Construction woes take toll on Petrofac

Oil and gas services company Petrofac has lamented its “lack of construction experience” as the firm issued a further profit warning of about £130 million on its Laggan-Tormore gas plant project on Shetland.

The group, which took on full construction responsibility for the project after some of its sub-contractors “failed to deliver in line with their agreed scopes”, announced in February that it lost £154m last year on the project.

It has blamed this additional loss on poor weather, industrial action and failings by some sub-contractors.

The £800m gas plant under construction at Sullom Voe – the key piece of infrastructure for French oil company Total’s £3 billion Laggan-Tormore gas field West of Shetland – has been delayed a further month as a result.

Petrofac said it expects to complete the project in the third quarter of this year.

In an update, Petrofac said: “During late March and early April, activity on the Laggan-Tormore site has ramped up substantially as we have moved into the final construction and commissioning phases of the project.

“Continued adverse weather conditions during March on Shetland and industrial action has delayed this ramp-up by almost a month from our original expectations.”

Petrofac added: “The additional costs we expect to incur reflect our firm intention to devote all the necessary resources to the project to meet the delivery commitments we have made to our client.

“We anticipate that construction activity on the site will be substantially complete by mid-June and we intend to provide an update to the market on the status of the Laggan-Tormore project with our trading statement scheduled for 23 June 2015.”

Group chief executive Ayman Asfari said: “We are deeply disappointed by this additional cost to complete on the Laggan-Tormore project.

“As we noted in our year-end results announcement, given the extent of direct construction involved in the project, Laggan-Tormore is different from the rest of our EPC (engineering, procurement and construction) project portfolio, where we typically utilise sub-contractors to deliver construction services.

“We had to take on this level of direct construction responsibility when some of our sub-contractors failed to deliver in line with their agreed scopes.

“Our lack of experience of operating a direct construction model in a wholly new geography for our Onshore Engineering & Construction (OEC) business, particularly in a location where labour costs are much higher and productivity much lower than we are used to, has cost us dearly.”

Petrofac shares were down by about 12 per cent in early trading on Monday.