In order to mitigate the effects of coronavirus crisis and low oil prices, oilfield services provider Petrofac is taking further action to reduce costs and preserve balance sheet.
Petrofac has already announced its decision to reduce its capex by 40 per cent, reduce salaries across the company, and reduce its personnel by about 20 per cent.
These actions included reducing overhead and project support costs by at least $100 million in 2020 and by up to $200 million in 2021.
In an update on Friday, the company said it is targeting additional savings to those announced on 6 April, and now expects to reduce overhead and project support costs by at least $125 million in 2020 and by up to $200 million in 2021.
In addition, suspension of the final 2019 dividend payment and a 40 per cent reduction in capital investment has conserved an incremental $145 million of cash flow.
COVID-19 has caused significant disruption to Petrofac’s Engineering and Construction (E&C) projects.
Whilst projects are still progressing, this has inevitably resulted in material delays in construction activity, which will not be recovered in 2020.
Tender delays
In addition, the collapse in oil prices has been the catalyst for clients to review their future investment plans.
This is evident in delays to current tenders in E&C, as well as the recent termination of the $1.5 billion Dalma contract .
“Whilst our bidding pipeline remains healthy and we are well-positioned on several opportunities this year, we are now prudently anticipating that the majority of 2020 tenders will be delayed until 2021”, Petrofac said.
According to Petrofac, contract extensions in EPS, on the other hand, have remained strong with $500 million of new orders secured year to date.
Looking ahead, Petrofac noted it remains unclear how long COVID-19 and low oil prices will continue to disrupt business activity and impact business performance.
However, Petrofac believes that its healthy order book, liquidity of $1.2 billion, and actions to reduce costs will protect it against near-term headwinds.