Petrofac reports $6.4bn order backlog; warns of engineering hit

Oilfield services firm Petrofac said its group order backlog fell 13% at the end of May as it warned of a significant impact on its engineering division from the coronavirus pandemic.

The backlog was down $1bn from the end of December to $6.4bn. Petrofac said it expected revenue at its engineering and construction division was expected to fall to around $1.6bn, driven by pandemic-related project delays, but gave no comparative figure.

Revenue at engineering and production services division was expected to be $450m, in line with 2019. Net margins for the first six months of 2020 were expected to be between 3.5% - 4% driven primarily by a contraction in brownfield project contract margins.

In integrated energy services, net production was expected to grow 5% to 2.2m barrels of oil equivalent (boe), for an average realised oil price of $39 per boe, 43% lower than last year.

Petrofac said it was on track to reduce overhead and project support costs by at least $125m in 2020 and up to $200m in 2021. Full year revenue and margin guidance remained suspended.

Suspension of the final 2019 dividend payment and a 40% reduction in capital investment would conserve an incremental $145m of cash flow in the year, the company said on Wednesday.

Net debt was around $139m at May 31, compared with a net cash position of $15m at the end of 2019, reflecting the anticipated reversal of temporary favourable working capital movements at the end of last year, disposal proceeds, the suspension of the 2019 final dividend and a reduction in capital expenditure.

Petrofac said it had $1.2bn in liquidity after the repayment and retirement of $75m of facilities during the period. At the beginning of June, the group retired a further $200m tranche of its $1.2bn revolving credit facility as planned.

Hargreaves Lansdown analyst Nicholas Hyett said Petrofac's exposure to the oil & gas industry meant it was "caught right in the centre of a crisis that’s seen oil prices collapse".

"Access to significant funding is crucial to weathering a short period of disruption and non-oil & gas projects provide a nice diversifier, reducing reliance on the notoriously cyclical oil market. However neither is a long term solution, or at least not yet."

"The balance sheet and fledgling renewables business can only carry the company for so long.”