Shetland gas field delays hitting Petrofac profits

Image source, Petrofac

Major delays on a gas field project to the west of Shetland are costing the contractor more than half its original value.

Petrofac had already said it would take losses of 拢130m this year on the Laggan-Tormore offshore field, that was initially worth a total 拢500m.

The oilfield services firm announced on Tuesday it expected to register a further 拢30m in pre-tax costs.

That cuts the company's expected profit for 2015 by nearly half.

Laggan-Tormore is a large gas field, owned by French energy giant Total, in deep water to the west of Shetland.

The project has required installations on the sea-bed, a new pipeline to Shetland, and a new processing plant where it reaches land at the Sullom Voe terminal.

Petrofac took on the work in 2011, but admitted that it failed to plan for the complexity.

'Perform well'

It has meant hundreds of workers continuing to work in Shetland a year longer than planned, which has been a boost to the local economy.

Ayman Asfari, group chief executive of Petrofac, explained in the 2014 annual report: "On the Laggan-Tormore project, we failed to stress-test adequately our assessment of the risks of operating in a wholly new geography for the onshore engineering and construction business.

"Our ability to deliver on schedule was further impacted directly by challenging weather conditions affecting the Shetland islands.

"Furthermore our construction contractors failed to deliver their agreed scope, and, though we had a lack of experience in managing direct construction, we had little choice but to take on more direct construction activity on a day rate basis."

Mr Asfari added: "Putting the challenges we have faced on Laggan-Tormore to one side, the rest of our portfolio continues to perform well."

Investors had priced in the cost of delays in Petrofac's UK offshore projects, and the share price rose 7%.