OIL services giant Petrofac has highlighted an improvement in conditions in the North Sea after facing problems in key Middle East markets amid the fall-out from a bribery scandal.
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The company, which helps firms develop and operate oil and gas facilities, said it expects revenues to fall in 2020 following low new order intake. It cited “loss of awards in Saudi Arabia and Iraq in H1”.
Chief executive Ayman Asfari noted in August that first half order intake had been impacted by the challenges the company had faced in Saudi Arabia and Iraq amid an investigation by the UK Serious Fraud Office.
The SFO announced in February last year that David Lufkin, the former global head of sales at Petrofac, had pleaded guilty to offering corrupt payments in an attempt to secure contracts in Saudi Arabia and Iraq.
Petrofac noted yesterday: “No charges have been brought against Petrofac, or any officers or current employees. Petrofac continues to engage with the SFO and will respond to any further developments as appropriate.”
Petrofac said it is focused on bringing the matter to a close as quickly as possible.
Mr Asfari said the low new order intake of recent years will impact Petrofac’s financial performance in 2020.
However, he insisted the Jersey-registered company was positioned for a return to growth after investing in the execution capabilities that should help it capitalise on positive market developments.
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The company said the market outlook is improving noting that it has “a busy tendering pipeline” with $37 billion of contracts up for grabs this year.
While crude prices have been volatile in recent months, Petrofac’s experience suggests oil and gas firms have remained confident enough about the outlook for the sector to sanction hefty investment in new assets and in upgrading existing facilities.
Many slashed non-essential spending during the deep downturn that was triggered by the sharp fall in the oil price from June 2014 to early 2016.
The partial recovery in the crude price since then has led to an improvement in sentiment which has benefited Petrofac’s North Sea business.
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The company noted yesterday that a recovery in market conditions last year led to an acceleration in the rate of contract awards in respect of brownfield projects.
These can involve the kind of upgrade work that firms may have deferred amid the slump.
Petrofac highlighted the success it achieved in the brownfield market in the North Sea last year, noting it won several contracts and extensions.
The company was appointed to provide support services on the North Sea assets that Oman- based conglomerate MB Holding and Norway-based private equity investor Hitec Vision bought from Total last year for $635m.
In November Petrofac said it was “actively growing” its engineering team in Aberdeen and investing in technology related to brownfield projects.
The company is thought to employ around 900 people in Aberdeen and a further 2,000 working offshore in the North Sea.
Other firms have in recent months provided evidence that activity levels have been improving in the North Sea.
Aberdeen-based engineering giant Wood said in May that it expected to see moderate growth in the North Sea as 2019 progressed. It is understood this expectation was fulfilled.
However, with activity levels still well below those seen in the boom that ended in 2014 conditions remain challenging in the North Sea supply chain.
Petrofac’s total revenues fell to $5.5 billion last year from $5.8bn in 2018.
Net profit before exceptionals fell to $276 million from $353m.
Petrofac received a boost last week when it won contracts worth $1.65 billion from Abu Dhabi National Oil Company for work on a huge gas development.
RBC analyst Erwan Kerouredan said: “Petrofac’s recent contract award with ADNOC is a constructive event in what has proved a difficult year for the firm’s contracting agenda, under pressure with the ongoing SFO investigation.”
The SFO launch an investigation into Petrofac in May 2017 in connection with an investigation into the Unaoil energy consultancy, which is ongoing.
Share in Petrofac closed up 1.9p at 360.4p.
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