20th Apr 2015 06:15
LONDON (Alliance News) - Petrofac Ltd Monday said it will book a further GBP130 million pretax loss on its Laggan-Tormore gas plant project on Shetland in the UK, blaming weather-related delays, an issue with a sub-contractor, lower worker productivity and the requirement for more work than it had previously expected.
The oil and gas services company had booked a USD230 million loss on the project in its 2014 results and had said it expected that it wouldn't have to book any further losses over the remainder of the contract, which it expected to complete in the third quarter of 2015.
However, as activity ramped up in March and April, it became clear that the project was going to require more work than it had previously expected, it said Monday.
"Continued adverse weather conditions during March on Shetland and industrial action has delayed this ramp up by almost a month from our original expectations. As the activity levels have increased, it has become apparent that we will need to expend significantly more man-hours to complete the project than anticipated as a result of low manpower productivity levels as the project nears completion, a greater level of rectification and reinstatement work than expected, coupled with the failure of one of our sub-contractors to deliver in line with their agreed scope," it said.
It still expects to complete the project in the third quarter.
"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," it said.
"Our lack of experience of operating a direct construction model in a wholly new geography for our Onshore Engineering & Construction business, particularly in a location where labour costs are much higher and productivity much lower than we are used to, has cost us dearly," Chief Executive Ayman Asfari said.
"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," he added, saying the rest of the company's portfolio is performing in line with expectations.
By Steve McGrath; [email protected]; @stevemcgrath1
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
Petrofac