RE: Upstream14 Dec 2023 23:07
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.
One of the biggest issues they’ve got is getting guarantees in place,” said one source close to the London-listed company.
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 cashflow crunch, highlighting that selling non-core assets would boost liquidity.
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