OIL services giant Petrofac has hit further problems in the North Sea after slashing the amount it expects to receive from a flagship project by $83 million (£65m).
The company, which employs 4,000 people in Scotland, recorded the impairment charge partly to reflect the impact of the crude price plunge on the Greater Stella development 175 miles east of Aberdeen.
Announcing a four per cent fall in first half profits Petrofac gave fresh evidence of the challenges the fall in the crude price since 2014 is posing for the oil services firm, which helps clients develop and operate fields.
It noted: “The decline in and weaker outlook for commodity prices has had a significant impact on capital investment in the industry, impacting our cash flow.”
The company said it would cut its first half dividend by 42 per cent to help strengthen its balance sheet .
Petrofac also highlighted production complications on Greater Stella.
Operated by Ithaca Energy, the field came onstream in February following delays in the completion of work in Poland on the giant floating production facility supplied by Petrofac for use on the field.
Petrofac reiterated yesterday that the ramp-up in production has been slower than expected.
The company has a stake in Greater Stella but did not get any income in respect of production in the first half as it has not yet won official approval to enter the relevant licence.
The problems on Greater Stella come after Petrofac lost around £500m on a project to build a terminal on Shetland for Total to process gas from the giant Laggan Tomore development.
The plant started operations in February last year, around 18 months behind the original schedule. Petrofac has complained of the impact of low productivity and bad weather.
It said yesterday that workloads fell in the North Sea in the first half following completion of the bulk of the work on Stella facility last year.
Petrofac remains busy on a range of big projects in the Middle East, where the company does much of its business.
However, it recorded a 20 per cent fall in first half revenues, to $3.1 billion in the six months to 30 June from $3.9bn last time.
Net profit before exceptionals fell to $158 million from $165m.
Chief executive Ayman Asfari said Petrofac had made a positive start to the year, delivering solid first half results that reflected good project execution and lower revenues.
He added: “The Group has secured S$2.7bn of new orders in the year to date, evidence of our continued competitiveness in challenging markets. Tendering activity remains high, we are well placed on a number of bids and have a healthy order backlog. This positions us well for the second half.”
Petrofac highlighted the action it is taking to deliver a sustainable reduction in net debt and to strengthen its balance sheet amid challenging conditions.
It said these include a relentless focus on operational excellence, reducing capital investment, rebasing its dividend and divesting non-core assets.
Net debt increased to $1bn at 30 June from $0.6bn at 31 December reflecting an increase in working capital employed, in line with expectations.
The interim dividend has been cut to 12.7p per share from 22p. The company said directors recognised the importance of a sustainable dividend to shareholders.
It wants to move to a low capital intensity model, with less cash tied up in projects.
Petrofac cut the book valuation of the Greater Stella receivable to $228m at 30 June. It said the change followed a reassessment of production profiles and forward oil and gas prices.
Analysts at Barclays saw the first half results as slightly positive and said Petrofac appeared to be doing the right things operationally.
Petrofac cut 160 jobs in the UK in 2016. Oil services and exploration companies have laid off thousands of workers in the area in response to the oil price fall since 2014.
Shares in Petrofac closed down 9.7p at 413.5p.
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