OIL services heavyweight Petrofac, which has a big North Sea business, has highlighted the uncertainty facing the industry amid the fallout from the coronavirus crisis as it stepped up cost-cutting efforts in response.
While the crude price has rallied in recent weeks amid hopes that an effective coronavirus vaccine would soon be made widely available, Petrofac appear to see no sign of an improvement in conditions.
READ MORE: One in five North Sea oil firms expect to cut jobs next year
Oil and gas firms have slashed investment in new projects and looked to cut operating costs significantly in response to the sharp fall in commodity prices since the start of the pandemic.
Chief executive Ayman Asfari cautioned: “The near-term economic outlook remains unclear. Clients are delaying awards and adopting tough commercial positions.”
Mr Asfari’s comments underline the scale of the challenge facing firms in the North Sea supply chain.
Petrofac helps firms to develop new facilities and to operate and maintain existing assets.
“Low order intake over recent years will result in a decline in revenue next year,” said Petrofac in an update on trading in 2020. “The Group has therefore announced a further set of measures to right-size the organisation.”
Petrofac said it aims to reduce costs by $250 million annually in 2021, up from $200m previously.
It is thought the cuts will impact most heavily on Petrofac’s engineering and construction business, which works on new assets. The division is based in the Middle East.
READ MORE: 50 years after landmark Forties oil find does North Sea industry have a future?
Staffing numbers have been cut in Petrofac’s North Sea business this year under a drive to reduce group running costs by $125m annually, which was announced in May.
Petrofac employed around 900 people in Aberdeen and 2,000 offshore in the North Sea before launching the cost-cutting drive.
In June, the group won a contract to provide engineering services on the Acorn carbon capture, storage and usage project in the North Sea.
Petrofac noted that highlights of the current year include the progress it has made in new energy markets. For example, in June, the group was awarded a contract to provide engineering services on the Acorn carbon capture, storage and usage project in the North Sea.
READ MORE: Oil giants show faith in potential of UK carbon capture projects
Mr Asfari said the cost cuts announced yesterday would help put the company in a good position for when the market recovers.
He will stand down as chief executive on December 31 after 30 years with the business. Industry veteran Sami Eskander will succeed Mr Asfari as chief executive.
Brent crude sold for around $51 per barrel yesterday, compared with less than $20/bbl in April. It fetched around $70/bbl in January.
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