Petrofac has warned it expects to make a larger annual loss after a large-scale portfolio review unveiled higher costs.
The energy services group told investors on Wednesday that it was recognising a further $140million to $160million cut in its earnings before interest and tax for the last financial year.
Petrofac now anticipates reporting a full-year loss of between $150million to $170million, primarily as a result of a loss of up to $260million in its engineering and construction business.
It said the extra charges related to ‘incremental project costs’, and reflected a ‘cautious view’ of the quantity and timing of the recognition of certain revenue claims.
Outlook: Petrofac told investors on Wednesday that it was recognising a further $140million to $160million cut in its earnings before interest and tax for the last financial year
Petrofac has also recorded substantial costs connected with operational changes on the Thai Oil Clean Fuels project, as well as activities on other legacy contracts.
Around half the increased costs are predicted to be paid this year, with the rest settled over the course of 2024 and 2025.
Petrofac shares had plunged by 15 per cent to 61.75p in early trading following the update, making it the second-worst performer on the FTSE All-Share Index.
Over the past three years, the stock has lost approximately two-thirds of its value.
‘Petrofac’s focus is on completing legacy contracts as quickly, efficiently and safely as possible,’ said newly-appointed chief executive Tareq Kawash.
‘We are taking steps to ensure the financial strength of the business by unlocking working capital and, where appropriate, balancing long-term value against near-term liquidity.
‘Although we are disappointed to announce additional costs on these legacy contracts, in particular the Thai Oil Clean Fuels project, ongoing collaboration with clients and partners will de-risk future delivery.’
Kawash joined Petrofac at the start of April, replacing Sami Iskander, who stood down following a turbulent three years in charge in order to ‘pursue other interests.’
Iskander’s tenure included Petrofac receiving a £70million penalty from the Serious Fraud Office in October 2021 for failing to prevent former senior executives from paying or offering bribes across Iraq, the United Arab Emirates and Saudi Arabia to secure contracts.
The controversy impeded the firm’s ability to secure work across the Middle East, with the state-owned Abu Dhabi National Oil Company (ADNOC) temporarily banning the group from bidding for new contracts.
Last year, though, ADNOC granted the business two significant deals: a two-year extension on a field maintenance services contract and a brownfield engineering, procurement and construction agreement.
Shortly before Iskander’s departure, Petrofac was jointly awarded an £11.4billion offshore-wind framework agreement with Hitachi Energy by the electricity grid operator TenneT.
