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Petrofac will be issuing interim results tomorrow and traders are expecting to see something exciting from a company that has been on the back foot for some time, despite the rising oil price.

CEO Ayman Asfari is known to be wanting to take Petrofac back to being a ‘capital light business’ and has pulled the oil company out of the Greater Stella development in the North Sea.

Analysts are sitting on their hands with Petrofac shares: investment bank Jefferies recently downgraded the company from buy to hold, largely because it is concerned about a lack of new contract wins. Petrofac has been working to eliminate some of its existing debt and investors are happy with this, but they want to see an anchor contract, a deal worth $1 billion or more.

Petrofac takes £43 million hit on sale

Petrofac took a hit valued at £43 million on its Greater Stella Area sale, which also included its 24% stake in the FPFI rig at the project, which sits off the eastern coast of Scotland.

The Petrofac exit is being seen as part of a broader trend, an exodus by larger utility players from the North Sea oilfields. This has included the likes of giants like Eon and Engie. Other oil majors are known to be in the process of pulling out. Many companies are working to focus on core areas in a reaction to the recent oil price downturn.

“For Petrofac, the divestment allows it to re-focus on its core ‘capital light’ service sector business reducing its future capital commitments, such as its 20% share of capex for the Hurricane development capex and future potential costs with the FPF-1 unit,” says Yvonne Telford, a senior oil industry analyst at Westwood.

Petrofac had traditionally focused on building and maintaining oil and gas facilities but it has recently started a process of divesting some of its assets since the oil price downturn, including off-loading stakes in Tunisia and Mexico.

Petrofac shares up in August

The Petrofac share price has been doing well over the last month, particularly as the firm concluded its Greater Stalla sale to Israel-based Ithaca. It has climbed from 613.4 at the end of July to 648 at the time of writing. Petrofac shares have a 52 week high of 679 versus a 52 week low of 395.95. The stock is still well off its historic highs back in 2012, and the oil price would need to trend higher for it to stand a chance of achieving these.

Focus will be on whether Petrofac can nail down some substantial deals over the next four months or so in the run-in to Christmas. If it can, then 700-725 should be achievable, although this will be based on the quality of the deals.

Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.


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