Petrofac Initiates Asset Sales Amid Cash Flow Concerns, Shares Plummet

Petrofac's difficulties trace back to a surge in orders prompted by high oil prices the previous year.

Petrofac (PFC.L) announced on Monday that it is currently in discussions regarding the potential sale of certain non-core assets.

Simultaneously, the company cautioned that it would no longer be able to achieve its previously projected annual target of “broadly neutral free cash flow.”

This announcement had a significant impact on Petrofac’s stock price, causing it to plummet by nearly 8%.

The London-listed energy services provider attributed this warning to delays in receiving advance payments related to the new contracts it had secured in 2023.

As a result of these setbacks, Petrofac’s shares tumbled to an all-time low of 15.64 pence during early trading, making it the biggest loser on the FTSE small-cap index.

In a statement, Petrofac acknowledged that it had made progress in resolving contractual disputes and managing working capital.

However, the company no longer anticipates receiving these advance payments before the year-end due to ongoing delays in securing payment guarantees.

Petrofac’s difficulties trace back to a surge in orders prompted by high oil prices the previous year.

The firm has grappled with payment delays and cost overruns, particularly within its largest unit, engineering and construction.

In the first half of the year, Petrofac reported a significant loss of $165 million.

To fortify its financial position, Petrofac is actively exploring various financial options across its capital classes and engaging in discussions with investors regarding potential non-controlling stakes in specific segments of its business portfolio.

This strategic move aims to bolster the company’s balance sheet, secure essential bank guarantees, and enhance short-term liquidity.

Last week, Petrofac’s shares had already hit record lows as analysts expressed concerns about the company’s financial health.

Berenberg, a brokerage firm, described Petrofac’s position as “precarious” and subsequently placed the company under review, abandoning its rating and price target.

Petrofac, a company that went public in 2005, specializes in the design and construction of gas processing facilities, clean fuels refineries, offshore wind substations, and the management of clients’ infrastructure.

These recent actions reflect the company’s commitment to addressing its financial challenges and ensuring its long-term sustainability in a dynamic energy industry.