Project execution delays weigh heavily on Petrofac’s FY15 earnings performance;EBITDA down 66.5% YoY

On 24 February 2016 Petrofac (PFC:L) the mid-weight engineering, procurement and construction (EPC) provider, in its FY15- full year results showed a 9.7% YoY rise in revenue to USD 6.84bn largely supported by the growth in its ‘onshore engineering and construction’, and ‘engineering and consulting services’ segments. Above performance was due to increased number of projects reaching executing phase and positive impact relating to its Rabab Harweel project in Oman. However despite the revenue uptick EBITDA plunged 66.5% YoY to USD 313m largely due to the recognition of USD 480m impact arising from delays relating to its Laggan-Tormore project. Going forward Petrofac does not expect any further losses from the Laggan-Tormore project, due to the completion of the project. Pre-exceptional items Petrofac’s EBITDA would have still declined by 15.1% YoY to USD 794m, due 50.4% YoY and 30.8% YoY dip in EBITDA from the company’s ‘Integrated Energy Services’ and ‘Offshore Projects & Operations’ segments. Following this net leverage was up to 2.19x in FY15 as compared to 0.78x in FY14, this was despite 6.4% YoY decrease in net debt to USD 686m.


In FY15, OCF increased 3.2% YoY to USD 669m on account of positive working capital movement. In total changes in working capital movement contributed USD 602m in FY15 vs a burn of USD 60m in FY14. This coupled with a 45.1% YoY decrease in Group CAPEX led FCF to increase to USD 215m in FY15 as compared to a negative USD 179m in FY14.

As of 31 December 2015, total liquidity stood at approximately USD 1.8bn, which comprised of USD 1.1bn in cash and short-term deposits and around USD 660m available through syndicated revolving credit facility (RCF). Total liquidity along with above mentioned positive FCF generation should be enough to pay down USD 520m in short-term debt and guided 2016 CAPEX of approximately USD 300m

Covenant summary:

  • Net debt / EBITDA < 3x (Actual FY15: 2.19x; 4.97x )
  • EBITDA / interest cover of > 3 (Actual FY15: 3.40x)

Note: On account of aforementioned negative impact from the Laggan-Tormore project, prior to 31 December 2015, the Term Loan lenders granted a waiver of the leverage covenant for the year ending 31 December 2015 as a result of which Petrofac was in compliance with its financial covenant obligations for that period.

Company Outlook: Petrofac’s end-FY15 order backlog of USD 20.7bn gives good revenue visibility going into 2016. Moreover the company’s engineering, construction, operations & maintenance (ECOM) backlog was predominantly with middle-eastern national oil companies where CAPEX still continues to expand despite low oil prices. In addition to this the company will continue to improve operational and cost efficiencies through a targeted USD 90m in saving in 2016 versus USD 80m delivered in 2015.

backlogIn addition to the above net debt is expected to remain flat, with EBITDA generation in the range of USD 650m to USD 700m in FY16. CAPEX for FY16 is guided at USD 300m, which is expected to decline further in 2017, post the completion of the Greater Stella Area (GSA) project.summary

ENQUEST PLC acquires additional 10.5% interest in the Kraken development from First Oil

22-February-2016: EnQuest PLC (‘EnQuest’) announces the acquisition of an additional 10.5% interest in the Kraken development for nominal consideration. The acquisition from First Oil PLC (‘First Oil’) brings EnQuest’s total interest to 70.5%.  EnQuest and Cairn Energy PLC (‘Cairn’), the other current participant in the Kraken development, are both taking up First Oil’s interests pro-rata, in proportion to their holdings prior to the transaction.  EnQuest has also waived its right to reclaim approximately $7 million of cash calls paid on behalf of First Oil in January and February 2016.  EnQuest acquires the reserves and resources associated with the additional interest.  In 2012, when EnQuest originally acquired its Kraken assets from First Oil, part of the consideration was in the form of a contingent development carry, based on the determination of the level of reserves.   This contingent carry provision now ceases to be effective. Further, EnQuest is not reimbursing First Oil in respect of costs incurred by First Oil to date.

 Further information:

 In December 2015, in its Operations Update, EnQuest highlighted that the Kraken development project was on schedule for first oil production in H1 2017 and that full cycle gross project costs had been reduced by c.10%.  The additional Kraken net capex to EnQuest is anticipated to be approximately $90 million to first production.  In December 2015, EnQuest issued a 2016 cash capex guidance range of $700 million to $750 million. Since then further additional reductions have been made.  Consequently EnQuest expects to absorb the capex resulting from today’s transaction without any net increase in its previous 2016 guidance range.   Further details will be included in EnQuest’s 2015 full year results announcement, on 17 March.

 EnQuest expects that the additional reserves it is acquiring through this transaction will incrementally increase the amount available to it under its bank facility to $1.2billion (from $1,137 million as reported in August 2015).

 In its most recent annual report, for 2014, EnQuest highlighted gross (100%) Kraken 2P reserves of 140 MMboe.

 Prior to the transaction, EnQuest had a total interest in Kraken of 60% and Cairn had 25%.  Following completion, EnQuest will have a 70.5% interest and Cairn a 29.5% interest. 

 The Kraken Development

 EnQuest is the operator.  The two Kraken fields are located in block 9/2b, 350 km north east of Aberdeen, in a water depth of c.110m.  The Field Development Plan includes 25 wells.  First production is expected in H1 2017.  The project has a long field life, of approximately 25 years. A comprehensive update on the project’s progress was included in EnQuest’s Operations Update and associated Capital Markets Day presentations to investors on 8 December 2015.  Details available on EnQuest’s website.

Source: Company press release (

Tullow Oil plc: Jubilee field operational update

18 February 2016 – Tullow Oil plc (‘Tullow’) announces that it has informed the Government of Ghana and its Partners of a change to operating procedures at the Jubilee field FPSO.

Following a recent inspection of the turret area of the Jubilee Floating Production Storage and Offtake vessel (FPSO), by SOFEC, the original turret manufacturer, a potential issue was identified with the turret bearing. As a precautionary measure, additional operating procedures to monitor the turret bearing and reduce the degree of rotation of the vessel are being put in place.

SOFEC will now undertake further offshore examinations and Tullow will work with SOFEC to determine what further measures will be required. Oil production and gas export is continuing as normal.

(Source: Company press release)

Weak 9M15 results led management to revisit full-year revenue guidance to USD 240m to USD 245m

Welltec the Denmark based provider of robotic intervention services and completion solutions to the oil and gas industry, is revisiting its full year revenue guidance to USD 240m-USD 245m (FY14: USD 345m) as the company’s earnings continued to deteriorate in the third quarter. In 9M15 Welltec topline declined 27.1% YoY to USD 194m impacted by volatile crude oil prices, low rig count and reduced capex spend my major customers. Resulting to this EBITDA also declined 38.7% YoY to USD 76m, while margins declining to 39.2% vs 46.7% in 9M14. For FY15, Welltec expects EBITDA-margins at around 39%. At end-3Q15, net leverage had increased further to 2.74x as compared to 1.81x in FY14, due to increase in bank borrowing and lower EBITDA growth.



In 9M14, cash flow from operating activities were down 42.8% YoY to USD 59.2m, leading free cash flow to decline 51.7% YoY to USD 23.3m, which was despite 32.1% YoY decline in CAPEX spending. Welltec’s current liquidity as of 30 September 2015 stood at USD 99m, comprising of USD 59m in cash and securities and the remain under its multi-currency revolving facility. Furthermore, in the absence of any-short-term debt and reducing capex spend, the current liquidity could cushion Welltec’s operations in the short-term. However with LTM c. USD 57.3m in combined capex and net financial expenses, coupled with the deteriorating free cash flow generation could stress the company’s current liquidity position.

As of 30 September 2015, Welltec employed on an average of 832 employees, with operations established in 29 countries.

Bakkavor in the midst of management reshuffle

Bakkavor Group, the United Kingdom based ready-to-eat meal provider, on 25 January 2016 seeded 89% ownership control to Bakk AL Holdings Limited, a company owned by founders Agust and Lydur Gudmundsson and external fund managed by The Baupost Group, L.L.C. The deal as per company press release was valued at GBP 163m. Agust and Lydur Gudmundsson, who own a controlling interest in Bakk AL Holdings Limited, will remain in their current roles as CEO and Chairman in Bakkavor.

The company in 9M15 had registered a top-line growth of 2.8% YoY to GBP 1.3bn, largely supported by 42% YoY rise in its International business. In 9M15, Bakkavor’s international business added GBP 34m to the top-line, which also compensated for the flat growth on the company’s home turf. During the same period, like-for-like sales were up 1.7% YoY to GBP 1.2bn. Furthermore above growth coupled with cost-of-sale being contained around 70% of topline helped adj. EBITDA rise by 11.5% YoY to GBP 95.7m in 9M15. Following this net debt also declined 8.9% in 9M15 to GBP 430m as compared to GBP 472m in FY14, due to early repayment of GBP 140m of its existing 8.25% sr. secured notes due 2018. Corresponding net leverage also improved to 3.3x in 9M15 vs 3.9x at FY14.

Recent events:

  • On 28 January 2016, announced that it is to redeem GBP 75m at a price of 102.0625% of its sr. secured noted due 2018 of which GBP 191m remain outstanding. The notes will be redeemed on 29 February 2016 and will be funded through existing cash on its balance sheet.
  • Remaining 60% stake sale in Italpizza S.r.l to Dreamfood S.r.l for cash consideration of GBP 22m was completed on 14 July 2015.
  • Acquisition of B.Robert’s Foods in the US was completed on 12 January 2015, for a cash consideration of GBP 19.6m.


Earlier in April 2015, Bakkavor had successfully increased availability under its banking facilities GBP 220m from GBP 80m, while maturity was extended to February 2018 from October 2016. As mentioned above the company used availability under banking facility for early redemption of GBP 140m under its sr.secured notes due 2018. In addition to this, Bakkavor’s receivables securitization facility was also extended upto February 2018.

FCF improved 1.1x to GBP 65m in 9M15, as capex spend reduced 26.6% YoY and also helped by improvement in adj. EBITDA and better working capital management. At 9M15-end, total liquidity stood at GBP 145m, which included GBP 65m in cash and cash equivalent and c. GBP 80m available under its banking facilities. The current liquidity position with positive FCF generation looks sufficient to cover short-term borrowings of GBP 14.7m. However post the redemption of GBP 75m on it 2018s senior secured notes total liquidity will drop to c. GBP 70m at 1Q16-end .

During the nine months ended 30 September 2015, Bakkavor employed 18,000 individual globally and produced over 5,000 products in 18 different categories. The company’s top customers included Tesco, Marks & Spencer, Sainsbury’s, Waitrose, Asda and Morrison’s.