Petrofac Ord USD0.025 (PFC)

Company overview

Petrofac is an oil & gas services company which provides three key services: 1) Engineering and Construction services 2) Energy Development services 3) Operational services.

HL Comment (18 December 2008)

Petrofac was established in 1981 and has subsequently grown into a major oil & gas support services company. In 2005, Petrofac was admitted to the London Stock Exchange and in 2007 the group bought a controlling stake in SPD group Ltd., a specialist well operations provider. As of June 2008, the company joined the UK’s premier FTSE-100 index, buoyed by the boom in commodities and oil in particular. The main geographical areas in which the company operates are: the UK continental shelf, the Middle East, Africa, the Commonwealth and Asia. In total Petrofac has over 20 offices Worldwide and employs around 9,500 members of staff.

The group’s recent trading update (18Dec08) saw the company providing broad reassurance in relation to the year to date, and ahead of full year results (expected 9th March). Full year profits are expected to materialize in line with current analyst expectations, with all three of the group’s divisions continuing to progress. The order book has held up relatively well, with a backlog of work currently held, valued at $4.0 billion, against $4.4 billion for 31st Dec2007. Management also highlighted what it believed to be a strong balance sheet, noting that the company’s cash balance as of the year end should be in the region of $600m.

Acting for negative investor considerations, management did highlight the potential for major oil & gas customers to reduce their investment expenditure going forward, given declining energy prices and reduced demand emanating from the global economic downturn. In addition, the decline in the group’s value will now see the company falling out of the UK’s premier FTSE-100 index. On the positive, investments in new oil fields by the major companies take considerable planning, and once made, cannot easily be withdrawn from – a factor which should provide the oil service companies with some protection. Furthermore, with the oil industry generally considering the easier accessed oil fields as having been tapped, with the more difficult deep sea fields now remaining, this could prove a healthy environment for the likes of Petrofac going forward. On balance, market consensus opinion is positive in tone.

All yield figures are variable and not guaranteed.

Fundamental Data