International oilfield services giant Petrofac Limited has announced manpower reductions, staff furloughs and salary cutbacks across its global operations in response to the economic crisis sparked by the novel coronavirus pandemic (COVID19).
The announcement will have significant implications for Oman, which is currently one of the largest markets for the oilfield services group with several billion dollars’ worth of contracts currently in various stages of implementation.
“In this period of unprecedented disruption, we are taking decisive actions to improve our cost competitiveness and protect the long-term health of our business,” said Petrofac in a statement.
“These include: Reducing and structurally rebasing salaries and allowances for our Board, senior management and most of our employees by between 10-15 per cent; Reducing personnel by c.20 per cent and furloughing staff in anticipation of a reduction in activity levels; and Reducing non-staff overhead costs by up to 25 per cent.”
Just last week, the UK-headquartered oilfield and engineering services contractor had revealed that Oman was the biggest revenue earner for the group, accounting for around a quarter of its total revenue of US$5.5 billion in 2019.
The contractor is currently undertaking a sizable portfolio of prestigious upstream, midstream, refining and petrochemical projects totaling several billions of dollars in government and public sector investments in the Sultanate.
The biggest of these is Duqm Refinery with Petrofac’s contract share totalling around $1.1 billion. Other key projects being executed by Petrofac include BP Oman’s Khazzan Phase 2 project (contract value of $800 million), the Salalah LPG project of OQ (formerly Oman Oil & Orpic Group) with a contract value of $600 million, and a number of projects awarded by Petroleum Development Oman (PDO).
The measures, it said, are in response to “the unprecedented market conditions affecting our industry, clients and business”. It includes reductions in overhead and project support costs by at least $100 million in 2020 and up to $200 million in 2021. The group also announced plans to conserve cash and liquidity by reducing capex by 40 per cent and suspending the 2019 final dividend.
Significantly, Petrofac is the second major player in Oman’s hydrocarbon sector to announce sweeping measures in response to the snowballing crisis sparked by the pandemic and the collapse in international oil prices.
Late last month, majority state-owned Petroleum Development Oman (PDO) sent letters to its major contractors and service providers directing them to explore options for achieving savings of at least 30 percent of their contract values. Other operators and players are expected to follow suit as well.
A spokesperson for Petrofac said: “As we have announced this morning, we are targeting a number of measures to reduce our costs across the Group. These prudent measures are consistent with the industry’s efforts to align costs to the challenges of the current environment, although you should not expect these measures to apply evenly across each of our markets.
“Petrofac is confident that it will maintain first-class service delivery in Oman. We are working on several major projects and plan to continue to invest in local content and Omanisation over the long term. Oman remains a very important market for Petrofac – we have a long history of operating in Oman and are committed to playing a key role in the future development of Oman’s energy industry, including through training of local people.”