Oil Services Must Take on More Risk, Petrofac CEO Warns

MarineLink.com
Wednesday, February 26, 2014
Ayman Asfari: Photo couresty of Petrofac

By Stephen Eisenhammer, Reuters

Oil service companies will have to assume more risk in the coming years as investor pressure and a flat crude price make oil company clients push harder to avoid delays on megaprojects, the chief executive of FTSE 100 contractor Petrofac said.

The biggest oil companies have seen huge delays and broken budgets at projects ranging from record-breaking Australian liquefied natural gas (LNG) schemes to the enormous and technically challenging Kazakhstan oilfield in the freezing Caspian Sea.

In contrast to the recent past, these delays and cost overruns are no longer being hidden by a rising oil price and top executives met at Davos earlier this year to debate the problem.

"What saved the international oil companies on project delivery for the last 10 years is that the oil prices have gone up from $20 to $110," Petrofac CEO Ayman Asfari told analysts on an earnings call on Wednesday.

"If you revisit a lot of these projects based on the FID (Final Investment Decision) cases you will find many companies have negative cash flows," he added.

The result for service companies, which provide the engineering and construction on oil and gas projects, is that they will be pressured to assume more of the delivery risk according to Asfari.

"In the next four, five years, if the industry doesn't up the game with the level of performance in terms of project delivery and upside for the operations, a lot of companies are going to be in big trouble," he said. "The game is changing very rapidly now."

Last year was peppered with profit warnings in the sector, with Italy's Saipem, France's Technip and Norway's Aker Solutions and Subsea 7 all hit to some degree.

"The industry needs to do something about its cost base, and if you listen to the management at the big companies they're all talking through how do we make things cheaper," said Alex Brooks, an analyst at Canaccord.

Brooks said that, although the majors accepted their approach needed revising, he had not yet seen real signs of a move away from reimbursable contracts, in which the majors take on most of the risk of cost overruns and delays.

Petrofac does much of its risk-sharing work with national oil companies.

Cautious on Outlook
Petrofac is in the process of diversifying into more complicated contract agreements through its Integrated Energy Services (IES) division, in which it can invest alongside oil companies and has earnings much more linked to getting barrels out of the ground. IES is a core part of the company's growth projections along with a $1 billion move into offshore services.

But the shift has not necessarily been comfortable for Petrofac, which saw its share price fall 25 percent last year on concerns over its outlook and wider weakness in the sector.

Petrofac posted full-year profit ahead of forecasts on Wednesday and repeated cautious guidance for the year ahead, forecasting little or no growth as oil companies cut investment and delay projects.

Shares in the company were down 1 percent in morning trade, but analysts said the results were largely in line with expectations and they were unlikely to revise their estimates.

The company said it expected to return to strong growth in 2015, as oil projects the firm is invested in come on stream, but the previous goal of doubling 2010 net profit to $862 million was now an "aspiration", Chief Financial Officer Tim Weller told reporters. The target, usually a regular feature of Petrofac earnings statements, was noticeably absent. "It is achievable, but it's a stretch," Weller said.

Petrofac warned last November it expected weak growth this year, meaning the company required a jump of about a third in earnings in 2015 to meet the target.

"The big step up to previous guidance of $862 million of earnings is less visible and notably management have not re-iterated this figure today," Numis analyst Sanjeev Bahl said in a note to clients.

Petrofac reported 2013 full-year net profit of $650 million, up 3 percent on 2012 from revenue of $6.3 billion, which was up 1 percent. A Thomson Reuters I/B/E/S poll of analysts had estimated full-year net profit of $644 million and revenue of $6.5 billion.

Maritime Reporter June 2015 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

APL’s Schedule Reliability Scales Up

APL was the most reliable carrier with a global on-time performance of 85.5% in May 2015, according to the latest Global Liner Performance Report by SeaIntel Maritime Analysis.

Gazprom, Gasunie Sign Framework Agreement - LNG

At a Meeting between Alexey Miller, Chairman of the Gazprom Management Committee and Han Fennema, CEO and Chairman of the Executive Board of Gasunie a Framework

Haiti’s Port Lafito Officially Opens

GB Group inaugurated their Port Lafito, a world-class modern container port in Haiti. They informed that the port is now open and operational. Port Lafito

Finance

De Nora Acquires Severn Trent's Water Purification Business

De Nora announces the completion of the acquisition of the Water Purification group of Severn Trent Services. The new business line, called De Nora Water Technologies,

Bunker Holding Buys LQM

Bunker Holding Group (Bunker Holding), a global leader in the purchase, sale and supply of marine fuel with 54 offices in 27 countries, announced today the acquisition

Buoys in Disputed Waters Roil South China Sea Dispute

Buoys stretched "as far as eye could see" - Philippine sailor. The Philippine navy recently found a large steel marker bearing Chinese inscriptions and hundreds

Energy

Gazprom, Gasunie Sign Framework Agreement - LNG

At a Meeting between Alexey Miller, Chairman of the Gazprom Management Committee and Han Fennema, CEO and Chairman of the Executive Board of Gasunie a Framework

NAMEPA Welcomes Hadjipateras of Dorian

Clay Maitland, Founding Chairman of the North American Marine Environment Protection Association (NAMEPA) announced today, “NAMEPA welcomes our newest board member,

Bunker Holding Buys LQM

Bunker Holding Group (Bunker Holding), a global leader in the purchase, sale and supply of marine fuel with 54 offices in 27 countries, announced today the acquisition

LNG

Gazprom, Gasunie Sign Framework Agreement - LNG

At a Meeting between Alexey Miller, Chairman of the Gazprom Management Committee and Han Fennema, CEO and Chairman of the Executive Board of Gasunie a Framework

Drydocks World Completes World’s Largest Turret

Drydocks World the leading provider of maritime and offshore services to the shipping, oil, gas and energy sectors marked a major milestone in successfully completing

CNOOC Acquires Asia's 1st LNG Powered Tug

China National Offshore Oil Corporation (CNOOC) has taken delivery of Asia’s first tugboat Hai Yang Shi You 525, designed to operate solely on liquefied natural gas as ship’s fuel.

News

APL’s Schedule Reliability Scales Up

APL was the most reliable carrier with a global on-time performance of 85.5% in May 2015, according to the latest Global Liner Performance Report by SeaIntel Maritime Analysis.

Gazprom, Gasunie Sign Framework Agreement - LNG

At a Meeting between Alexey Miller, Chairman of the Gazprom Management Committee and Han Fennema, CEO and Chairman of the Executive Board of Gasunie a Framework

Haiti’s Port Lafito Officially Opens

GB Group inaugurated their Port Lafito, a world-class modern container port in Haiti. They informed that the port is now open and operational. Port Lafito

Offshore Energy

ISS Inks Service Pact with Technip

Inchcape Shipping Services (ISS) and Techniphave signed a contract to provide marine agency services and logistics for the Rashid C project in the Middle East. Currently

Indonesia Expects Total to Decide on Mahakam within days

French oil firm Total  will decide how much interest it will retain from 2018 in Indonesia's offshore Mahakam oil and gas block over the next two days, the

First Subsea Wet Gas Compressor Installed

After several years of technology development, construction and testing the first subsea wet gas compressor in the world is now installed at the Gullfaks C platform in the North Sea.

 
 
Maritime Careers / Shipboard Positions Maritime Security Maritime Standards Naval Architecture Navigation Offshore Oil Pipelines Salvage Ship Electronics Winch
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.3245 sec (3 req/sec)