Petrofac boosted by higher oil prices and production volumes

Energy services group Petrofac his trading in line with guidance, following a strong rebound in the price and production of oil.

The London-listed company expects to generate more than 500,000 barrels per day of petroleum in the first half of 2022, thanks to higher output from two oilfields situated off the Malaysian coast.

This compares to just 210,000 daily barrels in the equivalent period last year when Covid-related lockdown rules discouraged travel and caused factory activity to dwindle, sending oil demand plummeting.

Petrofac predicts production will continue rising in the latter half of 2022, helping full-year underlying earnings in its integrated energy services division to rise to $80million-$90million, assuming average oil prices remain at around $100 per barrel.

The business also anticipates revenues in its asset solutions arm will further increase over the next six months, having already made an estimated $500million so far this year on the back of new or extended contracts.

Among deals recently won by the firm regarding operations in the North Sea include one from i3 Energy to manage wells and a two-year extension from Spirit Energy to provide maintenance support for its York platform.

Outside the UK, Petrofac has gained contracts to decommission three offshore fields in the Gulf of Mexico and one in the Timor Sea from the Australian Government.

Yet even though the division has attracted a robust order intake, it forecasts a slight decrease in second-half profit margins because of the mix of contracts.

By contrast, the company expects its engineering and construction segment to rebound to a ‘marginal profit’ in the coming six months from a loss of about $35million-$45million in the opening half of the year.

Petrofac admitted that such an outcome will be dependent on certain commercial settlements, some of which it has described as ‘relatively unfavourable.’

But it is optimistic that the division will continue to prosper due to steep energy prices, an enhanced focus on energy security and a gigantic pipeline of potential new contracts.

Chief executive Sami Iskander 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.

The firm additionally anticipates cutting net debts after seeing them double to $345million between January and late June due to paying a $104million fine to the Serious Fraud Office and receiving slower payments from clients.

Last year, Petrofac pleaded guilty to seven charges of failing to prevent bribery that helped it secure projects across Iraq, the United Arab Emirates and Saudi Arabia from 2012 to 2015. Chairman René Medori called the episode a ‘deeply regrettable period of Petrofac’s history.’

Laura Hoy, an equity analyst at Hargreaves Lansdown, said: ‘With the Serious Fraud Office investigation finally in the rearview, this year was meant to be one of rebuilding for Petrofac.

‘But lingering supply chain issues from the pandemic and inflationary headwinds have put somewhat of a damper on the group’s engineering & construction business.’

‘The good news is that other parts of the business are picking up some of the slack – with higher oil prices and strong demand for onshore and offshore asset management keeping a floor under profits.’

Petrofac shares closed trading 2.7 per cent up at 122.2p on Tuesday, although their value has declined by over a fifth in the past month.