Fabricator Petrofac is to cut expenditure as it grapples with coronavirus disruption as well as wider market conditions.
Petrofac, which has been named as the preferred substation supplier for the 1075MW Seagreen offshore wind farm off Scotland, is reducing capex by 40% and suspending its planned final dividend for 2019.
The firm said it would be reducing overhead and project support costs by at least US$100m in 2020 and by up to US$200 million in 2021 in an update on its response to Covid-19.
Measures to achieve this include reducing and structurally rebasing salaries and allowances for its board, senior management and most of our employees by between 10-15%. It is also reducing personnel by c.20% and furloughing staff in anticipation of a reduction in activity levels.
It said it aimed to reduce non-staff overhead costs by up to 25%.
Petrofac’s Group Chief Executive Ayman Asfari commented: “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.
“I would like to thank all of our people for their outstanding response to the crisis, allowing Petrofac to continue to operate effectively and provide invaluable support to our clients during this challenging time.
“We have a resilient business model, strong competitive position and a differentiated in-country value proposition that is highly valued by our 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.”
Petrofac said a two-year extension of a US$150 million term loan in March 2020 has reduced debt maturities in the next 12 months to US$275 million and that S&P has recently affirmed the Group’s investment grade credit rating.
Petrofac’s board said it 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.
The company said engineering and construction activity continues at most of its Engineering & Construction project sites and offices, although progress is being impacted by supply chain disruptions, travel restrictions and the government-enforced lockdowns in India and Iraq.
It added that operations and maintenance activity in our Engineering & Production Services (EPS) business continues in all regions, although travel and social distancing restrictions were having a “modest” impact on activity levels.