Petrofac to reduce its headcount by 20 pct in response to coronavirus crisis
Oilfield services provider Petrofac is joining other providers in actions responding to the unprecedented market conditions. As a result, Petrofac will reduce its capex by 40%, reduce salaries across the company, and reduce its personnel by about 20%.
Petrofac said on Monday that these actions include reducing overhead and project support costs by at least $100 million in 2020 and by up to $200 million in 2021.
The company’s actions also include conserving cash and liquidity by reducing capex by 40% and suspending the 2019 final dividend.
Ayman Asfari, Petrofac’s Group Chief Executive, commented: “We have a resilient business model, strong competitive position and a differentiated in-country value proposition that is highly valued by our clients. Nevertheless, we are taking swift, decisive action in response to the COVID-19 pandemic and lower oil prices to reduce costs, retain our competitiveness and preserve the strength of our balance sheet.”
Petrofac said that stringent health protocols are in place across all its operations and the company has transitioned to remote working to minimize business disruption.
Engineering and construction activity continues at most of its Engineering & Construction (E&C) project sites and offices, although progress is being impacted by supply chain disruptions, travel restrictions and the government enforced lockdowns in India and Iraq.
Operations and maintenance activity in Engineering & Production Services (EPS) business continues in all regions, albeit travel and social distancing restrictions are having a modest impact on activity levels.
Petrofac’s actions to improve its cost competitiveness and protect the long-term health of business include reducing and structurally rebasing salaries and allowances for the board, senior management, and most of employees by between 10-15%.
The company’s actions also include reducing personnel by c.20% and furloughing staff in anticipation of a reduction in activity levels and reducing non-staff overhead costs by up to 25%.
Conserving cash & liquidity
As at April 2, 2020, the group had liquidity of $1.1 billion, following the planned repayment of a $75 million facility in February 2020. A two-year extension of a $150 million term loan in March 2020 has reduced debt maturities in the next 12 months to $275 million. S&P has recently affirmed the group’s investment grade credit rating.
In this period of extreme economic uncertainty, Petrofac’s management believes it is prudent to take steps to preserve cash and liquidity, including cutting capital expenditure by 40% ($60 million) in 2020 and managing working capital.
In addition, the board is withdrawing its recommendation of a final dividend of 25.3 US cents ($85 million) announced on February 25, 2020. The board will review the resumption and payment of dividends when the full impact of COVID-19 and low oil prices is known, the company added.
Order intake of $2 billion in the first quarter has also increased the company’s backlog to $8.2 billion.
“We believe that these factors, together with a capital light business model and a strong competitive position in the Middle East where the cost of production is low, will protect us against near term headwinds.
“However, it is too early to ascertain and quantify the impact of both COVID-19 and low oil prices on financial performance or new order intake and, as a result, we are suspending our previous revenue and margin guidance,” Petrofac concluded.