PETROFAC, the oil services giant which employs more than 4,000 people in Scotland, has slumped deep into the red after losses it incurred on a troubled project on Shetland dented the bottom line.
The company lost $133m (£85m) before tax and one-offs in the six months to 30 June, after making $188m profit in the same period in the preceding year
The loss reflects the heavy price Petrofac has paid for the problems it has faced working on the Laggan Tormore gas terminal in the unfamiliar environment of Shetland.
The £500m contract which Petrofac won in 2010 to build the onshore terminal to handle gas from the giant Laggan-Tormore development 75m miles off Shetland seemed like a coup for the firm, which had not built such a facility in the UK.
However, after Petrofac recognised a further $296m losses on the contract in the first half its total deficit on the project stands at around $490m before tax.
In April the company’s chief executive Ayman Asfari said: “Our lack of experience of operating a direct construction model in a wholly new geography for our Onshore Engineering & Construction business, particularly in a location where labour costs are much higher and productivity much lower than we are used to, has cost us dearly.”
In November the company said it had had 300 days of interruption on Laggan-Tormore because of high winds and poor weather. This required the company to step up activity when the weather improved.
In April Petrofac said the ramp up had been delayed by adverse weather in March and industrial action.
The company had 2,000 people working on the terminal at peak times including contractors.
Yesterday Petrofac said first gas is now expected from Laggan Tormore in the fourth quarter of this year. When it won the contract in October 2010 first gas was expected in second quarter 2014.
The crude price has slumped from $115 per barrel in June last year, to around $43 amid plentiful supplies and muted demand.
Petrofac said its priorities for the immediate future are focused on returning the company to its traditional areas of strength.
The company said this will involve closing-out the Laggan-Tormore gas plant project in line with its expectations and to the client’s satisfaction.
Other priorities include completing work in connection with a development off eastern Scotland, which has also been delayed.
Petrofac said it wants to deliver the floating production facility that will be used on the Ithaca Energy-operated Greater Stella Area development to enable first oil in mid-2016
Stella was originally due to come onstream in late 2014 but the launch was pushed back twice after work on the production facility in a yard in Poland took longer than expected
In addition to managing work on the production vessel, Petrofac has a 20 per cent interest in Greater Stella.
Following the plunge in the oil price, Petrofac’s share of the output from Greater Stella may be worth much less than expected.
The services market has shrunk as oil and gas firms have cut spending in response to the price drop.
However, Mr Asfari said yesterday: “Against the backdrop of a challenging environment for the industry, we are in a strong position.”
He said the engineering, construction, operations and maintenance division had amassed a record order book worth $17.8bn at 30 June, up from $15.6bn at the same point last year.
Mr Asfari said clients are continuing to invest in large strategic projects in Petrofac’s core markets. The company won a $3bn contract to work on the Fars heavy oil development in Kuwait.
The group order backlog increased to $20.9bn from $18.9bn.
Petrofac won $400m offshore contract extensions, the biggest of which covered work on North Sea installations for CNR International.
Chief financial officer Tim Weller said Petrofac would seek to enter the Iranian market once major oil and gas companies start entering into contracts with local operators.
"Given our strength in the middle eastern region, it will be a natural extension of our core onshore EPC (engineering, procurement and commissioning) business to start work in that particular country," he told journalists.
First half revenues increased to $3.2bn from $2.5bn as activity increased on some projects. Petrofac said profits would be weighted to the second half reflecting the phasing of some projects.
The company held the interim dividend at 22 cents per share.
Shares in Petrofac closed up five per cent, 36p, at 767p.
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