London-listed oilfield services player Petrofac has confirmed that it is executing a new right-sizing plan aimed at substantial cost savings next year, as the market outlook continues to be grim in the wake of low oil prices and the coronavirus outbreak.

Petrofac said in an update on Wednesday that the group has announced "a further set of measures to right-size the organisation".

“These will result in total estimated gross savings of $250 million in 2021, which will seek to protect the business from lower revenues and ongoing pressures on margins. These actions will also create a leaner, more competitive, business whilst preserving our core capabilities,” the company said.

However, the Petrofac did not elaborate on how many people would be impacted by the recent job cuts.

Upstream earlier this month reported that the company is carrying out hundreds of new layoffs at its Sharjah, United Arab Emirates-headquartered engineering and construction (E&C) division, as a part of a new right-sizing drive.

An internal staff communication seen by Upstream, which designate chief operating officer Elie Lahoud last month sent to staff, said the size of the E&C business had been left “unsustainable” following delays to project awards.

New job cuts

The new job cuts are in addition to those announced by Petrofac in April, when it said that 20% of its global workforce, which was 11,650 people at the time, would be made redundant as part of a raft of cost-cutting measures to address the effects of the oil price crash and coronavirus pandemic.

Petrofac said in its update that “looking forward, it remains unclear how long business activity” in the oil and gas industry would be impacted by market conditions.

“Low order intake over recent years will result in a decline in revenue next year,” the company warned.

Uncertain times

Petrofac chief executive Ayman Asfari said “the Covid-19 pandemic and collapse in oil prices have had a material impact” on the industry in 2020.

However, he said that the company has taken “decisive action to protect” its balance sheet, liquidity and the long-term health of the business.

Asfari said “the near-term economic outlook” of the industry remains unclear, with key project awards being delayed by companies.

“Clients are delaying awards and adopting tough commercial positions. In this environment, our strategic priorities are clear. We are focused on conserving cash, cutting costs and rebuilding backlog,” he added.

The company said that the overall financial performance in the second half of 2020 has continued to be impacted by the Covid-19 outbreak.

“In addition, lower oil prices coupled with the uncertain near-term outlook have resulted in a wide ranging delay in the award of new projects across the industry as well as in a more challenging commercial backdrop,” it said.

Project awards

On an annual basis, Petrofac reported a $1.4 billion order intake in the year across its businesses.

The company’s core engineering and construction business saw new orders totalling $600 million in 2020, with a relatively stronger bid pipeline moving forward.

“Our bidding pipeline remains strong, including more than $8 billion tendered on projects in the second half of this year, which have not yet been awarded,” the company said.

Earlier this year, Petrofac suffered a big blow when Abu Dhabi’s Adnoc cancelled two large Dalma sour gas contracts worth $1.65 billion, which had been awarded to Petrofac and Malaysia’s Sapura Energy.

Billions of dollars' worth of other projects in Petrofac’s key market Abu Dhabi are being tendered but most of the awards have been delayed until 2021.

Project watchers suggested that some oil projects might even be put on the backburner for a few years due to low oil prices.

However, Petrofac remains well positioned in the Abu Dhabi engineering andconstruction market, and fundamentals might change when the Hail & Ghasha project and others are awarded next year, project watchers have said.

Finance

Petrofac confirms right-sizing plans as market outlook remains uncertain