Petrofac Explores Strategic Options Amid Share Price Plunge
Posted 04/12/2023 11:15
Petrofac, a major energy services company, is currently assessing a range of strategic and financial options to address a significant decline in its share price, which has fallen by 65% in the last month. The company is contemplating the sale of non-core assets as part of a broader review aimed at enhancing its balance sheet and returning value to shareholders. Additionally, Petrofac is considering allowing investors to take non-controlling stakes in other segments of its business.
The sharp decline in Petrofac's share price, from 48 pence on November 6 to 17 pence as of December 4, has prompted the company to explore measures to improve its cash flow and financial position. The company, which employs 8,500 people globally, has stated that it will not meet its cash flow targets for 2023 due to challenges in securing advance payments on contracts and settling payments on legacy deals.
Petrofac cites issues with contract financing, as there is reduced bank appetite for providing "standard" performance guarantees for Engineering, Procurement, and Construction (EPC) contracts. Talks are underway with creditors and clients to address this challenge.
Cash flow concerns, including debt and delayed collections on legacy contracts, are considered significant factors contributing to Petrofac's financial challenges. The company's debt stood at $584 million during its half-year results in August, up from $349 million.
The board is actively exploring options to strengthen the company's balance sheet, secure bank guarantees, and improve short-term liquidity. Potential measures include the sale of non-core assets and engaging with financial investors to take non-controlling positions in specific components of the business portfolio. Petrofac believes that such deals, as part of the overall plan, would result in a material improvement in its balance sheet.
Despite the short-term liquidity challenges, Petrofac emphasizes the robustness of its underlying business, noting substantial growth in its backlog from approximately $5.5 billion in new awards in new and traditional energy in the current year.
The company has appointed Aiden de Brunner as a new non-executive director, bringing significant board, management, investment, and financial advisory experience. De Brunner will support the board, particularly in executing new contracts won in 2023, engaging with financial providers and investors.
Petrofac plans to issue another pre-close trading update on December 20, providing further insights into its strategic initiatives and financial outlook. CEO Tareq Kawash acknowledges the short-term liquidity challenges but expresses confidence in addressing them while focusing on the long-term potential and competitive strength of the company.