Joining the big league

27 January 2006
Recently things could not have gone much better for UAE-based Petrofac International. Last autumn, the integrated engineering, procurement and construction (EPC) contractor successfully launched its initial public offering (IPO) and secured a listing on the London Stock Exchange. Nearly 155 million shares, or 47 per cent of the company's total share capital, were on offer, and the $620 million float was oversubscribed several times.

More recently, Petrofac joined the FTSE 250 grouping of the great and the good and was ranked the second largest oil field services company listed in the UK, behind the Wood Group. The company ended last year with contract wins in the Gulf worth about $2,000 million. In 2005, Petrofac was catapulted into the league of international oil and gas players in the Gulf. 'We are [now] truly international and can take on projects on our own of up to $1,000 million,' says Ayman Asfari, the group chief executive officer (CEO).

The change in Petrofac's status was evident in early 2005. In April, it was awarded a $644 million EPC contract to replace the oil and gas transfer lines in south and southeast Kuwait. The order - one of its largest in the Middle East, came on the back of a $125 million, five-year maintenance services contract won a month earlier for the prolific western and northern Kuwaiti oil fields.

Breaking its own record has very much been Petrofac's story. In November, along with Oman's Galfar Engineering & Contracting, it was awarded an even larger contract. Worth $960 million, the Harweel 2a and 2b project management-cum-detailed-EPC contract is aimed at boosting production at the Omani oil cluster to 100,000 barrels a day. The award came four months after the Petrofac/Galfar duo took the $246 million Al-Kawther front-end engineering and design (FEED)-cum-EPC gas gathering scheme, also in Oman.

Further afield

In 2005, Oman and Kuwait provided the core of Petrofac's project activity, but Asfari is looking to increase the geographical footprint. 'In 2006/07, while our commitment to Oman and Kuwait will remain unchanged, we will also start bidding more actively in Qatar, the UAE and North Africa.' Iran will also come into focus. 'We already maintain an office there and will be pricing EPC and O&M [operation and maintenance] tenders,' he says.

Surprisingly, Saudi Aramco, which plans about $18,000 million worth of EPC contract awards in 2006, has proved elusive for Petrofac. 'We are aware of our absence,' he says. 'The Saudi market needs a dedicated approach and we will fill the gap.' Another omission is Syria - Asfari's own backyard. 'We did jobs there at one time, but the market now is not active. However, if the scenario changes we will be back.'

In the meantime Petrofac's focus is to open up new business sectors including gas-to-liquids (GTL), liquefied natural gas (LNG) and subsea engineering. Given the current bottlenecks in the Gulf oil and gas EPC market, Petrofac will approach the new sectors with caution.

Petrofac's new strategy will be put to test this spring when technical bids are due to be submitted for the two main onshore packages on the Pearl GTL project in Qatar.

Another target area is to become an upstream developer. Attempts to acquire development rights for the Palmyra gas concession in Syria failed in 2004, but Asfari will be eyeing new opportunities. '[For Palmyra] there were requests from the government for guarantees which we [Petrofac with Petro-Canada and the US' Occidental Petroleum Corporation] felt were unreasonable. We regret losing the deal after a lot of hard work. For the future, our prime driver will not be booking reserves, but providing the client with a financial solution. In return, we will get long-term cashflows.'

With a 2005 backlog of $3,200 million worth of work, an 88 per cent up on the previous year, ensuring those cashflows will not be hard. And if share prices are an indication, Petrofac has plenty to celebrate: in mid-January prices were trading at $5.30 a share, a 41 per cent increase over its debut offer of $3.80. 'We now have an external audience and I have to address them,' Asfari says.

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