Petrofac losses widen as gas project drags on
SHARES in oilfield service company Petrofac tumbled by over 10 per cent yesterday after it announced its third profit warning in 12 months.
The company said that losses on its Shetland gas plant project would grow further as more money would have to be ploughed into completing it.
The Laggan-Tormore scheme, which is near completion, is now expected to drag on the company’s performance.
Petrofac raised its expectation of pre-tax losses by £130m, which will result in an estimated total loss of £284.32m. The announcement is at odds with what the firm said in February, when Petrofac anticipated no further losses beyond £154.31m.
The company attributes the widening losses to escalating construction on the Laggan-Tormore plant, including weather-induced delays, greater-than-expected man hours and contracting failures. The company still expects project completion in the third quarter of 2015.
Petrofac said: “The additional costs we expect to incur reflect our firm intention to devote all the necessary resources to the project to meet the delivery commitments we have made to our client.
“We anticipate that construction activity on the site will be substantially complete by mid-June and we intend to provide an update to the market on the status of the with our trading statement scheduled for 23 June 2015.”
Petrofac’s level of involvement in the Shetland project is unusual, as the company generally relies on sub-contractors to provide construction services. As chief executive Ayman Asfari explains, though, Petrofac’s took on a heightened responsibility “when some of [its] sub-contractors failed to deliver in line with their agreed scopes.”
“Our lack of experience of operating a direct construction model in a wholly new geography for our Onshore Engineering & Construction (OEC) business, particularly in a location where labour costs are much higher and productivity much lower than we are used to, has cost us dearly,” Asfari added. In the future, Petrofac states that it will be far more cautious as to how deeply it gets involved.
“We have already affirmed that we will no longer take construction risk on large lump-sum projects within the UK to avoid a similar experience to Laggan-Tormore moving forward,” Asfari said.