Petrofac - Still growing strong

Still growing strong

The robust growth produced by Petrofac in 2011 was impressive by any measure with revenue up a third and profits up a quarter.  The strong revenue growth of 33% in 2011 took full year revenue to US$5.8bn while net profit rose 25% to US$0.54bn.   

High energy prices and strong investment spending in the group’s key markets is encouraging. Countries in the Middle East, North Africa and often in the Commonwealth of Independent States (CIS, former Soviet Union nations) are investing to meet energy demand growth coming from emerging markets.

These countries don’t typically don’t want to just invite Western Oil majors in but look to develop their own resources as it allows for greater control.  When the relevant expertise is lacking Petrofac helps fill the gaps.  52% of 2011 revenue came from the Middle East and Africa and 28% from CIS and Asia.

Petrofac has now been partitioned into two divisions: 1) Integrated Energy Services (IES) and 2) Engineering Construction, Operations and Maintenance (ECOM).

Starting with ECOM first of all and this is focused on onshore engineering and construction, offshore projects/operations and lastly engineering and consulting services.  This principally means building new energy infrastructure for clients.

Key onshore contracts in 2011 were the US$1.2bn contract to develop southern fields with the Salah development in Algeria and a US$240m EPCM (engineering, procurement and construction management) contract for the Majoon field in Iraq. 

A US$330m EPC (Engineering, procurement and construction) contract for the Badra oilfield in Iraq started in 2012.  Offshore contracts included a US$540m deal for the Greater Stella Area development in the North Sea.  A key area was also Malaysia with a US$300m contract in 2011. 

Petrofac’s second division, Integrated Energy Services (IES) also saw good progress in 2011. Awards included a production enhancement contract in Mexico with a work obligation of around US$200m – this was a significant deal it is the first time in decades that a foreign firm has managed Mexican oil production.

So what was behind strong revenue and net profit growth? The key driver was Onshore engineering and construction (OEC) which saw a 27% revenue uplift to US$4.14bn while net profit rose 24% to US$462m. In fact OEC generated 83% of profits in 2011. The offshore business generated 8% of net profit, the consultancy business 5% and then the new IES business just 4%.

The offshore business saw revenue up 73% and net profit jumping 153% to US$43.5m.  The engineering & consultancy services saw a 20% revenue uplift and a 46% jump in net profit to 46%. 

Moving to the newly created IES division and this saw revenues improve by 35% but net profit fell 40% to US$22.6m.  This was due to the cessation of the Dubai Petroleum services operator contract in 2010 and demerger of the Don assets (into Enquest). 

A weak point for the year was that the order book at the end of the year fell 8% to US$10.76bn.  The slight weakness in orders should be put in the context of the 46% increase in 2010’s order book and the outlook for future contracts looks strong. 

The order book also provides visibility for 2012 where the group is targeting net profit growth of at least 15%.  Meanwhile the net cash position as of the end of 2011 was US$1.5bn which compares to US$0.97bn last year.