With a new CEO in place and the closure, finally, of the SFO investigation, oilfield services company Petrofac (LSE:PFC) looks to be turning over a new leaf.
Earlier this month, the SFO fined Petrofac £77 million (US$104 million) for seven bribery offences that occurred between 2012 and 2015. And as Sami Iskander, group chief executive so neatly put it, “this draws a line under a regrettable period of our history.” The fine will be paid using the proceeds from an equity raising of US$275 million.
Lower revenues and increased debt
The fundraising plan which was announced on 26 October faced mixed reviews at best. Shares dipped 22% on the news to 113 GBX, although at time of writing they are around 130 GBX which means that in the last month the share price is down 5% and YoY it is in fact up 24%. Although this is nowhere near the highs of 2017 where it was around 800 GBX.That drop in share price also reflects the latest results for Petrofac where the company reported a net loss of US$86 million for H1 2021.
The Petrofac board said the loss largely reflected the court penalty. However, revenue was also down in two of its three divisions. In the firm’s engineering and construction division (E&C), revenue fell 32% to US$1.1 billion with net profit down 17% to US$29 million and in the integrated energy services division (IES) it dropped 75% to US$15 million. The engineering and production (EPS) division reported a revenue increase of 24% to US$526 million with a net profit of US$34 million.
As of 30 June 2021, Petrofac’s net debt was US$188 million, a 60% increase since 31 December 2020 (Note that as at 31 December 2019 the firm reported US$15 million net cash).
Confident in their recovery
Nevertheless, Petrofac states that once the fine has been paid, the rest of the equity raised will be used as part of a wider refinancing plan to strengthen capital structure and reduce indebtedness. This includes a new US$180 million two-year revolving credit facility and a US$500 million debt bridge to a bond. As well as this, a US$90 million term loan with ADCB will be repaid and replaced with a new US$50 million term loan, maturing in October 2023.
There is also a new management team in place and there are new opportunities in the pipeline – the EPS division has US$437 million of new order intake and the division is expecting to deliver a full year book-to-bill of at least 1.0x, while E&C has US$75 million of new order intake and it has secured a US$100 million EPC contract in Libya with the National Oil Company.
In the last week the firm has won an Engineering, Procurement and Construction (EPC) contract, at ORLEN Lithuania’s Mažeikiai refinery. The deal is valued at around EUR550 million (US$640 million). It has also signed a strategic partnership with Gazprom – a 5-year collaboration to drive industry standardisation and sustainable development. Petrofac states that it aims to build its credentials as a Russian EPC champion.
Reputation is everything now
Petrofac still has a long way to go to bring back some shine to its reputation, but Iskander is giving every indication that the company has turned a corner and they are optimistic that they can continue to win business.
