Petrofac to increase Kazakh production

Petrofac has signed a memorandum of understanding (MOU) with KazMunaiGas Exploration Production (KMG EP) of Kazakhstan.

The MOU allows the parties to explore opportunities to improve the efficiency of oil production and increase production from KMG EP's mature Emba fields.

Under the terms of the MOU, Petrofac intends to evaluate the Emba fields and to submit an offer for the long-term improvement of the management and production in selected Emba fields in order to progress a potential production enhancement contract.

"We hope that our partnership with Petrofac will allow us to accomplish optimisation of production and improve oil recovery in EMG mature fields," commented KMG EP chief executive Abat Nurseitov.

Andy Inglis, chief executive of Petrofac Integrated Energy Services, added: "We are delighted to be forging what we anticipate will be a long-term relationship with KMG EP, which will allow us to provide capability and performance-enhancing management for their mature fields in what is a strategically important region for us."

Analyst view

Oil services group Petrofac designs and builds oil and gas infrastructure, trains oil-field staff and maintains facilities. It also invests alongside producers in oil fields and helps national oil companies improve their oil production.

At its full-year results at the end of June, management confirmed that it expected modest growth in net profit in 2013, with the majority of this being weighted into the second half. Petrofac also confirmed that it still expected to double 2010 earnings by 2015.

Since the start of the year, shares in the company have lost a quarter of their value on the back of the terrorist attack on a gas facility in Algeria and concerns around a lack of Middle East opportunities.

However, analysts at Citigroup saw scope for a re-rating over the next year as the current backlog underpins 14% earnings growth in 2014 and award intake continues to accelerate. In a note to investors in the middle of June, they wrote: "Given the potential catalyst afforded by an active second-half pipeline, we add Petrofac as a most preferred stock in our three-month best-ideas database."

Tony Shepard, analyst at Charles Stanley, was also optimistic on the stock, explaining: "Given the good long-term prospects and the sector discount rating, we reiterate our 'accumulate' recommendation."

Petrofac is trading on a 2013 price/earnings and enterprise value/EBITDA ratio of about 9.4 and 7.5 times respectively, a 15% discount to the peer group.