Petrofac contract wins

An oil & gas services company providing design and build for oil and gas infrastructures; operates, maintains and manages assets and trains personnel. I have a holding in my growth portfolio (epic code: PFC)

Petrofac has announced the details of two agreed contracts this week, the first in Malaysia and the second in Kazakhstan.

The Malaysian contract announced on 16 September was an agreement with PETRONAS, the Malaysian National Oil Company, for the operation and management of two high-specification training facilities that Petrofac is building to support PETRONAS' workforce capability enhancement programme for the next five years with an option to extend for a further two years.  The initial contract is worth US$120m.


The Kazakhstan contract announced today, relates to a consortium with Linde AG of Germany and GS Engineering & Construction Corporation, Republic of Korea.  The consortium has been engaged by KLPE LLP, to provide services in relation to development of its Integrated Petrochemicals Complex and Infrastructure project, situated in the Tengiz and Karabatan regions of Kazakhstan.

The US$77 million first phase of the contract, valued at approximately US$21 million for Petrofac's share, will involve the consortium undertaking engineering work on an Open Book Estimate. It is contemplated that the IPCI project will move into a second phase, in excess of US$3.5 billion, for a polyethylene plant.

Although there are no time frames mentioned in the announcement the Kazakhstan's Energy and Natural Resources Ministry approved a feasibility study for the development of the gas-based petrochemical complex in May 2007.  At that time the first phase was expected to be completed by the end of 2014 and the second phase by end 2016.

Although the two contracts combined will add less than 1% to the company's order book and represent less than 2.5% of annual sales, they provide evidence of good order flow and opportunities for extensions on both contracts, following closely on the heels of the $95m Gazprom contract in Iraq announced at the end of August.

Petrofac recently confirmed at the time of their interims, that they remain on track to achieve their 2015 earnings target of $862m.  That will equate to a 10.9% CAGR over their 2012 earnings, which might suggest good value for a company on an historic P/E of less than 12.  This year's earnings though will show only modest growth and they have yet to return a positive free cash flow last seen in 2011.