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Where did it all go wrong for Petrofac’s shareholders?

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Petrofac’s LON:PFC fall from grace has been gut-wrenching for shareholders. The energy service company has seen its share price plummet 97% even after the COVID oil crash. And when you consider that Petrofac generates billions of dollars in annual revenues, investors will be left scratching their heads, asking, where did it all go wrong?

The company recently announced they were unlikely to make a critical bond payment due in May and so shares were suspended pending these results.

Unfortunately for investors, the situation has not improved. The company reported a full year loss of $393m and are in discussions with the FCA seeking a reinstatement of trading in its shares. Once a well-regarded player in the energy services sector, Petrofac now finds itself in a desperate fight for survival.

Losses at the company have almost doubled to USD 400m. Revenue has also seen a decline, to the tune of about USD 100m.

Can Petrofac reach a deal with its creditors?

It does read like a playbook of what not to do if you are a listed company. Petrofac had delayed its results from earlier this year, leading to the suspension of its shares on 1 May. It has been negotiating with creditors for some time now. A group of senior secured noteholders have offered Petrofac up to USD 300m to help bolster its balance sheet. but this comes with strings attached, including performance guarantees written into contracts.

Towards the end of last year warning lights were coming on for Petrofac shareholders. JP Morgan said that it had concerns about the quality of the Petrofac balance sheet. The bank pointed out that Petrofac had $250m in net debt that was due to mature in October 2024.

Berenberg also placed Petrofac under review. The concern it voiced related to a potential need to renegotiate financing arrangements in a scenario which could see shareholders significantly diluted.

A drawn-out bribery case was finally put to bed in 2021, and it was hoped Petrofac could at last begin to rebuild its reputation. However, despite recent wins in the renewable energy sector, striking new business deals and rebuilding their sales pipeline, glaring inefficiencies remain ingrained throughout the business.

Situation looks bleak for Petrofac

Ultimately Petrofac has assets they can sell to help balance the books, but that might not be enough, and with debt levels verging on out of control, the situation looks bleak.

Petrofac is trying to be as upbeat as it can, arguing that it had a strong order intake of USD 7.1bn, driving significant backlog growth to USD 8.1bn. But there is a group EBIT loss of USD 393m to consider, plus full cash outflow of USD 223m.

“Our financial results reflect additional losses on the legacy contract portfolio, in particular the Thai Oil Clean Fuels contract where we are in negotiations to seek reimbursement of a proportion of the additional costs,” said CEO Tareq Kawash. “In addition, the challenges in obtaining guarantees for our new EPC contracts, and the impact on liquidity, resulted in the business seeking to deliver a critical financial restructure, which is ongoing and has the full focus of the Board.”

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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