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 August 2014 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

People & Company News

BHP Billiton Congratulates Women in Resources

More diverse workforces are helping resource companies achieve superior performance, safety and stable production, says BHP Billiton’s Human Resource President, Mike Fraser.

Shell CEO: US Should Export Oil, Embrace Global Markets

The head of energy company Royal Dutch Shell said on Tuesday that U.S. policymakers should lift the crude oil export ban because allowing the shipments would make global energy system more stable.

SUNY Maritime Takes the Ice Bucket Challenge

Taking full advantage of one of the summer’s hottest days, twelve administrators and staff at the State University of New York (SUNY) Maritime College today took the Ice Bucket Challenge,

Finance

Norwegian to Buy Prestige Cruises in $3b Deal

Norwegian Cruise Line Holdings Ltd (NCLH.O) said it would buy Prestige Cruises International Inc from its owner Apollo Global Management LLC (APO.N) in a $3 billion

Master Fined After Wind Farm Collision

The master of a wind farm support vessel has today been made to pay £3,000 in fines and costs after pleading guilty to breaches of maritime collision regulations.

Statoil, DNV GL Drive Subsea Factory Interface Standardization

Statoil has entered into an agreement with DNV GL to establish an industrial cooperation to introduce an international industry standard for subsea process technology.

Energy

Shell CEO: US Should Export Oil, Embrace Global Markets

The head of energy company Royal Dutch Shell said on Tuesday that U.S. policymakers should lift the crude oil export ban because allowing the shipments would make global energy system more stable.

Bureau Veritas Diversifies with MatthewsDaniel Acquisition

Bureau Veritas announced today that it has acquired MatthewsDaniel Ltd, a global provider of loss adjusting and risk assessment services for the offshore industry.

Fogal Retires from Zentech After 57 Years in O&G

Robert “Bob” “Sonny” Fogal, Jr., one of the icons in the offshore oil and gas industry, has decided to retire from front-line work as Zentech’s Director of Business Development.

LNG

Russia's Shipping Major Reports Strong 1H 2014

OAO Sovcomflot (SCF Group), Russia’s largest shipping company and a global leader in seaborne energy transportation and offshore services, has announced its financial

Skangass Granted Permission for LNG Terminal

The Swedish Government (Länsstyrelsen in Dalarnas Län) has granted Skangass permission to build and operate a new Terminal for LNG (Liquefied Natural Gas) within the harbour in Gävle, Sweden.

Policy Uncertainty Threatens to Slow Renewable Energy Momentum

IEA forecast sees renewable power as a cost-competitive option in an increasing number of cases, but facing growing risks to deployment over the medium term. The

News

BHP Billiton Congratulates Women in Resources

More diverse workforces are helping resource companies achieve superior performance, safety and stable production, says BHP Billiton’s Human Resource President, Mike Fraser.

Van Oord Orders Subsea Rock Installation Vessel

Van Oord has ordered a new subsea rock installation vessel. Sinopacific Shipbuilding Group Shanghai will build the vessel at its Ningbo yard in China. The vessel will be delivered in 2016.

Five Port Projects Shortlisted for ESPO Award

Today, the projects of the ports of Huelva, Koper, Lisbon, Marseille and Rotterdam have been shortlisted for the sixth ESPO Award on Societal Integration of Ports.

Offshore Energy

N-KOM Lays Keel for Qatar’s First Liftboat

Nakilat-Keppel Offshore & Marine (N-KOM) has achieved another milestone with the keel laying of its first liftboat newbuild project, awarded in July 2014 by long-time

Master Fined After Wind Farm Collision

The master of a wind farm support vessel has today been made to pay £3,000 in fines and costs after pleading guilty to breaches of maritime collision regulations.

Bureau Veritas Diversifies with MatthewsDaniel Acquisition

Bureau Veritas announced today that it has acquired MatthewsDaniel Ltd, a global provider of loss adjusting and risk assessment services for the offshore industry.

 
 
Maritime Careers / Shipboard Positions Maritime Contracts Maritime Security Offshore Oil Pipelines Pod Propulsion Port Authority Salvage Ship Electronics Winch
rss | archive | history | articles | privacy | terms and conditions | 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: 0.1941 sec (5 req/sec)