Petrofac cuts dividends by more than 40 per cent as revenues fall

The firm is finding ways to shore up capital as it battles low oil prices, cheaper contracts and a criminal probe

Restrictions on Ayman Asfari, Petrofac’s group chief executive have been removed, the firm noted in its full-year results. Chris Ratcliffe / Bloomberg

Petrofac slashed dividends for the first half while lowering its investment outlook for the year in an effort to increase funds, the company said on Wednesday.

Profits at the London-based oil services firm rose for the first six months of the year, thanks to a reduction in exceptional costs, but revenue and core earnings both fell.

Petrofac, which has operations in Abu Dhabi and Sharjah, said that it had to take further steps to decrease its debt, which included a reduction of 42 per cent in its interim dividend.

“We are taking a range of measures to deliver a sustainable reduction in net debt to strengthen the balance sheet and a sustainable dividend policy for our shareholders,” said Ayman Asfari, Petrofac’s chief executive. “These include reducing costs, reducing capital investment, divesting non-core assets and rebasing our dividend.”

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Petrofac revenue fell nearly 20 per cent to US$3.12 billion from $3.89bn for the same period last year, with ebitda falling to $323 million from $362m.

The company reported a net profit of $70m for the period, up from $12m for the first six months of 2016.

Petrofac is one of many oil and gas firms that have been battered by the fall out from lower oil prices over the past three years. Making matters worse,  the UK's Serious Fraud Office said in early May that it was investigating allegations of bribery, corruption and money laundering at the company, in conjunction with its dealings with Monaco-based Unaoil, sending the Petrofac's share price reeling.

The company in June cut its ebitda forecasts for the year and disclosed higher levels of debt, further hurting its share price.

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Petrofac's core region of the Middle East and North Africa has also been a cause of pain for the firm, with a  significant decline in the contract awards in the region last year. The group’s first-half backlog fell to $12.5bn compared with $17.4bn the same period last year.

That number is set to improve in the company's full year results, with a recent framework agreement with Petroleum Development Oman and this month's $1bn Duqm refinery project award (also in Oman) not included in the first half figures. "Tendering activity remains high, we are well placed on a number of bids and have a healthy order backlog," Mr Asfari said. "This positions us well for the second half."

The company announced a new contract and the extension of an existing agreement to provide construction management, engineering, commissioning and start-up services for two international oil companies (IOCs) in Iraq, with a combined value of more than $100m.

It also announced $70m worth of Iraqi projects to expand the country's port facilities.

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Another cost-cutting move is to tighten spending to less than $250m, below the company’s previous guidance.

The company's shares, listed on the London Stock Exchange were down 4 per cent to 430 pence early morning Wednesday, trading more than 50 per cent lower than at the start of the year.