Petrofac Share Discussion Threads

[callmebwana] 29/8/2017 08:20

North Korea fires Missile over Northern Japan !!! Not good for the Stock Market !!

Last day for the Shorters to have their fun. Results out tomorrow.
GLA.

[mj19] 26/8/2017 17:27

Can Petrofac Put Its SFO Issues Aside With Half Year Update?Connor Campbell | Aug 23, 2017 11:09 Be the first to commentBy Connor Campbell, Financial Analyst, SpreadexFor the first few months of the year Petrofac (LON:PFC) wasn't doing anything special. The oilfield services firm largely traded between £8.50 and £9.50 from January to mid-April, a period that saw the release of Petrofac's full year results in February – where the company eked out a net profit of $1 million against the $349 million loss seen the year previous, alongside a 15% rise in revenue to $7.87 billion – and the winning of a chunky $1.3 billion project in Kuwait at the end of March.Petrofac LTD ChartPetrofac LTD ChartWhile the stock did start to drift below £8.50 towards the end of April, it wasn't until mid-May that its troubles really began. On 12th May Petrofac plunged 14.5% in a single session, as the Serious Fraud Office announced it was investigating the company in connection with suspected bribery, corruption and money laundering, linked to its ongoing probe into Monaco-based firm Unaoil, who did consultancy work for Petrofac between 2002 and 2009.Petrofac continued to fall in the days that followed, only for things to get even worst on the 25th May as the company suspended its COO Marwan Chedid. This sparked a stomach-churning 30% drop on the day of the announcement, with further losses in the subsequent fortnight eventually leaving Petrofac at an 8 year low of £3.48 by early June.Since then there has been a slight recovery in Petrofac's stock price. A series of contract updates, including most recently a $2 billion Duqm Refinery Project deal in Oman, have lifted the company from its lows, though the dark clouds of the SFO investigation has kept it below £5. Petrofac Ltd now sits at a current trading price of £4.40.In terms of Wednesday's interim results, analysts are expecting a 10.8% fall in revenue to $3.47 billion, but with a 2.6% increase in earnings to $0.40 per share. Of course, what investors will really want is an update on the SFO situation, especially since Petrofac appointed top City lawyer Edward Sparrow for the 'management of, and response to, the investigation' earlier in the month.Petrofac Ltd has a consensus rating of 'Hold' alongside an average target price of £6.70.

[callmebwana] 26/8/2017 15:42

1GW. Thanks for the above posts.

[1gw] 26/8/2017 15:26

Greater Stella Area asset

I still think the sale of one or more of the IES upstream assets might be a quick win if Petrofac wishes to raise cash to counter the debt concerns that arise in articles such as the Telegraph one in my previous post. This might be an effective way to undermine some of the shorts' arguments.

Petrofac should have become a licensee in Greater Stella Area with a 20% equity interest (Stella and Harrier fields plus Hurricane discovery, licence P011) upon first production, which has now happened. However the transfer has to be approved by DECC and it appears it has still not formally gone through as of 21st August.


Petrofac referred to the delay in their 27th June TU "...the ramp up in production and our formal entry onto the licence has been slower than expected."

The asset in the meantime is treated as a financial asset, sitting on the balance sheet:
"The Greater Stella Area (GSA) asset is treated in the consolidated statement of financial position as a financial asset and measured through profit and loss on the basis that there is currently a short-term loan receivable from the consortium partners to fund Petrofac’s share of the field development costs which cannot be converted to a 20% equity share in the GSA licence until the start of production from the field and DECC approval for Petrofac to acquire this interest in the asset."

In the end-year accounts it was carried at $276m ("Receivable in respect of the development of the Greater Stella Area") with a fair value also of $276m.

The asset is arguably now at a point of maximum forward value - the development costs have been spent, the development risk has been removed and it is just ramping up to full production. This strikes me as a relatively easy asset to sell and hopefully it could pull in $300m+ if the 31/12/16 fair value is reasonable. Selling now would mean foregoing upside from future oil prices exceeding assumptions used in current M&A deals, but equally would remove downside price risk as well. It would also potentially save a lot of future management time and resources looking at ownership issues that arise on the field (investment decisions, hedging strategies etc).

Anyway, just thought I'd share the thoughts. I'm really trying to decide whether I ought to take a bit off the table ahead of the results on Wednesday. I think I now feel considerably more comfortable about the debt issue.

[1gw] 26/8/2017 14:15

Did a bit more digging on the liquidity situation.

This Telegraph article following the trading update picks up the squeeze on the revolving credit facility "...analysts at Bernstein warned it would have as little as $100m in liquidity available through its revolving credit facility".



The article goes on to say that "Petrofac countered concern over its balance sheet in an investor call by stating it has around $1bn in cash to support its operations and tendering for contracts."

This is consistent with the annual report on page 51 where it states:

"Excluding bank overdrafts, the Group's total available borrowing facilities were US$2,393 million at 31/12/16...Of these facilities, US$631 million was undrawn as at 31/12/16...Combined with the Group's cash balances of US$1,167 million...the Group has substantial sources of liquidity available."

So if net debt has increased by around $500m in 1H,that could have wiped out all but about $100m of the revolving credit facility, as Bernstein says. But that should still leave the $1.1bn of cash. So even if the $300m of term loans have to be repaid from cash reserves that would still leave $0.8bn of cash (or $0.7bn of cash and a bit more capacity in the revolving credit facility).

This cash reserve would then increase (or the revolving credit facility could be repaid) to the extent 2H does produce a reduction in net debt as per company guidance.

[rhatton] 25/8/2017 18:06

Also last year trading update in June 2016

"Net debt is expected to increase to around US$1.1 billion at 30 June 2016 (31 December 2015: US$0.7 billion), reflecting payment of the 2015 final dividend and capital expenditure"

So I don't think out of the ordinary.

My personal concern is the order backlog. Been declining from over $20 billion a couple of years back to now $13 as per the last update. Possibly $14 billion with the last Oman deal.

Hopefully we get some of that Saudi work

[stoxx67] 25/8/2017 18:03

many thanks 1gw

[1gw] 25/8/2017 17:57

Yes but net debt at year end was only $0.6bn, so that increase to $1.1bn at mid-year (as per estimate in TU) is significant in the context of the spare capacity (at end-year) in the revolving credit facilities.

But they say the increase was expected and that they expect net debt to fall again in 2H (as it did last year), so hopefully all will be well. Presumably at some point their Greater Stella area interest will start generating some welcome cashflow.

It all looks like it might be a bit tight though, particularly if they can't roll over the term loans and I guess it's possible that some of the short positions are at least in part a bet that the company will get into trouble on financing and at least have to cut the dividend.

So a strong statement on 2H cashflow expectations / debt capacity would be good to see.

[rhatton] 25/8/2017 17:40

Net debt this half year is forecast to be not hugely different to last half year.

This year $1.1 last year $0.83

[1gw] 25/8/2017 16:39

Yes they are, and although there was quite a bit of capacity left on the revolving credit facilities at end-2016, Petrofac have indicated net debt went up quite significantly in 1H 2017 (in their TU). They also said they expect net debt to come down during 2H.

So I think what they say on Wednesday about the anticipated debt trajectory and the availability of adequate financing facilities will be quite important.

[academy1] 25/8/2017 16:30

Are these loans in addition to the Petrofac’s 1bn revolving credit facility it extended?
"lenders agreed to extend the maturity on $1bn of its $1.2bn revolving credit facility by a year, following an extension request from the board earlier this month.

The maturity was extended from June 2, 2020 to June 2, 2021. The remaining $200m will mature on June 2, 2020."

[paa65] 25/8/2017 15:32

As others have stated, buyers don't 'Buy the Divi' because the share price will drop by the approx divi on the ex-div date, making it neutral.
What is really interesting is whether the profits (and debts) of the company make the divi sustainable. So preparing for 30th Aug, I've taken a quick look through the latest annual and interim accounts to see what the equivalent revenue, earnings, debt and backlog were at end of Dec 2016, and end of June 2016. I believe the share price move next Wednesday will depend on comparisons with those, rather than simply whether the divi is maintained (some companies continue paying the same divi from increasing debt rather than ongoing operations, which is not sustainable).
Anyway, to get to the point, I found this in the Annual Report.
-----------------------------------------------
(ii) Term loan
On 31 August 2014, Petrofac entered into a US$500m two-year term loan facility with a syndicate of five international banks. The facility matured on
31 August 2016 and was repaid in full on 15 August 2016. The repayment was partly financed with the proceeds of two new term loans of US$200m
and AED368m. These two new facilities will mature in August 2017. The loan was fully drawn as of 31 December 2016 (31 December 2015: US$500m).
Interest is payable on the US$200m facility at US LIBOR + 1.25%.
Interest payable on the AED368m facility at EIBOR + 1.25%
-------------------------------------------------
The key point being that the Term Loan matures in August 2017 and we haven't been told anything about its renewal yet. So either an RNS in Tuesday to tell us about it, or it will be in the Interim Results on Wednesday.

I have a lot of these shares (I already held before the SFO announcement and averaged down as they fell). I've traded some in the range 350 to 450. but still have a large paper loss on those bought higher.
So I'll be nervously waiting for the market response between 7am and 8am on Wednesday, and then seeing who wins out of the longs and shorts over the following hours and days.
I fear that a 'steady as she goes' statement will be another excuse for a short attack. We need something better than that.
Good luck to all.

[bouleversee] 25/8/2017 13:31

rHatton -
"In all honesty, the business update will play a distant second fiddle to any news on the Serious Fraud Office (SFO) investigation."

Did you really mean it that way round? I should have thought the opposite.

[lodgeview] 25/8/2017 13:22

How did they manage to sustain the divi last year when they made a loss?

[oohrogerpalmer] 25/8/2017 13:14

The update will barely mention the SFO if at all.
Like any other company under investigation it will be business as usual with a divi payment.
They can't do anything else, all they can say is that they are fully cooperating with the SFO investigation.

[rhatton] 25/8/2017 12:48

Petrofac (half-year results 30 August)
Everything Petrofac does will occur in the shadow of the fraud investigation currently conducted into the company. It has a strong order backlog, which stood at $14.3 billion at the end of last year, and this will at least help to tide the firm over in the difficult period to come. The real danger remains that it will see the number of contracts it manages fall as renewals fail to come through. This would hit revenues, and then the balance sheet. In all honesty, the business update will play a distant second fiddle to any news on the Serious Fraud Office (SFO) investigation.

The current range for Petrofac is 411p to 488p, having held since mid June. With so much negative sentiment hanging over the stock the 500p level would appear to be the limit of the upside at present. Below 411p support at 345p comes into play.

From IG

[d1nga] 25/8/2017 09:31

they'll pay the divi (why wouldn't they ? business as usual ) - price action will hinge on the forward looking statement.

up up and away IMO

[ny boy] 25/8/2017 09:22

If the pay the divi share price should be another 10-20p on the news, tick tock

[callmebwana] 25/8/2017 09:20

LOL, who left the stable door open !! :o)

[torres10] 25/8/2017 09:13

NY Boy mad scramble to buy hehe you sound like they selling hot donouts.Im sure ghe shares will be easily available. Lets just hope for good update and dividend payment as previous years and see where the share price is.

[ny boy] 25/8/2017 09:08

Even less time to wait then 😬

[callmebwana] 25/8/2017 08:52

Ah' thanks NY Boy. I forgot the Bank holiday !!

[ny boy] 25/8/2017 08:50

2 actual trading days, as bank holiday Monday.

If they confirm the divi, what price the sp, will be a mad scramble to buy in before ex divi day 21 Sept?

[callmebwana] 25/8/2017 08:45

Provided you agree with the fundemantals of PFC, then why worry ??
3 Trading days and we will know where we stand.
I am over weight in PFC same as I was in PAYS. There were two short attacks from Shorters on PAYS from a USA Co called Spolight Research. Both times Stop Losses were trigered and people lost money. I have no Stop Loss on PFC either.
The Shorters will do anything underhanded to frighten PI's. The share price is to volatile to have a stop loss on. AIMHO.
I look at Shorters as blood sucking leeches.
GLA.

[ny boy] 25/8/2017 08:40

Buying ahead if the results, got too cheap, tick tock only 2 trading days to go