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Bahrain’s Tatweer Petroleum expected to award EPC contract for non-associated gas project in Q1 2024.
27 November 2023 • 13:06
BAHRAIN
GAS CONSTRUCTION
OIL AND GAS
Tatweer Petroleum is expected to award the Engineering, Procurement, and Construction (EPC) contract for its Non-Associated Gas (NAG) Compressor Facilities (NCF) Stations and Remote Gas Dehydration Units (GDU) at Awali Field by the first quarter of 2024, according to a source.
“The request for proposal (RFP) for the EPC service was issued on 9 May 2023 and the bid submission deadline was on 10 September 2023. The EPC contract is expected to be awarded by mid-January 2024,” a source aware of the project details told Zawya Projects.
The commercial bidders list includes TDE Overseas ($281 million), Arabian International Contracting ($149 million), and Petrofac International – Bahrain ($121.3 million), officials from three companies confirmed.
Tatweer Petroleum is undertaking a phased Long-Term Field Development to install NAG Compressor Facilities Stations (NCF), Non-Associated Gas Well Hook-ups, associated pipelines and Tie-ins at Compression and Remote Gas Dehydration Units (GDU) to maintain gas deliverability from the Awali field.
The scope of work involves the EPC as well as assisting with the operability enhancement of Tatweer Petroleum facilities.
The project is slated for completion by the fourth quarter of 2029, the source said.
PFCVet - I like your candour and GL. Very brave. May or may not turn out well for you. I sincerely hope it does.
Cold, unemotional investors look at the figures. There are others, like Mary, who manage the risk. Poker amongst others has painted the picture for you.
But, then there are risk takers; betting a hunch; seeing future value - perhaps a multi-bagger - based on, in this case, a heavy back-log and decent management to grow profitability (and eradicate historic debt), in a market where specialism and delivery capability / professionalism are key components giving cause for optimism that potentially greater (and year on year) back-log growth may be achievable. Actually, not such a stupid theory. Generally, they are the medium / LT holders.
But, my friend, whilst you will not be alone in your approach - I’m similar and at higher melded SP (and I’ve seen a few others who may have bought in to the 115p RI) - BoD management of PFC profitability and financing is key. Cash, as always is king.
The judgment - ignoring the leeches - is : are this management team capable of the managing the turnaround in the near term.
I think there is reason to be believe that they will - there are good people involved - and there are signs that they think they will too. Aggressive / ongoing significant hiring is one of these (despite the near-term cash flow implications).
I acknowledge the risk and continue to invest in PFC accordingly.
And, short Paul - sorry Paul, that phrase has caught on(!) - and others, having your shares eggs in one basket is a risk (that could be spread in a number of ways) but it is no different to putting significant equity into buying a house (except that investment is significantly more illiquid, may have an alligator in the tank with you in the form of a lender, and is managed by the buyer not a BoDs). For some, they may have other significant assets (with which to spread the risk of share in 1 basket).
Anyhow, whether its end of Feb or April - depending upon which previous year you take as a guide - the next chapter, whenever it comes, will be seminal.
Wishing you (and all those in the same boat) ATB.
RHR - you missed the point of the Q which was, where did all the Schroders shares go to? Were they (all) bought in the market - hence the SP collapse - but c.30m is a lot to swallow by PIs and alternatively, is there a large scale investor buying in? Or, as Poker suggested, are MMs holding a sizeable chunk?
This BB is about debate - assistance. Aggressive responses of type you’ve engaged in are why you’re now filtered. I (and many others on here) don’t need childish insults. Get help.
Schroders dumped c.6% (c.30m). Shorters loaned to pull price down at roughly the same time. Are MM holding a substantialy number (not sold in the market) to allow shorters to buy themselves out (as and when) without a market squeeze? Or is there a buyer out there building a holding? Thoughts?
Also significant for the broader EPC market, said Wilson, is that McDermott’s recent performance bond problem appears to confirm Petrofac’s overall “reduced market appetite” comment.
Nevertheless, he said Jefferies believes “the more important criteria for the banks” is each contractor’s “balance sheet strength, execution track record and type of [performance] guarantee required”.
Petrofac wins field development work offshore Trinidad
Read more
So, if Petrofac generates cash from asset sales, its financial health improves along with its ability to secure these bonds.
Alternatively, suggested one source, clients could make concessions, although this “is not something they’re talking about today”.
A source with direct knowledge of Petrofac lamented its current situation, saying its cash flow issues mean banks will not issue letters of credit, so it cannot pay to subcontractors, contrasting this with the potential of it $5.5 billion backlog won this year.
“The company is in good shape with a sound business backlog… the best ever seen in the last four years. However, the capital market is less convinced and has little confidence in the company.”
Strong order backlog lifts Petrofac’s mid-term outlook
Read more
This lack of confidence is reflected in the stock price, which was languishing at £0.183 ($0.225) at publication time, down from £5.28 in early 2019 and an all-time peak of £16.72 in 2012.
In parallel, its market capitalisation plunged to about £100 million this week from about £1.5 billion in 2019 after peaking at £5.6 billion in 2012.
In August, Petrofac’s future looked rosier when it said free cash flow was set to be “broadly neutral” for 2023 due to cash advances on new EPC contracts and capital being released from legacy contracts.
However, this prediction did not materialise, which triggered Petrofac’s early December statement on liquidity problems.
As one financial source said: “You need liquidity to run your business. You need to pay people and supplies. You have certain obligations to your debt providers. You need to make sure you’re paying coupons on their bonds, paying interest on their debt.”
Petrofac declined to comment on either assets sales or the cash amount needing to be raised.
A contact familiar with Petrofac’s strategy said “it will be obvious to speculate around” PM304 because this is the last upstream asset on the company’s books, having sold everything else in recent years.
Another source agreed, saying PM304 is “the key” non-core asset, while stressing the sales price achieved will be influenced by any debt attached to it and the expiry date of the licence.
Adnoc awards landmark CO2 recovery project to European contracting giant
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The other asset to be sold is a 10% stake in the JSD 6000 pipelay vessel, which is due for delivery from a Chinese yard in the second quarter of 2024.
In its 2022 annual report, Petrofac valued its JSD 6000 holding at about $56 million, although one veteran marine contracting source said he is “not sure anyone” would pay this amount.
Shanghai Zhenhua Heavy Industries is believed to hold a 90% stake in the vessel and has also been marketing it for sale, according to market watchers.
Once delivered, Saipem has chartered the vessel for five years, but could retain it for an extra 24 months.
One well-informed source with direct knowledge of Petrofac’s options said the company may also consider offloading its O&M business in the North Sea.
‘High-quality backlog’: Petrofac predicts turnaround after first-half loss
Read more
This huge Aberdeen-based entity employs 3000 people and controls one-third of the market.
A company watcher said that while O&M could be an “obvious business” to sell, “I would consider it to be quite central to the company.”
A source close to Petrofac agreed and also downplayed this scenario.
Also counting against Petrofac quitting the O&M sector is that a sale could attract the attention of the UK’s Competition & Markets Authority, which a few years ago forced Wood to sell (to Worley) the O&M business that came with its acquisition of Amec Foster Wheeler.
“So, if it was for sale, who would buy it?” asked this market observer.
When Petrofac revealed the extent of its financial problems to the market early this month, it focused on many issues, leaving perhaps the most important one — performance bonds — to the end.
Petrofac lands FPSO contract in West Africa
Read more
Sources said the key sentence in Petrofac’s 4 December statement was: “Banking and surety market appetite for the provision of these guarantees in support of the contracts won by Petrofac has reduced, resulting in delays”.
Jefferies analyst Mark Wilson told Upstream that Petrofac’s disclosure about these guarantees “is a very significant situation” and explained why.
“Petrofac’s forward revenues and cash flow come from the execution of new contracts or awards. But without the provision of performance bonds to effectively backstop or rubber stamp a contractor’s performance, that new work may be unable to move forward.”
Also significant for the broader EPC market, said Wilson, is that McDermott’s recent performa
Cash-strapped Petrofac aims to sell its upstream and pipelay vessel assets as part of a critical drive to raise some $450 million to shore up its ailing balance sheet, according to multiple market sources.
Upstream was also told the company may even consider selling its huge UK North Sea operations and maintenance (O&M) business, although it is still considered a core part of Petrofac’s business.
Funds generated from any completed sales would help the financially distressed player secure performance bonds or guarantees that are a fundamental, but little known, requirement for any contractor involved in the engineering, procurement and construction game.
Petrofac considers asset sales, seeks to strengthen balance sheet and short-term liquidity
Read more
“One of the biggest issues they’ve got is getting guarantees in place,” one source close to the London-listed company said.
After a company like Petrofac wins an EPC order, it must always secure a bond or guarantee from a financial provider, otherwise it cannot start the contract and receive milestone payments from the client as work progresses.
However, if the contractor fails to meet its contractual commitments, its client can then place a call on the bond.
Market sources said these financial instruments were not an issue until this year, when Saudi Aramco pulled contracts placed with McDermott International because the US company — with its own financial problems — could not secure performance bonds.
“It’s extremely rare these [bonds] ever get called in, but clients still want them,” said a financial source, adding that perhaps they are in the spotlight now because of high interest rates.
“The cost of money has gone up and any bank with a few billion dollars of exposure to any sector always looks at that exposure and decides whether they’re happy with it.”
Petrofac’s problem is acute because, despite securing billions of dollars of backlog recently, these contracts will be worthless if it cannot secure performance bonds.
It was on 4 December that Petrofac reported its cash flow crunch, highlighting that selling non-core assets would boost liquidity.
European contracting giant kicks off work on strategic Adnoc gas facility
Read more
Upstream was told the contractor may have to raise about $450 million if they are to pay off $250 million of debt due to mature in October 2024 and plug a $200 million hole caused by working capital continuing to be tied up in legacy contracts.
Market sources said two major assets are definitely up for grabs.
One is Petrofac’s 35.3% operating stake in a production sharing contract (PM 304) offshore Malaysia that hosts the producing Cendor oilfield, an asset that the company “has been marketing for some time”, one knowledgeable insider said.
A contact familiar with Petrofac’s strategy said “it will be obvious to speculate around” PM304 because this is the last upstream asset on the company’s books, having
PFCVet .. I like the honesty in your posts. Sometimes bearing inner thoughts to others is cathartic… all of us LTH have been tested but if you / others are close to being all in, it’s a big boys game.
So, this release suggests reasons to hope for a return to 3-figures once net debt and net cash flow shortfall have been resolved but let’s not forget negative shareholder equity (as Poker regularly points out).
It’s for PFC to demonstrate profitability in the short to medium term (not platitudes and promises) but, burgeoning backlog offers that potential opportunity (with chances to have more of the awardable contract pie going forwards).
At SP 200 target, IMO you’d be selling yourself well short.
Anyhow, good luck and fingers crossed that fortitude will be rewarded in the short term for all LTHs.
Certainly a relief rally in focus….
@osg
‘…you can have the whole group for around a cut price £100M right now‘
Unrealistic. None of the main SH world consider a sale at current SP. Asfari stuck in £38m on RI at 115p. Azvalor etc - losses would be huge.
PIs should not sell either. The clues for a bounce are all there….be patient for a month or so…… then it will be Christmas for PIs and co …. Santa’s coming…
No-one that subscribed to the RI (115p) will sell at these prices (unless they have averaged down sufficiently). I haven’t (and I’m holding a lot) and Asfari won’t - his paper loss is huge - and althiugh he’s picked up a few on remuneration distributions, so far as I can see nothing to pull back the dial significantly.
I won’t be selling and I cant see a company in real trouble hiring on such a scale as PFC. Medori and co are not idiots and have some skin i the game themselves.
20th fast approaching but, whilst interesting, it will leave many inanswered questions (with long period before next TU unless quarterly reporting introduced).
Confident of a big uptick )if TU sufficient to make shorts unwind).
GLALTH
Poker - totally fair point. Don’t think that I’m not aware of your common sense response.
PFC not my only asset but I do have a big holding.
Why? Because there is the another side to the dichotomy (to the one that you propound) which is that PFC has such substantial growth potential in a hugely burgeoning potential contracts environment. You’ve only got to look at ADNOC claiming upto $150bn potential contact awards over next few years - that by no means the only pie into which PFC are able potentially to stick their fingers - to see big stakes for PFC to play for.
Also, ownership is comforting as are some of the management figures.
In the alternative, significant improvements to fundamentals are required. Management will be tested.
I overall, I’m a risk taker. The potential for multiple SP increases over time is there / alluring. In 3- years, PFC may look a very different animal. I won’t be selling in that time frame.
I understand the alternative….. custard …. but, on balance, presently, I see phoenix more than pancake (to mix metaphors).
I enjoy / respect your feedback.
Poker may be right on negative shareholder value currently but that should change if there is competent management. So, agree (risk / reward) - gambling - plus buy now for right to receive future uptick.
Just bought 50000. Too cheap if fundamentals not changed. Got to be in it to win it…
So, the dichotomy… buy shares now, gain if SP rises in line with previous guidance of break even by Y/E 2023 with potential for signifiant gain if profits result from increased backlog; or, possible wipe out if all goes to custard.
Poker - by the same logic, is is overpriced at 23p?
Assuming solvency - that’s a judgment - isn't PFC the opportunity to buy into forward profits from current and future backlog i.e. growth potential (possibly larger than most places I can see).
Just added 50000 at 45p but pure punt from reading tealeaves.
Positive : Management have put out statements that suggest confidence in current backlog and possible future contracts.
Uncertainty: h1 outlook was breakeven cashflow at y/e (with significant debt carry). Will h2 results be better or worse?
Could go either way but I’ve just voted with my feet (despite all the widener markets depressing sentiment).
Might this buck the trend…..