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Britain-based oilfield services provider Petrofac is reducing overheads, capex and cutting salaries in response to business disruptions due to COVID-19 pandemic and lower oil prices.
Petrofac, which derives a significant portion of its revenues from its Middle East operations, said in a press statement that it is reducing overhead and project support costs by at least $100 million in 2020, and by up to $200 million in 2021.
The company has also decided to reduce capex by 40 percent ($60 million) in 2020 to protect its long-term health and cost competitiveness.
“The oil price slump can be expected to have a considerable impact on demand for our services in the short and medium term,” Petrofac Group Chief Executive Ayman Asfari wrote in the email sent to staff on Thursday, Reuters reported.
“We must act immediately and decisively to protect the future of our business,” he wrote.
The London Stock Exchange-listed company is relying on an order backlog of $8.2 billion - which includes $2 billion worth of orders recorded in the first quarter - and its strong competitive position in the Middle East, where the cost of production is low, to battle the ‘near-term headwinds,’ according to the statement.
Countries in the Middle East accounted for 66.6 percent of the $5.5 billion revenues in 2019, according to data collated and analysed by Zawya from the 2019 annual report.
Cost cutting measures
Petrofac has also introduced a redundancy programme that will reduce staff numbers by approximately 20 percent.
Salaries and allowances of the board, senior management and most of the employees would be reduced or structurally rebased by between 10-15 percent.
Other measures include suspending the 2019 final dividend of $85 million and reducing non-staff overhead costs by up to 25 percent.
While engineering and construction activity continues at most of project sites and offices, the statement noted that supply chain disruptions, travel restrictions and government-enforced lockdowns have impacted progress in Iraq and India.
Additionally, travel and social distancing restrictions have had a “modest impact” on the operations and maintenance activity of the company’s Engineering & Production Services business, the statement acknowledged.
(Writing by Anoop Menon; editing by Seban Scaria)
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