OIL services group Petrofac yesterday said it still hoped to complete a major gas project in the Shetland Islands this year despite warning that it faces further losses on the scheme of around $195 million (£130m).
The company, which employs more than 4,500 people in Scotland, blamed bad weather and industrial action for delays as it entered the final construction and commissioning phases of the Laggan-Tormore site last month.
Shares fell by as much as 13 per cent on the news – which was the second big financial hit it has announced on the project this year – but recovered some of the losses to close down just over 10 per cent, or 101.5p, at 912.5p. The company has now seen its shares fall around 40 per cent in the last 12 months.
In a statement to the stock market it said that as work had ramped up on the project – which is being carried out for energy giant Total at a site just to the east of the existing Sullom Voe Terminal – it had become apparent that “significantly more man-hours” were needed to complete it than had been anticipated.
It also cited the failure of an unnamed sub-contractor to “deliver in line with their agreed scope” as another factor which would lead to cost over-runs.
Petrofac, which has also suffered delays at the Greater Stella Area project in the central North Sea, said it still expected to complete Laggan-Tormore in the third quarter of the year.
Chief executive Ayman Asfari said he had “never faced a more difficult and challenging work environment”. He added: “We are deeply disappointed by this additional cost to complete on the Laggan-Tormore project.”
Asfari said the project was unusual compared to others in the firm’s portfolio where sub-contractors are typically used to a greater extent to deliver construction services. He admitted Petrofac’s “lack of experience of operating a direct construction model” had “cost us dearly”.
Petrofac has already said it will no longer take construction risks on similar large projects within the UK to avoid a similar experience to Laggan-Tormore.
“For now, my senior management team and I are focused on delivering the project in line with the revised schedule agreed with our client.”
He stressed that the rest of the portfolio continued to perform in line with expectations.
The firm had said in February it would take a loss of $230m on the project due to issues including problems with a sub-contractor.
The further pre-tax loss announced yesterday takes the figure up to $425m. The profit warning also represents the third downgrade in 12 months for the company which has major bases at Aberdeen and Montrose.
Lewis Sturdy, dealer at London Capital, said the news had come at a bad time for the sector.
He added: “Economic conditions are bad enough for North Sea oil and gas explorers and service providers but the notorious stormy weather has made it worse for Petrofac with further losses at its Shetland Islands gas project.”
Total had awarded Petrofac the £800m contract for the gas plant in October 2010. The contract covered engineering, procurement supply, construction and commissioning.
The Laggan-Tormore project is expected to reach peak production rates of 93,000 barrels of oil equivalent per day.
Total, which owns 80 per cent of Laggan-Tormore, put its stake up for sale in March, with reports it was looking for about $1.5 billion.
Located some 125km north-west of the Shetland Islands, the Laggan and Tormore fields lie in an area on the edge of the UK continental shelf. Water depths descend rapidly from an average of 120 to 600 metres and beyond, making it a challenging environment in which to operate.