Petrofac losses could reach $170 million after portfolio analysis finds significant additional costs for energy company
- Petrofac said it recognized a further cut from $140 million to $160 million in its revenue
- The company now expects to report a full-year loss of approximately $150 million to $170 million
- Shares in Petrofac were one of the worst performers on Wednesday morning
Petrofac has warned it expects a larger annual loss after a large-scale portfolio review revealed higher costs.
The energy services group told investors on Wednesday it recognized a further cut of $140 million to $160 million in its earnings before interest and taxes for the past fiscal year.
Petrofac now expects to report a full year loss of between $150 million and $170 million, primarily due to a loss of up to $260 million in its engineering and construction operations.
It said the additional costs were related to “incremental project costs” and reflected a “cautious view” of the amount and timing of recognition of certain revenue claims.
Outlook: Petrofac told investors on Wednesday it recognized a further cut from $140 million to $160 million in its earnings before interest and taxes for the past fiscal year
Petrofac has also incurred significant costs associated with operational changes to the Thai Oil Clean Fuels project, as well as activities under other legacy contracts.
It is expected that about half of the increased costs will be paid this year, with the rest settling over the course of 2024 and 2025.
Petrofac shares was down 15 percent in early trading after the update to 61.75 pence, making it the second worst performer on the FTSE All-Share Index.
In the past three years, the stock has lost about two-thirds of its value.
“Petrofac’s focus is on completing existing contracts as quickly, efficiently and safely as possible,” said newly appointed CEO Tareq Kawash.
“We are taking steps to ensure the company’s financial strength by freeing up working capital and, where appropriate, balancing long-term value with short-term liquidity.
“While we are disappointed to announce additional costs on these legacy contracts, particularly the Thai Oil Clean Fuels project, continued collaboration with customers and partners will reduce the risk of future delivery.”
Kawash joined Petrofac in early April, replacing Sami Iskander, who stepped down after a turbulent three-year period to ‘pursue other interests’.
Iskander’s tenure saw Petrofac fined £70m by the Serious Fraud Office in October 2021 for failing to dissuade former senior executives from paying or offering bribes in Iraq, the United Arab Emirates and Saudi Arabia. Arabia to win contracts.
The controversy hampered the company’s ability to secure work in the Middle East, with the state-owned Abu Dhabi National Oil Company (ADNOC) temporarily barring the group from bidding for new contracts.
Last year, however, ADNOC closed the company with two major deals: a two-year extension of a field maintenance services contract and a brownfield engineering, procurement and construction agreement.
Shortly before Iskander’s departure, Petrofac was jointly awarded an offshore wind energy framework contract worth £11.4 billion to Hitachi Energy by electricity grid operator TenneT.