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Petrofac tightens capex, cuts overheads as virus crisis bites

DUBAI, April 7, 2020

UK-based oilfield services provider Petrofac has announced plans to cut its overhead and project support costs by at least $100 million this year and by up to $200 million in 2021 in bid to cope with the Covid-19 pandemic and lower oil prices.
 
Petrofac, which derives a significant portion of its revenues from the Middle East operations, is conserving cash and liquidity by reducing capex by 40% and suspending the 2019 final dividend.
 
Announcing the key steps being taken over Covid-19 crisis, Group CEO Ayman Asfari said: "At this unprecedented time, our top priority remains the health and well-being of our people, clients and suppliers, and ensuring that we take decisive action to protect the long-term health of our business."
 
Petrofac remains focused on taking all necessary steps to ensure the health and well-being of its employees, clients, suppliers and communities, he stated.
 
"Stringent health protocols are in place across all our operations and we have transitioned quickly and effectively to remote working to minimise business disruption. Engineering and construction activity continues at most of our E&C project sites and offices, although progress is being impacted by supply chain disruptions, travel restrictions and the government enforced lockdowns in India and Iraq," remarked Asfari.
 
"Operations and maintenance activity in our Engineering & Production Services (EPS) business continues in all regions, albeit travel and social distancing restrictions are having a modest impact on activity levels," he stated.   
 
Afsrai pointed out that Petrofac had a resilient business model, strong competitive position and a differentiated in-country value proposition that is highly valued by its clients. 
 
"Nevertheless, we are taking swift, decisive action in response to the COVID-19 pandemic and lower oil prices to reduce costs, retain our competitiveness and preserve the strength of our balance sheet. These best position us to protect our business, stakeholders and the communities we serve," he added.
 
In this period of unprecedented disruption, we are taking decisive actions to improve our cost competitiveness and protect the long-term health of our business. These include:
 
*Reducing and structurally rebasing salaries and allowances for the board, senior management and most of the employees by between 10-15%
*Reducing personnel by 20% and furloughing staff in anticipation of a reduction in activity levels
*Reducing non-staff overhead costs by up to 25%
 
Petrofac pointed out that it was committed to maintaining a strong balance sheet and liquidity.  
 
As of April 2, the group had liquidity of $1.1 billion, following the planned repayment of a $75 million facility in February 2020. 
 
A two-year extension of a $150 million term loan in March has reduced debt maturities in the next 12 months to $275 million. S&P has recently affirmed the group’s investment grade credit rating, it added.
 
"In this period of extreme economic uncertainty, the management believe it is prudent to take steps to preserve cash and liquidity, including cutting capital expenditure by 40% ($60 million) in 2020 and managing working capital," remarked Asfari.
 
In addition, the board has withdrawn its recommendation of a final dividend of 25.3 US cents ($85 million) announced in February. 
 
"The board now recognises the importance of dividends to shareholders and will review the resumption and payment of dividends when the full impact of Covid-19 and low oil prices is known," he added.-TradeArabia News Service



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