Petrofac - 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.  This puts the group firmly on track for its target of doubling 2010 earnings by 2015.  High energy prices and strong investment spending in the group’s key markets is encouraging. 

Back in October 2011, there was a telling quote from the company on how the group sees its role.  The CEO of the Integrated Energy Services (IES) division, Andy Inglis, stated that:

“today's resource holders who prefer to retain control of their own national resources…with Integrated Energy Services we will seek to use the group's extensive capability and expertise to satisfy an increasing industry demand."

This highlights Petrofac’s position within the energy industry and the substantial growth opportunities available to the group.  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. 

The Petrofac business has now been partitioned into two divisions: 1) Integrated Energy Services (IES) and 2) Engineering Construction, Operations and Maintenance (ECOM). The 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 Algeira 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.  Consultancy services saw a third office opened in India, a collaboration with a Malaysian engineering company boosting and a joint venture with China’s national oil company (CPECC).  Head count in Asia was boosted to around 1,250. In terms of the future pipeline the below graphic shows how resource rich countries in the Middle East, North Africa and Commonwealth of Independent States (CIS) will drive growth.

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. In Malaysia, the group also saw a risk service contract (RSC) with Malaysia’s oil champion PETRONAS worth US$220m.

A key milestone for IES was the co-operation agreement signed with Schlumberger Production Management (SPM) earlier this year.  This is focused on the production enhancement market and allows both groups to bid for larger contracts.  Prospective contracts for IES are in Mexico, Romania and Malaysia as production enhancement and risk service contracts are pursued.

As a result of all these contracts Petrofac had a strong growth in revenue for 2011 with a growth of 33% and net profit up 25%.

Petrofac looks like a robust business, as energy rich countries invest to meet emerging market demand growth.  To achieve growth Petrofac is focusing on geographical expansion, offshore growth and developing the newly formed integrated energy business.

This report was produced by Senior Research Analyst, Andrew Latto