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 Today


The Maritime Industry's original and most viewed E-News Service

Maritime Reporter June 2016 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

Finance

Baltic Index Up for Eighth Straight Session

The Baltic Exchange's main sea freight index, tracking rates for ships carrying dry bulk commodities, continued its rise on Friday, for an eighth consecutive session,

Asia-N.Europe Box Rates up 77 pct

Shipping freight rates for transporting containers from ports in Asia to Northern Europe rose 77.4 percent to $1,206 per 20-foot container (TEU) in the week ended on Friday,

Euronav Share Buyback

Euronav NV (NYSE: EURN & Euronext: EURN) (“Euronav” or the “Company”) today announces that the Company has purchased 192,415 of its own shares on Euronext Brussels for an aggregate price of EUR 1,

News

US Oil Drillers Add Rigs for 4th Week in 5

U.S. drillers this week added oil rigs for a fourth week in five, according to a closely followed report Friday, in the best month of producers returning to the

Vale Sells 3 Valemax Iron Ore Ships to ICBC

Brazil's Vale SA said it has sold three of its giant "Valemax" iron ore ships to a group led by Industrial and Commercial Bank of China, continuing efforts to unload

Fincantieri Launches Silver Muse

Silver Muse, the new ultra-luxury cruise ship which Fincantieri is building for the ship owner Silversea Cruises, was launched at Fincantieri’s shipyard in Genoa Sestri Ponente.

Offshore Energy

US Oil Drillers Add Rigs for 4th Week in 5

U.S. drillers this week added oil rigs for a fourth week in five, according to a closely followed report Friday, in the best month of producers returning to the

Boskalis Bags Aberdeen Offshore Windfarm Deal

Royal Boskalis Westminster N.V. (Boskalis) has been appointed the preferred Offshore Balance of Plant contractor by Vattenfall for the construction of Aberdeen Offshore Wind Farm,

Construction Begins on Johan Sverdrup Riser platform

The riser platform construction start was marked today at the Samsung Heavy Industries yard in South Korea. Project director for Johan Sverdrup Kjetel Digre (from right),

 
 
Maritime Careers / Shipboard Positions Maritime Contracts Pipelines Port Authority Ship Electronics Ship Repair Ship Simulators Shipbuilding / Vessel Construction Sonar 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: 0.1407 sec (7 req/sec)