A fresh profits warning on the troubled Laggan-Tormore gas terminal development hit the share price of service giant Petrofac yesterday.
Almost £350million was wiped off Petrofac’s market value as shares slid 10% to 912.5p.
The firm admitted it would lose a further £130million on the Total-operated project, in addition to the £154million in losses it took on the scheme in 2014. This on a project value of £800million.
Ayman Asfari, Petrofac’s Chief Executive listed a number of difficulties facing the development of the loss-making gas terminal that included industrial action and the high cost of doing business in the North Sea.
He admitted that Petrofac suffered from “lack of experience” in onshore construction, particularly in Shetland where “labour costs are much higher and productivity much lower than we are used to”.
The firm also pointed to harsh weather conditions during March and the failure of one of its sub-contractors to “deliver in line with their agreed scope” as adding to the firm’s woes.
The £800million gas plant under construction at Sullom Voe – the key piece of infrastructure for Total’s £3billion Laggan-Tormore gas field West of Shetland – has been delayed a further month as a result.
Petrofac said construction activity on the site is now expected to be “substantially complete” by mid-June, with the whole project on track for first gas in the third quarter of this year.
When the services firm was awarded the contract in 2011, it was estimated it would be complete by the second half of 2014.
A spokesperson for Total said: “Total continues to work with its main contractor Petrofac on the completion of the Laggan-Tormore project.
“We are confident that the new timelines will be kept to and that the project will be complete by summer 2015.”
Mr Asfari said the firm had taken on the contract on a “lump sum” basis meaning Petrofac took the brunt of the risk for construction cost over-runs.
He added: “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.”
Petrofac, which employs 4,000 people in the north-east, had said in February that it “expected to recognise no further profit or loss on the project” this year.
Mr Asfari said the company had “refreshed the site leadership team” in Sullom Voe and “changed a number of elements of our working practices to drive the project through to completion”.
He added: “We are deeply disappointed by this additional cost to complete on the Laggan-Tormore project.”
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