Ayman Asfari, boss of oil services firm Petrofac, has blamed his company’s “lack of experience” for delays to a gas plant on Shetland which will force it to make a huge loss on the project.

Shares in the company plummeted by 13% in early trade.

Petrofac, which was awarded the Laggan-Tormore contract by oil major Total, said bad weather and the failure by a sub-contractor to deliver had contributed to the setback.

It now expects to incur a further pre-tax loss of £130m on top of £154m announced in February. At the stage it said it did not expect a further profit or loss on the project over the remainder of the contract duration with completion expected in the third quarter of 2015.

Petrofac said in a statement to the London Stock Exchange today that it is now entering the final stages of the project and during late March and early April, activity on the site has ramped up substantially.

But continued adverse weather conditions during March on Shetland and industrial action has delayed the project by almost a month.

It has now become apparent that the company needs to devote “significantly more man-hours” to complete the project than anticipated.

As a result of low manpower productivity levels as the project nears completion, it will require a greater level of rectification and reinstatement work than expected, coupled with the failure of a sub-contractor’s ability to deliver as expected.

“We now expect to recognise a further pre-tax loss on the project of around £130 million (US$195 million at current exchange rates) in 2015,” said the company.

“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.”

Ayman Asfari, Petrofac’s group chief executive, added: “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 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.

“We have already affirmed that we will no longer take construction risk on large lump-sum projects within the UK to avoid a similar experience to Laggan-Tormore moving forward. For now, my senior management team and I are focused on delivering the project in line with the revised schedule agreed with our client. As such, we have refreshed the site leadership team and further strengthened it with key members of our Sharjah-based OEC team and have changed a number of elements of our working practices to drive the project through to completion.

“Putting the challenges we are facing on this project to one side, the rest of our portfolio continues to perform in line with expectations

Source: www.dailybusinessgroup.co.uk

Please leave comments and feedback below