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Yes, I'm looking into buying bonds though.

Can you buy bonds through HL?

Thanks Paul,

I think Petrofac has already lost a couple contracts, namely the below (either lost, or still awaiting to secure PG):

https://www.meed.com/petrofac-awarded-gas-contract-in-bahrain2024

https://www.meed.com/petrofac-selected-for-algeria-upstream-projec

I had contacted IR regarding this and this was the response:

"Petrofac does not comment on speculative news coverage.

All official external business updates, including contract awards, are publicised via the London Stock Exchange’s regulatory news system and/or via the website www.petrofac.com"

Can you buy PFC bonds through HL?

Paul,

"So makes me think something nasty is coming BH’s way which is ominous for equity."

What could be so nasty? Do you have examples of some of the risks?

Thanks PaulCurtis,

To me, it seems like a no brainer to buy the bonds then.

What would you say the risks are? As you say, unlikely that bondholders will take a significant haircut, even if they take a 30-50% haircut on the D4E, it's still worthwhile buying the bonds.

Would be good to know why bonds are trading at such a discounted value.

Hey Paul Curtis,

We have had our differences in opinion. However, today confirms that there will be a D4E. I take risks on shares, but I don't take D4E risk. I have already sold my shares here.

As you are very knowledgeable about bonds, I'd appreciate it if you could answer the below:

Would you say that should a D4E does happen, do bonds get converted at 100% value?

Or would they be converted at equivalent price to what they are now?

Unfortunately not good news.

But it still depends on D4E price and how much of the debt will be converted.

If the price is high enough, it is actually somewhat not as bad as it seems as Debt value gets converted into equity raising Mcap.

Always knew that there will be a dilution, but at what price?

Current backlog following recent awards is estimated to be at approximately $9.4b.

Just incredible.

Https://www.google.com/amp/s/www.zawya.com/en/projects/oil-and-gas/bahrains-tatweer-petroleum-expected-to-award-epc-contract-for-non-associated-gas-project-in-q1-2024-mebpb25s%3famp=1

$121m project for Petrofac.

Might be this.

MEED does not repost old news. It's a major news source in the Middle East for all that follow huge construction projects in the area.

https://gulfif.org/timeline/bahrains-tatweer-petroleum-expected-to-award-epc-contract-for-non-associated-gas-project-in-q1-2024/

No surprises there.

In 2024, Algeria is said to have $8.8b worth of projects lined up for award.

Whilst not all of this would be won by Petrofac, Petrofac has a good relationship with Sonatrach and is one of their biggest and best clients.

Still more to come.

As we approach end of financial year, there will be a push for most payments to go through and invocies to be paid so that all Petrofac's clients and customers are able to report annual financial reports in a position that is beneficial for each.

Petrofac is no different. I'd imagine there are various invoices scheduled to be paid before the financial end period. This should give Petrofac a little boost.

Nevertheless, it's been 3 months to securing the 2nd TENNET contract, but also performance guarantees for the first TENNET contract and the ADNOC habshan contract. These advance payments are paramount to Petrofac's survival and should hopefully reach (if not already) the balance sheet before financial year end.

The outstanding performance guarantee for TENNET 2nd contract is also crucial to shore up liquidity position via the advance payment.

The question is.. what's stopping banks from providing this guarantee.. and what is required from Petrofac to persuade them to provide the guarantee? There was an article recently about a divide between contracts between fossil fuel related projects and renewal energy projects.

I'm aware that the banks associated with Petrofac are ME-associated. Could it be that the TENNET contract (for renewable energy) does not work for them? Is this them lobbying against renewable energy to keep oil & gas?

Just a Credit Rating from 7th December:

- In the year to date, oil services company Petrofac Ltd. signed contracts that should have supported its recovery and standing in the capital markets, allowing it to deleverage in 2024.

- That said, the company's unexpected announcement on Dec. 4, 2023, regarding its difficulty in securing performance guarantees from banks cast a shadow over the immediate liquidity position and business integrity. This contrasts with our view, until recently, that the company would be broadly free cash neutral for full-year 2023, supporting an adequate liquidity position.

- The company publicly stated on Dec. 4 that the board is examining a range of strategic and financial options, which in our view does not completely rule out a debt restructuring.

- Therefore, we lowered our long-term issuer credit rating on Petrofac to 'B-' from 'BB-' and placed it on CreditWatch with developing implications.

- The CreditWatch placement alludes to a potential debt restructuring, which would likely be tantamount to a default by our definitions in the coming weeks, unless the company addresses the situation promptly and shores up its liquidity position, supporting an affirmation or higher rating.

Https://africanenergycouncil.org/algerias-50b-oil-gas-investment-plan/

"Rachid Hachichi, the chief executive of Algeria’s national oil and gas company Sonatrach, announces plans to invest $50 billion in oil and gas projects over the next four years as part of the country’s strategy to enhance production.

Sonatrach will invest $8.8 billion in 2024 as part of the four-year investmentprogramme, which extends until the end of 2027, Hachichi told the state-run Qatar News Agency."

https://www.petrofac.com/where-we-operate/petrofac-in-africa/algeria/

Sonatrach are one of Petrofac's biggest clients.

No need to say more.

Any sort of rumours of takeover will send the shares soaring.

It's not impossible.

For example, at SDRY there are talks of the CEO offering a cash offer..

Similar could happen with Ayman Asfari.

All it takes is one RNS.

Paul,

"So where do they get the $250m to repay the RCF in a few months time?"

Advance payments on contracts awarded which they have guarantee for.

Legacy payments (Still around $100-150m stuck in legacy payments)

General positive cash flow from contracts.

$100m released from collateral (should they wish to terminate contracts)

"How do they hang onto recently awarded contracts without getting the guarantees?"

If you had read what I had said....

"How do they service the debt interest? About $80m pa?"

General positive cash flow.

But suggest you reread what I had posted.

I'm all for growing the backlog.

Paul,

Utter nonsense.

There is a restructuring requirement for the future of PFC to deliver on awarded and future contracts.

It has been made to look like a "forced" restructuring thanks to shorts.

PFC are not distressed to service debt, this is evident in PFC maintaining liquidity above covenant.

If PFC really wanted, they could throw away the awarded contracts to other contractors, release collaterals, and service the required debt.

Of course, this will impact the future of PFC as the backlog will never be able to grow rapidly.

This is the main takeaway from the BNN article:

"The project team has achieved a crucial milestone by presenting a proposal to creditors, requesting the release of a portion of bank lenders' collateral."

The "proposal" is job cuts and operational cost cut to convince banks that cashflow in the immediate near term (for the partial cash collateral to be released) is manageable.

There is still some months away before any sort of restructuring with bondholders is agreed (as well as sale of assets).

Immediately, PFC are working on releasing some of the $100m cash collateral from the banks by cutting down on costs.

This will also allow some performance guarantees to be provided to newly won contracts (especially with advance payments and legacy payments coming in and performance guarantees for the legacy contracts being released.)

Petrofac are saying that they are making good progress, which means that they have some sort of benchmark with the banks before the cash collateral can be released. This will not be a long process, with at least something before April results.

Looking forward to the rebound starting tomorrow and next week.

GLA.

Https://bnnbreaking.com/finance-nav/business/petrofac-announces-major-job-cuts-amid-restructuring-and-debt-reduction-efforts

$100m in cash collateral to be released also as soon as some sort of agreement with banks and lenders.

Advance payment from ADNOC Habshan project to be received also.

It's a shame that they didn't mention regarding legacy project closeout.