling into 2013,” said chief financial officer Tim Weller. According to Mr Weller, Petrofac (PFC:LSE) will continue to win onshore production contracts and 2013 should be a strong year in terms of revenue. Right now the company is achieving 10.5 per cent in net margins, which is higher than what other competitors are able to offer.

In January Petrofac’s Integrated Energy Services and Schlumberg’s Production Management divisions signed a Co-operation Agreement under which the two companies will join forces to provide high-value production projects. By teaming up with Schlumberg (SLB:NYQ), Petrofac (PFC:LSE) can bid jointly for projects which would otherwise be too large to be pursued independently. The alliance is meant to help both partners deal with national oil companies directly and on a wider scale.

This week Petrofac (PFC:LSE) also announced winning a $100m (£63.7m) contract with Iraq’s South Oil Company. The contract is for twelve months and Petrofac (PFC:LSE) will be expected to provide offshore operations and maintenance services after a three month mobilisation period. The Offshore Projects & Operations division will have to work on facilities situated 60km from the Al Fao Peninsula in Southern Iraq. “This is our first offshore operations contract in Iraq which broadens the scope of our growing operations within an important country.” said Marwan Chedid chief executive of engineering, construction, operations and maintenance division. This is also the first contract for Petrofac (PFC:LSE) with an Iraqi National Oil Company. The positive news pushed share prices up 0.6 per cent but that was not enough to make up for Monday’s drop of 6 per cent.

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