Energy boom not yet arrived for Petrofac

There are two sides to Petrofac (PFC), the oilfield services company. The first is its work with companies like IOG (IOG), whose North Sea projects hit first gas this month, and on offshore wind farms to increase green energy capacity. The second after the company plead guilty to bribery offences last year. That was felt on the 2021 bottom line, thanks to a £77mn fine from the Serious Fraud Office. 

The greater impact of its legal difficulties was felt in its markets in Saudi Arabia, Iraq, and the United Arab Emirates (UAE), all of which banned Petrofac from bidding for work. The company’s revenue has seriously shrunk since 2019, when the ban was announced, dropping from $5.5bn (£4.2bn) to $3bn, although the broader oil and gas services sector also saw a major slowdown during the pandemic. Even now, there has not yet been a major pick-up in oil and gas project work this year despite the high prices.

Positives for Petrofac are that the UAE has lifted its block on the company bidding for contracts, while its order book of $2.2bn showed a $600mn improvement compared to the end of 2020. Chief executive Sami Iskander – who replaced Ayman Asfari in the job last year (although the former boss remains on the board) – said the company had made “significant strategic progress” last year to “rebalance, reshape and rebuild” Petrofac. 

Iskander noted that oil and gas companies’ continued preference to “prioritise cash preservation over new investments,” but forecast a shift in behaviour as prices stay high. Consensus estimates compiled by FactSet don’t see cash profits reaching the 2018 level of $671mn in the next few years, although a 45 per cent rise between 2021 and 2022 to $194mn is forecast. Our negative call remains. Sell. 

Last IC View: Sell, 138p, 26 Oct 2021