Ayman Asfari, Petrofac’s Group Chief Executive, commented:
“We have delivered solid full year results, good operational performance and strong financial discipline, while maintaining our focus on best-in-class and safe project execution for our clients.
“We are also delivering our clear, focused strategy. The Group has secured awards in a broad range of markets during the year. Operational excellence is maintaining our strong competitive position and protecting our differentiated margins. Furthermore, we are continuing to reduce capital intensity and enhance returns, evidenced by the disposal of non-core assets and our decision to exit the deep-water market.
“Our competitive position has helped secure a strong recovery in new orders in 2017, particularly in the second half of the year. Tendering activity remains high, we are well positioned on several bids and we are maintaining our bidding discipline in a competitive market. With a healthy order backlog and good revenue visibility, I am confident that Petrofac is well positioned for 2018.”
Chairman Rijnhard van Tets said: “Over the course of 2017 the leadership team has worked relentlessly to deliver for our clients, secure a strong recovery in new orders and continue to execute our stated strategy. The Board continues to have full confidence in Ayman, in Petrofac’s people, its processes and its long-term prospects, and looks forward to continued good progress in 2018.”
Engineering & Construction (E&C)
Good operational performance, delivering strong margins in line with guidance
— High level of activity with 218 million manhours worked, up 3%
— US$4.1 billion of new order intake, including GC 32, Duqm, Sakhalin and Khazzan Phase 2
— Good progress across our portfolio of lump-sum projects
– Completed Khazzan central processing facility in Oman
– Sohar Refinery Improvement project in Oman in commercial operation
– Many projects in pre-commissioning or commissioning phase
— Revenue of US$4.8 billion, down 19%, reflecting project phasing
— Net profit up 10% to US$342 million
— Net margin increased to 7.1%, with an improvement in project mix partly offset by higher tax
Engineering & Production Services (EPS)
Solid operational performance in a challenging market environment
— Secured US$1.1 billion of new contracts and extensions predominantly in UK, Turkey, Iraq, and Kuwait; long-term framework agreement signed with Petroleum Development Oman
— Revenue of US$1.4 billion, down 19%, reflecting phasing of EPCm projects as well as lower new order intake, activity and utilisation in EPS West
— Net profit of US$90 million, down 19%
— Net margin stable at 6.5%, with improved project profitability largely offset by lower overhead recovery and deferred tax charges
Integrated Energy Services (IES)
Underlying performance improving as we reposition the portfolio
— Improving trend in operational performance across our upstream portfolio
— Revenue of US$228 million, down 16% (up 8% excluding asset sales)
– Production down 34% to 7.3 mmboe (net) reflecting asset sales
– Higher average realised oil price of US$57/bbl (2016: US$53/bbl)
– Lower cost recovery in Mexico, reflecting lower capital investment
— EBITDA of US$97 million, down 2% year on year (up 43% excluding asset sales)
— Net loss halved to US$21 million, benefitting from lower costs
— Continued to reposition IES through sale of Pánuco PEC and migration of Santuario PEC to PSC
Exceptionals and certain re-measurements
The reported net loss of US$29 million was impacted by exceptional items and certain re-measurements of US$372 million, of which approximately US$350 million were non-cash items.
The Board has today confirmed its intention to exit the deep-water market triggering an impairment charge of US$176 million (post-tax) in relation to the JSD6000 installation vessel, which has been reclassified as an asset held for sale. We continue to pursue options to maximise value for the JSD6000.
In our IES division, impairments and exceptional items totalled US$179 million after tax, predominantly in relation to the Greater Stella Area development, following re-assessment of production profiles, including a lower oil to gas ratio, Block PM304, due to a rephasing of future production, and Santuario, reflecting the terms secured on migration to a PSC. The resultant carrying amount of the IES portfolio was US$1.0 billion as at 31 December 2017 (2016: US$1.2 billion) excluding working capital balances.
NET DEBT AND LIQUIDITY
Net debt was US$0.6 billion as at 31 December 2017 (2016: US$0.6 billion), reflecting strong capital management. A 44% reduction in capital expenditure to US$170 million and better than expected working capital flows at the year-end delivered free cash flow of US$281 million in the year.
The Group retained good liquidity of US$1.6 billion as at 31 December 2017 (2016: US$1.8 billion). During 2017, Petrofac extended US$1.0 billion of its revolving credit facility by one year to 2021 and refinanced US$200 million of term loans, extending their maturity by up to two years.
In August 2017, the Board approved a sustainable dividend policy that targets a dividend cover of between 2.0x and 3.0x business performance net profit as the Group transitions back towards a low capital intensity business model. Going forward, it is proposed that the interim payment each year will be approximately 33% of the prior year total dividend.
In line with this policy, the Board is proposing a final dividend of 25.3 cents per share (2016: 43.8 cents). The final dividend will be paid on 25 May 2018 to eligible shareholders on the register at 27 April 2018 (the ‘record date’). Shareholders who have not elected to receive dividends in US dollars will receive a sterling equivalent. Shareholders can elect by close of business on the record date to change their dividend currency election. Together with the interim dividend of 12.7 cents per share (2016: 22.0 cents), this gives a total dividend for the year of 38.0 cents per share (2016: 65.8 cents). The total dividend is covered by free cash flow.
The Group had a healthy order backlog of US$10.2 billion (2016 restated (4) : US$11.7 billion) at the end of 2017 and has US$5.2 billion of secured revenue for 2018. Reported backlog excludes the framework agreement signed with Petroleum Development Oman in June 2017, which will add to backlog as projects are sanctioned.