Petrofac buoyed by Mexican contract

Oil and gas services provider Petrofac has again reiterated its full-year profit guidance, saying that both its Engineering, Construction, Operations and Maintenance (ECOM) and Integrated Energy Services (IES) divisions are making good progress.

The company expects net profits to grow by at least 15% in 2012, unchanged from its guidance in May.

Based on the contracts signed in the year so far, Petrofac's expects its backlog to be around $9.1bn by the end of the first half (June 30th), down slightly from $10.8bn at the start of the year.

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However, the production enhancement contract for the Pnuco Contract Area in Mexico conditionally announced last week is expected to add $0.4bn to the backlog after it is formally signed in August.

Ayman Asfari, Petrofac's Chief Executive, said: "It is a year since we rolled out our IES strategy and we are making excellent progress in building the business. We were selected as preferred bidder for our third production enhancement contract in Mexico, which we are delighted to be delivering in partnership with Schlumberger.

"We see strong industry demand for commercially innovative, integrated oilfield service developments, which, together with our strong ECOM prospects, continue to give us confidence of achieving our target of more than doubling our recurring 2010 group earnings by 2015."

Net cash balances are expected to fall from $1.5bn to $0.7bn due to the unwinding of cash advances on Onshore Engineering & Construction projects and the deployment of cash on IES projects.

In spite of confirming profit growth in the last two trading updates and the announcement of the production enhancement contract in Mexico, the stock has dropped almost 23% since the start of last month.

In a research report on Monday, Galvan's head of research, Andrew Gibson, said: "Recent weeks have seen Petrofac shares drift back into bargain territory, and now with the mooted contract win in Mexico and potential long-term benefits for the group, there could be significant upside for the shares from this point on.

"Petrofac shares have returned to their December support zone below 1,400p, and while the 1,370p intraday support region remains in place, there is implied upside for the stock to test the 200-day moving average zone at 1,500p as new resistance over the near term."

BC