Shares in Petrofac fell by more than a quarter yesterday after the oilfield services firm slashed its profit guidance, prompting speculation that it could be vulnerable to a takeover bid.
The company, which has major bases in Aberdeen and Montrose, shocked the market by cutting hundreds of millions off its forecasts for next year as it factored in the lower oil price and a number of operational issues.
Petrofac said that this year’s earnings will fall “towards the lower end” of the $580 million (£370m) to $600m range provided just last month.
The picture is worse for next year – management now expects about $500m in net profit for 2015, far lower than its stated goal of $862m and the average analyst estimate of $688.1m.
Chief executive Ayman Asfari said: “This has been a difficult period for Petrofac and the industry. The board has analysed the potential impact of a lower oil price environment on our integrated energy services business and also made a critical assessment of our expectations for project delivery in 2015.
“In the main our project portfolio is in good shape, but it is clear that on a small number of projects our execution has fallen short of the high standards we set for ourselves. We have faced these difficulties and have taken robust action to address them and believe this leaves us on a surer footing for the future.”
Oil prices are expected to remain lower than in recent years, taking $45m off the firm’s bottom line, while the timing of first oil at the Greater Stella Area project in the UK North Sea and contractual or operational issues elsewhere account for the rest of the shortfall. The company’s involvement in the Laggan-Tormore project in Shetland is now forecast to see either no profit or a loss being recognised in 2015.
Asfari said the foundations of the business “remain strong” and he was confident that Petrofac “will meet the challenges presented by certain projects in our portfolio”.
But Garry White, chief investment correspondent at Charles Stanley, said many investors who bought the shares in recent weeks would be “bitterly disappointed” at the latest statement. The shares rallied strongly an update on 17 October highlighted an order backlog of $21 billion.
“However, just one month later the company said that profits would be hit significantly because of a number of issues,” White said. “It’s too simplistic to say it’s all down to the oil price. Most of this warning can be blamed on the failure to deliver projects by management. This is more serious than if it was experiencing some cyclical tightness due to movements in a commodity price.”
White noted that the share price weakness could make the group attractive for a predator, as there has already been some activity in the global energy services sector. But he cautioned against buying shares in companies “on bid hopes alone”.
Petrofac’s shares ended the day down 315.5p, or 26.5 per cent, at 877.5p.
White added: “Over the next year management has to focus on implementing its current contracts profitably and a cost-saving programme is likely to be launched. Management has much to prove.”
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