* Oil services company slashes profits outlook by up to 11
* To cut expenditure in flagship segment after poor
* Shares down 15.6 percent at 1,172 at 0947 GMT
(Adds quotes, background, details)
LONDON, May 9 Oil and gas services group
Petrofac cut its 2014 profit forecast by 11 percent due
to the poor performance of flagship projects, wiping over 700
million pounds ($1.19 billion) off its market value and
highlighting the sector's testing environment.
Petrofac, which had pinned many of its medium-term growth
projections on its Integrated Energy Services (IES) division,
said it now expected to report 2014 net profit between $580
million and $600 million, down from the previous target of
little or no growth from the $650 million it reported in 2013.
Shares in Britain's largest oil services company were down
15.6 percent at 1,172 pence per share at 0947 GMT. It was one of
the biggest losers in the blue-chip FTSE 100 Index,
which fell 0.3 percent.
Service companies, which provide the engineering and
construction on oil and gas projects, are increasingly under
pressure as big oil companies face huge project delays and
tighten their budgets.
The company said it would cut IES expenditure after
completing a review of the division in which it invests
alongside oil companies and has earnings linked to the volume of
barrels taken out of the ground.
The review identified "operational challenges" in key
projects, leading the company to seek better operational
performance on existing projects and narrow the focus of future
The fall in 2014 profits was mostly due to delays in the
Greater Stella Area project in the North Sea, lower than
expected production at the Ticleni project in Romania, the
dilution of equity interests in the Seven Energy project in
Nigeria as well as "no significant contribution from new
"In IES, following a review of our existing and prospective
projects, we are working hard to deliver improvements in
operational performance on the existing portfolio and are
re-focusing our IES business development plans," Chief Executive
Ayman Asfari said in the company's interim management statement.
Petrofac had for a long time highlighted its aim to double
2010 net income by 2015, with investors and analysts regarding
it as a key benchmark for the firm's medium-term prospects. But
the group turned more cautious in November last year.
"The profit warning was very unexpected and may lead to a
risk on its dividend," said Beaufort Securities sales trader
Basil Petrides. He added that if the stock fell below the 1,146
pence price level, it could then drop further down to 1,080
After a review of the IES division, which takes equity
stakes in oil fields, Petrofac said it now expected earnings
from the current IES portfolio to be around the low end of the
previous guidance range for 2015. It does not expect a
significant contribution from new awards in 2015 either.
"Notwithstanding this reduction, given our renewed focus on
cash returns, we expect IES to improve from its current net cash
absorbing position to being broadly free cash flow neutral in
2015," it said.
Petrofac said its backlog stood at record levels of $18.6
billion at the end of March, mainly in the Engineering,
Construction, Operations and Maintenance (ECOM) segment.
Petrofac had earlier this year said it expected to return to
strong growth in 2015.
In February, Asfari warned that oil services companies will
have to assume more risk in the coming years as investor
pressure and a flat crude price make oil company clients push
harder to avoid delays on mega-projects.
($1 = 0.5899 British Pounds)
(Reporting by Kate Holton and Ron Bousso; editing by Sarah
Young, William Hardy and Susan Thomas)