Interim Results 22 August 2011
Important Notice • This document has been prepared by Petrofac Limited (the Company) solely for use at presentations held in connection with the announcement of its results for the six months ended 30 June 2011. The information in this document has not been independently verified and no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or opinions contained herein. None of the Company or any of its affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss whatsoever arising from any use of this document, or its contents, or otherwise arising in connection with this document. • This document does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase any shares in the Company, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or commitment or investment decisions relating thereto, nor does it constitute a recommendation regarding the shares of the Company. • Certain statements in this presentation are forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by the forward looking statements. These risks, uncertainties or assumptions could adversely affect the outcome and financial effects of the plans and events described herein. Statements contained in this presentation regarding past trends or activities should not be taken as representation that such trends or activities will continue in the future. You should not place undue reliance on forward looking statements, which only speak as of the date of this presentation.
• The Company is under no obligation to update or keep current the information contained in this presentation, including any forward looking statements, or to correct any inaccuracies which may become apparent and any opinions expressed in it are subject to change without notice. 2
Headlines • Good operational and financial performance in 1H 2011
• Backlog of US$11.4bn at 30 June 2011 (i3% versus 31 December 2010, h66% versus 30 June 2010); maintains our outstanding revenue visibility • Engineering & Construction net margin in-line with medium-term guidance (around 11%) and substantial net margin progression in Offshore Engineering & Operations
• Well on course to deliver like-for-like1 net profit growth in 2011 of at least 15% and in-line with current market expectations; confident of more than doubling 2010 recurring group earnings by 2015 Backlog
Revenue
Net profit2
5 yr CAGR 28%
5 yr CAGR 25%
5 yr CAGR 33% 4,354
11,699
11,368
433.0
3,655
353.6
3,330
8,071
4,441
2,711
2,440
265.0
2,1663
231.03 246.3
188.7
3,997
25%
2007
2008
2009
2010
1H11
2007
2008
2009
2010
1H10
1H11
7%
2007
2008
2009
2010
Note: all figures presented above are for the group’s continuing operations and are for financial years ended 31 December and interim periods ended 30 June (US$ millions) 1 Excluding the gain on the EnQuest demerger and the trading net profit from the Don assets in 2010 2 Net profit attributable to Petrofac Limited shareholders and excluding the gain on the EnQuest demerger 3 Restated
1H10
1H11 3
Backlog • Backlog continues to give outstanding revenue visibility • New projects awarded in Algeria, Iraq and Malaysia contributed to the broad maintenance of Engineering & Construction backlog at US$8.7bn in 1H 2011 (Dec 2010: US$9.0bn) • Offshore Engineering & Operations backlog remained steady at US$2.4bn (Dec 2010: US$2.4bn) following contract extensions and new awards secured during 1H 2011 • Going forward, backlog to include Risk Service Contracts (see slide 19)
1H 2011 backlog (US$bn)
E&C backlog by region (US$bn)
0.3
E&C backlog by year (US$bn)
6%
2.4
2.2
2.4 25%
38%
8.7 31%
E&C
OEO
ETSPS
4.0
CIS
Middle East
North Africa
UKCS and SE Asia
2011
2012
2013+ 4
Group reorganisation Organisational restructure will take effect from 1 January 2012
•
Maroun Semaan appointed President, leading development of major strategic initiatives Engineering, Construction, Operations & Maintenance (ECOM) Chief Executive, Marwan Chedid
Integrated Energy Services (IES) Chief Executive, Andy Inglis
Business units Reporting segments
Current
Business units
New
Divisions
•
Onshore Engineering & Construction
Engineering & Construction
Engineering & Construction Ventures
Engineering & Construction
Offshore Projects & Operations
Engineering & Consulting Services
Training
Production Solutions
Developments
Offshore Engineering & Operations
Engineering Services
Training Services
Production Solutions
Energy Developments
Offshore Engineering & Operations
Engineering, Training Services and Production Solutions
Energy Developments
5
Progressing our IES strategy – Mexico
Magallanes and Santuario blocks, Mexico
• Selected bidder for two 25 year Production Enhancement Contracts (PEC) for Magallanes and Santuario blocks • Current production approximately 14,000 bpd • Tariff of US$5.01 per barrel for incremental production (lower tariff for baseline) • 75% cost recovery for capital and operating expenditure • Committed to investment of c. US$500 million over the life of the contracts • Petrofac will have 90% share in PECs; Pemex subsidiary will have 10% share • Contract expected to be signed 18 October 2011, followed by 3 month transition period 66
Progressing our IES strategy – projects update
Ticleni field, Romania (PEC)
• Oil production ahead of budget • Well workovers undertaken to improve production • Commenced pilot water flood programme; results expected end 2011 Berantai field, Malaysia (RSC)
Ticleni field, Romania
• Good progress made on wellhead platform • Modification of FPSO Berantai progressing at Keppel Shipyard (Singapore); planned sailaway early 2012 • First gas expected shortly thereafter FPSO Berantai 77
Progressing our IES strategy – West Desaru • We have signed an MOU to accelerate production from Block PM304 with a third phase of development - West Desaru • Aim to achieve first oil by end 2012 by utilising current export facilities and upgrading and deploying a Mobile Offshore Production unit • West Desaru development combined with Cendor phase 2 development will increase overall production capacity to around 60,000 barrels per day PM304 full field development plan Cendor Phase 1 (existing) Cendor Phase 1 MOPU
LEGEND 8” Pipeline to be installed during EPS 6” Bonded Hose to be installed temporarily for EPS Flexible Riser to be installed at later stage
Proposed Early Production Development New MOPU plus conductor supported wellhead
FSO
Cendor Phase 2 (ongoing development - complete June 2013)
FPSO
CDW-A & B
Flexible riser CDW-C Temporary Pipeline for Early Production System (Bonded Hose)
Tie-In Point PLET Post 2013 Tie-In
Export Pipeline
8
Progress on major projects
South Yoloten field, Turkmenistan • Good progress with construction of the temporary facilities completed and the majority of orders for procurement placed
• Expect to reach profit recognition threshold in 2H 2011 • 1,800 employees and subcontractors on-site with more than 70% local content
South Yoloten field, Turkmenistan 99
Progress on major projects
Laggan Tormore gas processing plant, Shetland Islands • First lump-sum contract in the UKCS; dynamic project management and continuous engagement at all levels of the client team • Leveraging offshore skills to build modular design onshore • Stella Ness accommodation block opened in July 2011
Aerial view of Laggan Tormore site
Aerial view of accommodation block
10 10
Progress on major projects
El Merk gas processing facility, Algeria • Engineering and procurement now substantially complete, more than 50% of construction completed • Around 5,000 workers on-site of whom ~90% are Algerian • First graduates through the recently opened training centre
El Merk gas processing facility Algeria
Asab field development, Abu Dhabi • Overall progress in-line with plan; project completion forecast for 2H 2012 • Engineering and procurement substantially complete, more than 50% of construction completed
• Around 10,000 workers on-site
Asab field development, Abu Dhabi 11 11
Geographical expansion – South-East Asia
Indonesia: existing capability
Malaysia: deepening strategic relationship
• JV with Indonesia’s Inti Karya Persada Tehnik (IKPT)
• Worked with PETRONAS since 2004; recent awards on Sepat and Berantai and signed MOUs for PM304 and training
• Engineering office with > 200 employees with extensive expertise and proven track record
• Plan to build upon existing engineering capability to develop SE-Asia hub
• In-country prospects across the group
Thailand: recent country entry
• Acquisition of FPSO from Pearl Energy reflects strong ongoing relationship with Mubadala • Represents opportunity for Integrated Energy Services as well as our other service businesses 12 12
Geographical expansion – recent country entries
• Currently working on two projects in-country for Shell and BP Iraq
• Strong bidding pipeline for further opportunities in late 2011 and 2012 • Strategic opportunity to develop local workforces
• Invested additional funds into Seven Energy taking our interest up to 24.5% (on a fully diluted basis); we have earned 80% of the warrants issued in 2010 Nigeria
• Opportunities to monetise stranded, flared and currently exported gas • Laying the foundations for an ongoing local presence in Nigeria • Good performance on South Yoloten project will position us well for future opportunities
Turkmenistan
• Opportunities to support the development of Turkmenistan’s hydrocarbon reserves as well as well as new export routes • Strategic opportunity to establish training centre 13
Income Statement US$m
1H 2011
1H 20101
Variance
Restated
Revenue
2,711.1
2,165.8
25%
Operating profit
298.5
290.9
3%
Profit before tax
299.6
291.4
3%
Income tax expense
(53.1)
(61.2)
Profit for the period
246.5
230.2
7%
Profit for the period attributable to Petrofac Limited shareholders
246.3
231.0
7%
EBITDA
332.0
349.7
5%
60.1%
62.7%
EPS, diluted (cents per share)
71.8
67.3
7%
Interim dividend (cents per share)
17.4
13.8
26%
ROCE
Note: all figures presented above are for the group’s continuing operations and are for the half year period ended 30 June (US$ millions) 1 Excluding the US$125.6m gain on the EnQuest demerger
14
Cash flow and gross cash balances Cash position very strong at US$1.8bn: • Net working capital inflows of US$906m due to an increase in advance payments and a reduction in WIP on Engineering & Construction • Investing activities include US$99m for the acquisition of three FPSOs, further investment in Seven Energy of US$50m and US$46m of other capex additions
• Financing activities include payment of 2010 final dividend of US$101m Gross cash position and cash flow movements (US$m) 1,167.8
(217.9) (164.7)
= ‘Billings in excess of cost and estimated earnings’ less amounts billed in advance but not received
1,848.2
= ‘cash advances’, measured as ‘Advances received from customers’ net of any associated work in progress (on a project by project basis)
1,063.0 375.5 1,220.5
845.0 256.3
155.6 100.7 Dec 2010
Operating
Investing
Financing/Other
Jun 2011
15
IES capital expenditure • Approximately US$140m deployed on IES projects in 1H 2011; expect the rate of capital deployment to increase in 2H 2011 • Continue to envisage gross investment of between US$0.5 – 1.0bn per year • Projects are typically either fast-track developments (time frame of 1 – 3 years) or already producing (PEC contracts) so net investment is considerably less • Capital deployment plans can be financed from our own resources IES approximate capital expenditure (US$m)
700
New projects 400
Existing projects
140
1H 2011
2H 2011
FY 2012 16
Backlog – inclusion of Risk Service Contracts
Rationale • Updated in response to the creation of Integrated Energy Services and the increasing proportion of earnings that will come from Risk Service Contracts • Reflects the service nature of this business and removes inconsistency in treatment among our service businesses
Backlog methodology
Current
Future
Backlog booked on confirmed contracts only
Maximum of 5 years revenue booked1
Backlog not booked on Production Sharing Contracts
Backlog booked on Production Enhancement Contracts
Backlog booked on Risk Service Contracts
1 Limit does not apply to lump-sum EPC contracts 15 17
Engineering & Construction Financial performance in 1H 2011 affected by timing of profit recognition: • Revenue h17% - higher activity levels particularly on Asab and South Yoloten projects • Net profit flat - due to margin dilution from early stage contracts (which have not reached profit recognition) compared with margin enhancement in 1H10 from first-time profit recognition on projects awarded in 2009 • Net profit margin broadly in line with medium-term guidance at 10.8%
Net profit (US$m) and margin
EBITDA (US$m) and margin
Revenue (US$m)
373.0 3,254
474.3
17%
2,509
4%
0%
265.1
337.3 1,994
1,904 1,6231
2008 1 Restated
2009
2010
1H10
1H11
259.81
252.4
12.7%
13.4%
2008
2009
14.6%
2010
206.51
206.3
16.0%
1H10
205.9
248.5
10.6%
11.5%
13.1%
10.4%
1H11
2008
2009
2010
12.7% 10.8%
1H10
1H11 18
Offshore Engineering & Operations Very strong performance in 1H 2011: • Net revenue h98%, net profit h703% – significant increase in activity levels particularly on the SEPAT development and the FPSO Berantai – provision release following completion of a long-term maintenance services contract • Net margin on net revenue increased to 6.6% Revenue (US$m)
31.8
777 722 Passthrough revenue
Net profit (US$m) and margin1
EBITDA (US$m) and margin
627 221
41.3
78%
6.6%
98
195 190
581
327
27.3
24.7
703%
491%
19.7
83
2009
2010
1H10
1H11
3.2%
3.1%
3.8%
2.1%
2008
2009
2010
1H10
1 Dotted line indicates net margin on revenue net of pass-through revenue
5.5%
12.8 7.0
2008
17.2
16.4
3.3%
3.0%
2.9%
7.1%
2.1%
2.0%
2.4%
1H11
2008
2009
2010
4.0 1.6% 1.2%
1H10
1H11 19
Engineering, Training, Production Solutions Mixed results across the business units:
• Revenue h20% due to an increase in activity in Engineering Services in support of internal work and strong growth in number of delegates in Training Services • Net profit broadly unchanged • Net margins on net revenue lower at 7.3% - mostly due to change in scope of Dubai Petroleum contract and early mobilisation and set-up costs on the Ticleni PEC EBITDA (US$m) and margin1
Revenue (US$m) Passthrough revenue
510
Net profit (US$m) and margin1
61.9
33.1
55 350 40
355
27.6
32
12
2009
2010
42.6
20% 162
2008
32.4
1H10
16%
34.7 21.5
194
13.0
18.1 10.4%
14
1H11
1%
7.3% 12.1%
12.2%
2008
2009
1 Dotted line indicates net margin on revenue net of pass-through revenue
13.3% 9.4%
9.8%
2010
9.3%
1H10
1H11
6.5%
2008
2009
13.1
8.5%
8.7%
7.8%
8.1%
6.8%
2010
1H10
1H11
7.3%
20
Energy Developments Lower contribution during ‘development phase’:
• Revenue h50% - primarily due to commencement of the Berantai RSC, partially offset by demerger of Don assets in April 2010 • Net profit i56% – lower contribution from Cendor due to lower production and demerger of Don assets – no contribution recognised on Berantai RSC, as the project is in its early stages Revenue (US$m)
EBITDA (US$m)
Net profit (US$m) 46.2
160.9
249 Don assets trading revenue
78
188
50% 160
15
153
Don assets trading EBITDA
49.2
Don assets trading net profit
2009
2010
1H10
45%
21.9
17.5
69.8
106 15
2008
31.5 2.1
116.1 20.7
89.1
12.7
20.7
1H11
2008
2009
2010
1H10
56%
2.1 38.2
1H11
7.7
2008
2009
2010
1H10
1H11 21
Summary and outlook
• Good operational performance achieved across our portfolio of projects • Backlog of US$11.4 billion gives outstanding revenue visibility • Encouraging progress against our Integrated Energy Services strategy
• Sector-leading net margins in Engineering & Construction at around 11% and substantial net margin progression in Offshore Engineering & Operations
We are well on course to deliver like-for-like net profit growth in 2011 of at least 15% and in-line with current market expectations; we remain confident of more than doubling our 2010 recurring group earnings by 2015
22
Appendices
Appendix 1: Largest current EPC contracts Customer key: NOC/NOC led company/consortium
Joint NOC/IOC company/consortium
IOC/IOC led company/consortium
Original contract value to Petrofac
Asab onshore oil field development, Abu Dhabi
US$2,300m
Karan cogeneration and utilities, Saudi Arabia
Undisclosed
El Merk gas processing facility, Algeria
US$2,200m
Kauther gas compression project, Oman
US$350m
4th NGL train at Integrated Gas Development, Abu Dhabi
US$500m
Gas sweetening facilities project, Qatar
>US$600m
Majnoon early production system, Iraq
US$240m
Mina Al-Ahmadi refinery pipelines 2, Kuwait
US$400m
Raudhatain & Sabriyah fields water injection, Kuwait
US$430m
Laggan Tormore gas processing plant, UKCS1
>US$800m
South Yoloten gas processing plant and infrastructure, Turkmenistan
US$3,400m
Sepat offshore early production system, Malaysia1 In Salah southern fields development, Algeria
US$280m US$1,200m
Dec 08-----------Dec 09-----------Dec 10-----------Dec 11----------Dec 12----------Dec 13 1 Scope shared between E&C and OEO
24
Appendix 2: Effective tax rate Tax charge by segment
1H 2011 reported
2010 reported
Engineering & Construction
14%
17%
Offshore Engineering & Operations
19%
27%
Engineering, Training and Production Solutions
7%
(4%)
Energy Developments1
63%
50%
• Engineering & Construction and Offshore Engineering & Operations lower due to changes in the jurisdictions in which profits were earned • Engineering, Training and Production Solutions ETR higher due to higher profitability in Engineering Services • Energy Developments higher due to tax credits available to entities operating in the UKCS having been eliminated following the EnQuest demerger
1 Excluding the US$124.9m gain on the EnQuest demerger (non-chargeable gain for UK tax)
25
Appendix 3: Segmental performance •
Engineering & Construction earned 67% of revenue and 80% of net profit
•
Middle East and Africa: remains a key geographic market for Engineering & Construction
•
CIS & Asia: primarily relates to activity in Malaysia across the group, with an increasing contribution from Turkmenistan
•
Europe: activity principally in UK North Sea, where majority of Offshore Engineering & Operations revenues are generated 1H 2011 Revenue
7%
1H 2011 Net Profit
6%
5%3%
1H 2011 Revenue
19%
1%
12%
20% 22%
67%
58%
80%
E&C
OEO
ETSPS
ED
E&C
OEO
ETSPS
ED
Middle East & Africa
CIS & Asia
Europe
Other 26
Appendix 4: Employee numbers •
14,600 people in 6 key operating centres and 21 offices worldwide
•
EPC headcount includes the engineering offices in Mumbai, Chennai and Delhi, which although reported in ETSPS principally support E&C activities
•
Approximately 4,500 employee shareholders or participants in employee share schemes
EPC headcount 7,800 7,000 5,600 4,400 3,300 2,400
2006
2007
Indonesia
2008
2009
India
2010 1H11
UAE and sites
Operating centre
Country office
27
Appendix 5: EPC risk management
100%
Final acceptance certificate
Manage/support local construction contractors
Robust Completion systems to facilitate smooth startup
Provisional acceptance certificate Well-established procedures assist project team to manage in-house engineering; contractual terms with vendors and subcontractors finalised
Review of key technical and commercial risks and mitigants by Risk Committees / Board; negotiation of contract terms Careful selection of partners, subcontractors and vendors – build up pricing from ground-up; early stage engineering (many thousands of manhours)
Mechanical completion Effective Date
Profit recognition
Integrated procurement team manage buying, inspection and expediting
Revenue recognition
Assessment of customer and country risk and development of high-level execution strategy
100% 0%
Warranty phase Execution phase (typically 2-4 years) Proposal phase
Project risk
28
Notes • EBITDA means earnings before interest, tax, depreciation and amortisation and is calculated as profit from operations before tax and finance costs adjusted to add back charges for depreciation, amortisation and impairment.
• Net profit (for the group) means profit for the period from operations attributable to Petrofac Limited shareholders • Backlog consists of the estimated revenue attributable to the uncompleted portion of lump-sum engineering, procurement and construction contracts and variation orders plus, with regard to engineering services and facilities management contracts, the estimated revenue attributable to the lesser of the remaining term of the contract and, in the case of life of field facilities management contracts, five years. To the extent work advances on these contracts, revenue is recognised and removed from the backlog. Where contracts extend beyond five years, the backlog relating thereto is added to the backlog on a rolling monthly basis. Backlog includes only the revenue attributable to signed contracts for which all pre-conditions to entry have been met and only the proportionate share of joint venture contracts that is attributable to Petrofac. Backlog does not include any revenue expected to arise from contracts where the customer has no commitment to draw upon services from Petrofac. Backlog is not an audited measure. Other companies in the oil and gas industry may calculate these measures differently. Order intake comprises new contracts awarded, growth in scope of existing contracts and the rolling increment attributable to contracts which extend beyond five years. • The group reports its financial results in US dollars and, accordingly, will declare any dividends in US dollars together with a Sterling equivalent. Unless shareholders have made valid elections to the contrary, they will receive any dividends payable in Sterling. Conversion of the 2011 interim dividend from US dollars into Sterling is based upon an exchange rate of US$1.6510:£1, being the Bank of England Sterling spot rate as at midday, 19 August 2011. • Operating profit means profit from operations before tax and finance costs.
29
Contact information: Jonathan Low Head of Investor Relations
[email protected] 020 7811 4900
Tess Palmer Investor Relations Officer
[email protected] 020 7811 4900