Often oil services firms see a lag between an increase in the oil price and their customer base gaining sufficient confidence to open their cheque books again.
Today’s first half results from Petrofac (PFC) reflect that trend as group revenue is down 10.9% despite the advances oil has made in the last 12 months.
But, with the company seeing increased returns from its own oil and gas assets and improved margins elsewhere, underlying profit is still up 20% to $190m.
And further boosted by significant contracts secured for the second half, the shares are ahead by 1.6% to 670.8p.
Petrofac has three divisions - the dominant division is Engineering & Construction (E&C) which accounts for nearly 80% of the overall business.
The remainder is accounted for Engineering & Production Services (E&P) and Integrated Energy Services (IES), the latter encompassing the company’s producing oil and gas fields.
'A DOG OF A BUSINESS'
At a reported level Petrofac registered a loss of $17m - hit by several one-off items included losses linked to several disposals. The backlog falls from $10.2bn at the start of 2018 to $9.7bn with debt increasing over the same timeframe from $0.6bn to $0.9bn.
Cantor Fitzgerald reflects that, despite its improved first half performance, IES is a ‘dog of a business, and management should really scrap it to put it out of its misery’.
The broker adds: ‘Not quite the 'good set of results' claimed by management, but recovery in commodity prices have helped activity levels rise. Key will be the performance in 2H and the efforts made to reduce debt. Cutting out the canker of the IES would be our starter for ten.’
