Petrofac books $78m loss and cuts dividend on back of oil price crash
Oil services group Petrofac posted a $78m (£59.6m) loss in the first half of 2020 and said it would not pay its dividend due to the decline in oil prices caused by the coronavirus pandemic.
The FTSE 250 firm also announced plans to become net zero in scope one and two emissions – those used by the company – by 2030.
Shares in the firm rose 0.3 per cent as markets opened this morning.
Petrofac said it swung to a $78m loss in the first half, down from a $139m profit in the same period last year.
Revenue also slipped some $700m in the period, falling from $2.8bn to $2.1bn in the six-month period.
In additional to the fall in oil prices, which slipped 46 per cent in the period to $37 per barrel, the company booked $99m in exceptional charges.
Before the Open newsletter: Start your day with the City View podcast and key market data
This included a $64m impairment charge following a review of oil block PM304 in Malaysia.
Petrofac said its net debt stood at $29m as of the end of June, with free cash flow of $13m.
It said it had taken the decision to pull its dividend in a bid to preserve cash, adding that it did “not expect to resume the payment of dividends until there is a sustained recovery in new order intake”.
Why it’s interesting
According to Hargreaves Lansdown analyst Nicholas Hyett, it’s this last point which is crucial for the firm.
“The real challenge for Petrofac is keeping new orders ticking over. The order book has shrunk again, and commentary around new orders isn’t encouraging (with awards delayed into next year)”, he said.
“By then Petrofac will have burned through another $1.7bn of its existing backlog. While cost savings might be making the business more efficient, even the most efficient business can’t make money without any projects to work on.
“The group’s keen to point to offshore wind projects as a potential source of contracts, but we suspect that in the short term it will be new oil & gas projects that are key to recovery and the outlook there isn’t terribly promising.”
What Petrofac said
Chief executive Ayman Asfari commented: “Our first half results reflect the deterioration in market conditions triggered by the Covid-19 pandemic and subsequent decline in oil prices.
“In response, we are doing everything in our control to protect both the health and well-being of our people, suppliers and communities, as well as the long-term health of the business.
“These swift and decisive actions are structurally reducing costs, conserving cash and maintaining our competitiveness.
At the same time, we have preserved core capability whilst continuing to invest in digitalisation and client relationships.”