Petrofac cuts more costs as Covid-19 delays projects

Petrofac announced further cost cuts to help offset delays to projects caused by the Covid-19 crisis and depressed oil prices.

The oilfield services company said it would cut an extra £25m (£20m) of costs in 2020, taking planned reductions to at least $125m. It left its cost-cut target for 2021 unchanged at up to $200m.

Engineering and construction projects have suffered material delays because of health measures, lockdowns and supply chain disruption. These delays will not be recovered in 2020, the company said in a statement before its annual general meeting.

The collapse in oil prices has also prompted customers to cut back on investment, causing delays in tenders for contracts and cancellations such as the recent scrapping of the $1.5bn Dalma contract in Abu Dhabi.

"Whilst our bidding pipeline remains healthy and we are well positioned on several opportunities this year, we are now prudently anticipating that the majority of 2020 tenders will be delayed until 2021," the company said.

In engineering and production services business has been modestly affected by Covid-19 measures and contract extension have stayed strong with $500m of new orders so far this year, Petrofac said.

Petrofac said the extra cost savings would help mitigate the impact on financial performance and order intake. Suspending the final 2019 dividend and a 40% reduction in capital investment has preserved $145m of cash flow, it said.

"It remains unclear how long Covid-19 and low oil prices will continue to disrupt business activity and impact business performance," the company said. "Notwithstanding this, we have a healthy order book of secured revenue, a strong balance sheet, liquidity of $1.2bn and we have taken immediate action to reduce our costs and protect our financial position."

Petrofac scrapped its dividend on 6 April and announced job cuts to 20% of its workforce. It has also furloughed employees and cut pay for board members, senior managers and most other employees by 10-15%. The company has suspended financial guidance because of extreme uncertainty created by the twin, related pressures of Covid-19 restrictions and collapsed oil prices.