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A graduate training program that's been St for the last few years we've had we've hired over 100 new graduates and we're also working on the training and upskilling of our current staff and trying to improve also our retention rate in the in in our company so we're people are our assets I mean we don't have any other fixed assets other than people so we really invest invest in our people and that's the key to our successful delivery
-Well talk that's really great to hear and all the best for the busy times ahead thank you very much
Be here is going to be the backbone of of the company going forward big cap expend here in the area and we'll continue to invest in in our delivery here in the in the Middle East
-Yeah absolutely and you have mentioned you know working in the energy transition what about the energy transition you know what Peta position itself in that area with more demand for customers on the the energy transition side you think
-So we look at it like in three aspects for for us so the first aspect we have a business uh the asset solution businesses that's moving into decommissioning so that's kind of taking facilities out and we're we're that's a big growing business and uh it's it's started off in the North Sea we've moved over to Australia uh Gulf Coast of Mexico so that's one part of it the other part of it is to design and build lower carbon intensity hydrocarbon facilities which is a which is uh some of the projects we're working on in the north sea side in uh of the business and the third part is really the new energies the energy transition part which is the new energies focused mainly on hbtc today because that's where the big cap expend is but we're also have a very strong technical capability working on uh projects for example in green hydrogen and uh carbon capture uh uh waste of value and other aspects so really excited about that side of the business
-That's really interesting to hear and you know what about petrofac itself in terms of do you have your own plans and programs um in place to decarbonize yourself
-Yeah absolutely so so part of the the the focus is also to reduce our carbon footprint so uh when we go out and build projects we we're working very uh hard to to reduce our carbon footprint and there's a lot of programs in place to do that and that's not only in the way we engineer or Constructors works all the way through our supply chain and you know busy times for you which also means you know
-Going into 2024 what's your outlook then so the markets are we've got in our home regions here in the Middle East there's the big capital investment programs which you probably heard about here today at adipe uh so we're well positioned for that uh our asset Solutions business which is focused on the opic side we're growing that geographically into areas like I said before is West Africa Australia so outside outside of our home Market there which is in North Sea and the energy transition projects there's huge capital expenditure in the offshore offshore wind but also uh we see some of these other projects in energy transition like waste of value and others going into final investment decisions in the next two three years
-So where I see the company in the next three years really to capitalize on this to rebuild our backlog and also to grow our talent pool I mean one of the areas which we as an industry uh need to do better at at is is to attract more people to this industry and uh so we're hiring we've started
Transcript:
-I'm thrilled to have sitting with me in the studio T kawash group executive at petrofac T thank you so much for joining me
Thank you hank you for having me now let's start off with the good news the announcement that came today with adnoc could you tell me bit more about it and the significance of it.
-Absolutely so uh great announcement really happy about the the award uh it's for it's project for adnoc carbon uh carbon capture and it's the largest carbon capture project in the Middle East region it's going to take out about 1.5 million tons of carbon it's an EPC project so we're building the carbon capture facilities all the associated infrastructure the pipeline to allow the the uh collection of the carbon and the injection back in the field so really great so this kind of combines our experience in the energy transition with our Middle East execution EXP experience so really happy about that
-What a great start to day two of adek um now you took over as group CH executive in April this year um how have the first six months been um and where do you want to take Petrofac
-I joined on April 1st so uh been uh so six months and uh uh it's been it's been busy it's been exciting um so uh you know I've been 30 years in the industry so I've been my previous employee and all that so a lot of the clients and the locations working in are similar uh great team at Petrofac so uh uh really really strong people uh it's been through uh uh kind of a a down cycle so we're looking at the Up Cycle so big focus on rebuilding the backlog rebuilding the brand in the region and I must say in the first four to five months uh we're able to increase our backlog significantly lots of new Awards diverse Awards so uh like the the award for for ADN that's the second adnoc award uh this year so over a billion dollars of backlog just without that not in total just over $5 billion of awards and that's a combination of traditional hydrocarbon business uh our Opex business which is the asset Solutions business as well as uh uh the energy transition projects which is really on the back of uh the big award from tenant for the offshore hbdc stations well
-That's really good to hear talk and so it ties into my next question why do you feel you're such a strong Market in the MENA region.
-It's our home Market I mean uh Petrofac has been here over 30 years delivered many projects for all the national oil companies and all their Partners here in the region um we're very strong in in in each of the countries it's great great track record uh for example here in the Emirates we've got our big execution office over a, three 300 or, 400 people uh we're able to uh achieve very high local content we hire a lot of uh local talent I mean just in today in in in our office we have over 100 emiratis working for us uh and they've been uh you know deployed on on the the new projects so great great history here is going to
In an exclusive studio interview from ADIPEC 2023, Julian Walker sat down with Tareq Kawash, Group Chief Executive of Petrofac, to hear more about the exciting news announced during ADIPEC of ADNOC Gas awarding an EPC contract for a CCUS project, one of the largest carbon capture projects in the Middle East and North Africa region. Tareq explained how this showed there was an appetite across the region for ambitious (CCUS) projects. He also touched on Petrofac’s own initiatives that will contribute to a lower carbon future. With Petrofac ramping up to deliver a range of exciting new projects the company is on a recruitment drive and is looking to attract the next generation of talent.
Video link: https://www.energyconnects.com/videos/video-interviews/2023/october/petrofac-set-for-growth/
Petrofac has posted this yesterday on LinkedIn:
“Our team is collaborating with #ADNOC to secure a lower carbon future, through its Sustainable Supply Chain Program. The Abu Dhabi kick-off event centred on four key pillars:
🤝 Collaboration between ADNOC and strategic suppliers
⚠️ Managing ESG risks across the value chain
📊 Embedding ESG performance visibility in procurement
✅ Promoting leading sustainability practice across the value chain
We aim to minimise our own environmental impact, while supporting ADNOC to achieve its ambition for Net Zero Emissions by 2045.
https://www.linkedin.com/feed/update/activity:7133741102284595200”
*Sultan Al Jaber is the chief executive of the Abu Dhabi National Oil Company (Adnoc) and president of the Cop28 summit, which begins on 30 November.
Petrofac bonds have been showing some recovery too
https://www.boerse-frankfurt.de/bond/usg7052taf87-petrofac-ltd-9-75-21-26
It looks like they've plummeted Petrofac to load up on the cheap while they can before letting it go,....the rebound is now on :)
They are not, the Buy/Sell at the time 180/185 and all those chunky trades were @185
MASSIVE BUYS Just gone through
24-Nov-23 10:03:33 185.00 500,000 Unknown* 180.00 185.00 925.00k O
24-Nov-23 10:03:33 185.00 500,000 Buy* 180.00 185.00 £925.00k O
24-Nov-23 10:03:21 185.00 225,000 Unknown* 180.00 185.00 £416.25k O
24-Nov-23 10:03:21 185.00 225,000 Buy* 180.00 185.00 £416.25k O
24-Nov-23 10:03:04 181.05 10 Sell* 180.00 185.00 £18.11 O
24-Nov-23 10:03:03 185.00 5,000 Buy* 180.00 185.00 £9,250 O
24-Nov-23 10:03:01 185.00 600 Buy* 180.00 185.00 £1,110 O
24-Nov-23 10:03:00 185.00 225,000 Unknown* 180.00 185.00 £416.25k O
24-Nov-23 10:03:00 185.00 225,000 Buy* 180.00 185.00 £416.25k
24.11.23 Berenberg cuts Team17 price target to 490 (650) pence - 'buy'
The current low trading volume is influencing the share price, making it vulnerable for short sellers to drive down and load up on the cheap while they can. Once the volume picks up again, the share price is expected to rebound quickly.
# Trades 88
Vol. Sold 227,118
Sold Value £75.94k
Vol. Bought 245,626
Bought Value £82.78k
You can get detailed & factual information from Fitch's report: https://www.fitchratings.com/research/corporate-finance/fitch-revises-petrofac-outlook-to-stable-affirms-idr-at-b-27-09-2023
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
- EBITDA gross leverage below 3.5x on a sustained basis
- Neutral-to-positive FCF on a sustained basis
- Sustained recovery in the order book with no evidence of deterioration in the new orders' quality or margin dilution
- Improved project diversification
Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
- Lack of project wins and effective bidding management
- Weakening financial flexibility
- EBITDA gross leverage above 4.0x on a sustained basis
- Inability to generate working-capital inflows
- Negative FCF on a sustained basis
- EBITDA margins weakening as a result of project losses or poorer project quality
LIQUIDITY AND DEBT STRUCTURE
Sufficient Liquidity: At 30 June 2023, Petrofac's liquidity profile comprised USD152 million readily available cash (excluding around USD101 million deemed not readily available by Fitch, mainly for intra-year working-capital swings). The group has access to an USD162 million RCF, fully drawn at 30 June 2023. We project positive FCF in 2H23 and 2024.
Long-Dated Debt Structure: At 30 June 2023, Petrofac's debt maturity profile mainly comprised USD600 million senior secured notes due in 2026. The group also had around USD90 million term loans and a USD162 million RCF, both due in 4Q24. The long-dated debt maturity profile supports financial flexibility and limits refinancing risk.
https://www.fitchratings.com/research/corporate-finance/fitch-revises-petrofac-outlook-to-stable-affirms-idr-at-b-27-09-2023
Recovery Assumptions:
- The recovery analysis assumes that Petrofac would be reorganised as a going-concern (GC) in bankruptcy rather than liquidated. It mainly reflects Petrofac's strong market position, engineering capabilities, customer relationships and asset-light business model, following disposals in the integrated energy services division
- For the purpose of recovery analysis we assumed that the debt comprises USD600 million senior secured notes, its USD162 million revolving credit facility (RCF; assumed full drawdown), and USD90 million term loans. We assume that all debt instruments rank equally among themselves.
- The GC EBITDA estimate of USD145 million reflects Fitch's view of a sustainable, post-reorganisation EBITDA level on which we base the enterprise valuation (EV). In such a scenario, stress on EBITDA would most likely result from severe operational challenges in lump-sum projects
- Fitch applies a distressed EBITDA multiple of 4x to calculate a GC EV. The choice of multiple mainly reflects Petrofac's strong market position being offset by demand volatility in the oil and gas end-markets
- After deducting 10% for administrative claims, our waterfall analysis generates a ranked recovery for the senior secured debt in the Recovery Rating 'RR3' band, indicating a 'BB-' instrument rating for the group's USD600 million senior secured notes, and justifying the one-notch uplift from the IDR. The waterfall analysis output percentage on current metrics and assumptions is 61%.
DERIVATION SUMMARY
Petrofac has no close direct peers in the Fitch-rated universe. We view Petrofac's business profile as weaker than Saipem S.p.A.'s, mainly due to the latter's significantly stronger revenue visibility supported by its large backlog. We view Petrofac's business profile as broadly in line with John Wood Group Plc's. Both companies boast a solid position in their core markets, sound geographic diversification and moderate, but improving, revenue visibility.
Petrofac's financial profile is weaker than Fitch-rated infrastructure E&C contractor Webuild S.p.A.'s (BB/Stable), mainly due to expected weak operating profitability in 2023-2024 leading to high leverage metrics.
KEY ASSUMPTIONS
Key Assumptions Within Our Rating Case for the Issuer:
- Revenue of around USD2.7 billion in 2023, USD3.2 billion in 2024, and gradually increasing to USD4.7 billion in 2026
- Negative EBITDA of around USD70 million in 2023. EBITDA margin at about 2% in 2024 and 4%-5% in 2025-2026
- Capex at about USD20 million in 2023 and USD30 million-USD35 million a year in 2024-2026
- Working-capital inflows at around 6% of revenue annually in 2023-2024 and 5% in 2025. Working- capital outflow of 2% in 2026
- Dividends of about USD90 million in 2025 and USD100 million in 2026. No dividends in 2023-2024
- No acquisitions in the next four years
Improved Business Profile: Petrofac's business profile improved in 1H23 due to growing revenue visibility, which is now in line with expectations for a 'BB' category E&C company. Petrofac boasts a solid overall E&C market position, with a broad range of skills and services covering onshore and offshore works, and delivering projects in upstream and downstream oil and gas developments. Further, it has demonstrated its expertise in sustainable energy E&C activities, which firmly positions the group for the growth of this smaller but increasingly important sub-sector.
FCF to Improve: We expect neutral-to-positive FCF in 2023-2025 following high cash consumption in 2021-2022. We assume that Petrofac's cash flow will benefit from an improving order backlog in 2023-2025 and increasing operating profitability in 2024-2025. Nonetheless, this is subject to execution risk including successful completions of the remaining eight legacy contracts in addition to the prepayment-structure risk common to the E&C sector.
Sound Financial Flexibility: Petrofac's completed recapitalisation in 2021 has improved its liquidity and debt maturity profile, limiting short-term refinancing risk. This long-term debt structure enables the group to plan and bid for its typical large-scale, multi-year E&C projects. It also provides the group with financial and operating headroom to pursue bidding opportunities with long lead times.
KEY RATING DRIVERS
Improved E&C Revenue Visibility: Petrofac's improved revenue visibility is supported by an increased order backlog of about USD6.6 billion at end-June 2023, including USD3.4 billion new awards in its E&C segment, which until now had been limiting overall revenue visibility. We expect continued increase in the order backlog in 2H23 and 2024 on a solid prospects pipeline of around USD60 billion to end-2024.
Of the three major E&C awards in 1H23 one was the first contract in a multi-year six-platform agreement with TenneT to expand offshore wind capacity in the Dutch-German North Sea. The rapid backlog growth in the non-core new energies sector is balanced by two major awards being in its core markets, limiting execution risk. They are a petrochemical facility engineering, procurement, and construction (EPC) contract for STEP Polymers SPA in Algeria and gas compressor station for Abu Dhabi National Oil Company (ADNOC) in the UAE.
Weak Operating Profitability: Fitch expects continued profitability pressures in 2023-2024 due to the combination of still subdued, but increasing, revenue, the lingering impacts from legacy contracts and unfavourable commercial settlements with clients mainly related to the pandemic. We assume low single-digit EBITDA margins in 2024 and recovery to mid-single digits in 2025-2026, on increased activity combined with continued receding impact from its commercial settlement in its mature E&C portfolio. In 1H23, Petrofac made good progress in resolving its historical disputes, which will support cash collection in 2H23.
Execution Risk in Legacy Contracts: Execution risk is exacerbated by the pending completion of the remaining legacy contracts disrupted by the pandemic. The group expects to complete five of the remaining eight contracts during 2H23 or early 2024. The risk is partly mitigated by progress in construction of Thai Oil Clean Fuels contract in Thailand in 1H23, which was in line with the group's April's guidance.
High Near-Term Leverage: We expect EBITDA leverage to remain above our 4x negative sensitivity to 2024 due to subdued operating profitability, which limits rating headroom. We expect gross leverage to decrease to around 4x in 2025 and below 3x in 2026, on an increasing E&C order backlog and receding impact of remaining legacy projects.
Deleveraging prospect is supported by a prudent financial policy including reduced total debt quantum and suspended dividends. Petrofac has deleveraged its balance sheet since 2017, partly in response to a downturn in the oil industry and an SFO investigation.