Strong order backlog lifts Petrofac’s mid-term outlook

UK-listed Petrofac has improved its outlook for the company’s mid-year performance by reporting healthy increases in order backlogs in its key business segments.

The company said in a regulatory filing that its backlog for the first six months of 2023 will increase to approximately $5.6 billion, against $3.4 billion at the end of December 2022.

Petrofac expects the order backlog for its engineering and construction (E&C) segment to more than double to $3.5 billion, up from $1.6 billion at the end of last year.

Awards contributing to the increase included a first platform contract under a framework agreement with Dutch-German transmission system operator TenneT to deliver 2 gigawatt offshore wind transmission systems in partnership with Japan’s Hitachi.

Two other contracts are a petrochemical project for Sonatrach in Algeria and a follow-on engineering, procurement and construction contract with Orlen Lietuva, a subsidiary of Poland’s PKN Orlen, at a project site in Lithuania.

Despite the backlog increase, the EC segment is expected to report a first-half EBIT (earnings before interest and taxes) loss margin of approximately 20%, due to an operating loss and one-off write-downs of more than $50 million in receivables from historical contracts.

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“E&C results continue to reflect the impact of onerous contracts with no margin recognition and adverse operating leverage due to low levels of activity,” Petrofac said.

In April, Petrofac saw a double-digit plunge in its share price after warning investors it would report an even bigger financial loss in 2022 than expected due to problem contracts.

“We remain focused on closing out legacy contracts, with five of the remaining eight contracts expected to be completed during the second half of the year or early in 2024. The execution plan remains in line with the update provided with the financial results for 2022 results and discussions with the client in relation to cost recoveries are ongoing,” the company said.

“Bidding activity remains high with a total pipeline scheduled for award by December 2024 of approximately $57 billion, of which $14 billion is scheduled for award this year.”

Petrofac also said that the order backlog at its assets solutions segment of the business is expected to grow to $2.1 billion by 30 June against $1.8 billion as of 31 December last year.