Petrofac shares decline as it issues profit warning

Shares were 24.9 per cent lower at 896 pence on the London Stock Exchange in afternoon trade.

The oil services firm Petrofac yesterday warned that its profits for next year would be lower than forecast, sending its shares tumbling in London.

The Sharjah-based company said it expected net profit next year to be US$500 million, compared to previous analyst estimates of $675m, citing weakened oil prices and project complications resulting in delays in overseas operations in Europe and Mexico.

Shares were 25.8 per cent lower at 889 pence apiece on the London Stock Exchange at 3.30pm UK time.

Oil prices continue to linger around $80 a barrel, and the Petrofac chief executive Ayman Asfari said that was one of the key factors behind lowering the firm’s guidance for 2015. “Analysts are running on $100 a barrel, but we’re at $80 so that’s an impact of about $40m to $45m [on its integrated energy services, or IES, unit],” he said.

Mr Asfari said that the company would continue to focus on matters it could control rather than the uncontrollable market. One of those areas is execution, which the firm has struggled with leading to delays on two projects in the UK. “It is clear that on a small number of projects, our execution has fallen short of the high standards we set for ourselves,” he said.

Petrofac has two divisions. The first is its engineering, construction, operations and management endeavours (Ecom) and the second is the IES unit – which includes the work that the firm is currently undertaking in the Middle East. The company will remain on track with its Ecom division, but the upstream IES business will experience a “big downgrade”, Mr Asfari said.

The company has key dealings in the UAE’s upstream sector including Petrofac Emirates, its joint venture with Nama Project Services.

The joint venture has won six engineering, procurement and construction projects since 2008 including at some big-name fields like Upper Zakum and Bab.

Despite the news that the IES division will suffer, the Middle East remains Petrofac's "brightest spot". Spending plans of national oil companies (NOCs) in the region remain unchanged, said Mr Asfari. The majority of the company's revenue has been from NOCs and these were most likely to make long-term investment decisions that are less affected by short-term changes in the oil price, he said.

The UAE’s Minister of Energy Suhail Al Mazrouei also reiterated yesterday that the outlook for the country’s oil and gas sector would remain unchanged despite lower oil.

“Prices will not signal a catastrophe,” the minister said. “We don’t look at current oil prices as a setback, we will continue to invest.”

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