Petrofac shares were in freefall on Tuesday as the energy engineering services company feels the pain of delayed contracts due to the pandemic.
Petrofac’s Engineering and Construction (E&C) unit is expected to suffered a full year EBIT loss of approximately $190 million for 2022. This sharp loss is a result of uncovered commercial settlements and the overrun of legacy contracts caused by the pandemic.
The disappointing performance in the E&C unit means Petrofac now expect a $100 group loss in 2022 and a drop in revenue to $2.5bn. Petrofac recorded $3bn revenue in 2021 and $4bn in 2020.
The loss of revenue has been a constant worry for Petrofac investors and their shares are down 44% in 2022 after diving 9% today.
“It certainly seems that incoming CEO Tareq Kawesh has his work cut out for him at Petrofac. Whilst legacy issues at Engineering and Construction should have less of an impact going forward, it seems that the division won’t return to profitability next year,” said Derren Nathan, Head of Equity Research at Hargreaves Lansdown.
“And the units that performed well this year are not expected to generate the same returns in 2023. That said the pipeline of potential projects across the Group is very strong at $68bn, but as ever the key will be not just conversion, but also securing strong commercial terms.
“Pricing discipline is essential, to avoid a race to the bottom. Whilst New Energy is continuing its momentum, Petrofac remains highly leveraged to the oil and gas market. The recent drop in prices means it will be making lower profits from its own production, and any further deterioration could see its clients in the industry think hard about commissioning new projects.”