Article in full14 Dec 2023 10:13
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
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“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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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 s
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