RE: Last chance saloon......14 Dec 2023 12:37
"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 cashflow 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 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”.
Explicitly around Performance Guarantees which are normally 10% of the EPC contract worth… EPC Contracts with Performance Guarantees on contracts to the principal value of around £3billion.the cost to the PFC revolving credit facility would be £300million as that’s the irrevocable bonds in place due to failure to complete the EPC contract to its obligatory Performance capabilities contained in the EPC contract…..
Therefore the highest contracts PFC could fund at any one time amounts to $5billion…..You also consider that $5billion of work is spread over 3 years approx.……..It does not leave a lot in reserve to fund Advance Payment Bonds for a contract?
Therefore it would be trustworthy to assume that PFC have facilities for $1.5billion a year in contracts….According to there current Banking Facility…..
Feel Free to Contest my Points all welcome…..
DYOR
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