Petrofac Expects Further Loss on Laggan-Tormore Project, Shares Fall Sharply

Allseas’ pipelay vessel Audacia lays pipe at the Laggan-Tormore field, image (c) Total

By Abhiram Nandakumar

April 20 (Reuters) – Petrofac Ltd said its loss on the Laggan-Tormore project in the Shetland Islands would now be larger than it expected, highlighting the hostile operating conditions and high costs faced by oil and gas developers in the North Sea.

The oilfield services provider’s shares fell as much as 14 percent on Monday on the London Stock Exchange.

The slump in global oil prices over the last 10 months has compounded the impact of high investment costs and the harsh climate in the North Sea region, prompting oil and gas companies to put billions of dollars of assets up for sale.

“Economic conditions are bad enough for North Sea oil and gas explorers and service providers, but the notorious stormy weather has made it worse for Petrofac…,” London Capital trader Lewis Sturdy said.

Petrofac, which has also faced delays at the Ithaca Energy-owned Greater Stella Area project in central North Sea, said it still expected to complete Laggan-Tormore in the third quarter, but would need to “expend significantly more man-hours.”

“I have never faced a more difficult and challenging work environment,” Chief Executive Ayman Asfari said.

Petrofac has been investing heavily in its offshore engineering and construction business, but has had to take losses on two key projects in the North Sea.

Canaccord Genuity analyst Alex Brooks said he was cautiously supportive of Petrofac’s investment in its deepwater construction capability.

Petrofac said it expected to incur 130 million pounds ($194.45 million) in pretax loss in 2015 on Laggan-Tormore, in addition to the $230 million it had recognised in February.

French oil major Total, which owns 80 percent of Laggan-Tormore, put its stake up for sale in March, seeking about $1.5 billion.

Laggan-Tormore is considered a high-quality oil and gas asset and is expected to reach peak production rates of about 93,000 barrels of oil equivalent per day.

Shares in the company were down 11.9 percent at 893.5 pence at 1045 GMT. (Reporting by Abhiram Nandakumar in Bengaluru; Editing by Anupama Dwivedi)