Annual report
and accounts 2023
Meeting the
world’s evolving
energy needs
We enable our clients
to meet the world’s
evolving energy needs.
SEE OUR BUSINESS MODEL |
Page 20
We are a leading energy services
company that helps our clients meet the
world’s evolving energy needs.
We use our engineering know-how
and our consultancy expertise to design,
build, and operate world-class energy
facilities that are engineered
for safety, optimal efficiency, and
low emissions.
We operate in a range of markets and
work across the entire asset life cycle –
from design to decommissioning.
These competencies, supported
by flexible commercial models,
differentiated local delivery, and a
technology neutral approach, set
us apart. Core to our offering is our
distinctive, delivery-focused culture.
purpose
Our
OVERVIEW FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
PETROFAC LIMITED | Annual report and accounts 2023
2023 overview
OVERVIEW
01 2023 overview
02 Petrofac at a glance
STRATEGIC REPORT
04 Chair’s statement
06 Group Chief
Executive’sreview
08 Strategic framework
12 Case studies
20 Our business model
21 Why invest in Petrofac?
22 Market outlook
26 Stakeholder engagement
30 Key performance
indicators
32 Environmental, Social
and Governance
44 Task Force on
Climate-related
FinancialDisclosures
70 Risk management
72 Principal risks
anduncertainties
78 Segmental overview
86 Financial review
94 Viability statement
GOVERNANCE
98 Governance at a glance
100 Chair’s introduction
102 Board of Directors
104 Group Executive
Committee
105 Corporate
governancereport
110 Special Committee report
111 Nominations
Committeereport
115 Audit Committee report
125 Compliance and Ethics
Committee report
127 Directors’
remunerationreport
141 Directors’ statements
FINANCIAL STATEMENTS
142 Group financial statements
143 Independent
auditor’sreport
146 Consolidated
incomestatement
147 Consolidated statement
of comprehensive income
148 Consolidated
balancesheet
149 Consolidated statement
of cash flows
150 Consolidated statement
of changes in equity
151 Notes to the consolidated
financial statements
209 Appendices
214 Shareholder information
215 Glossary
For the latest investor news, visit our website /
petrofac.com/investors
Revenue
US$2,496m
2022 (restated)
9
| US$2,567m
Business performance net loss
1,6
US$(485)m
2022 (restated)
9
| US$(294)m
Business performance EBIT
1,4
US$(393)m
2022 (restated)
9
| US$(229)m
Reported EBITDA
3
US$(340)m
2022 (restated)
9
| US$(162)m
Free cash flow
7
US$(223)m
2022 | US$(188)m
Reported EBIT
5
US$(418)m
2022 (restated)
9
| US$(236)m
Net debt
US$583m
2022 | US$349m
Backlog
8
US$8.1bn
2022 | US$3.4bn
Business performance EBITDA
1,2
US$(310)m
2022 (restated)
9
| US$(150)m
CDP rating
B
2022 | B
Reported net loss
6
US$(505)m
2022 (restated)
9
| US$(320)m
In-country value spend
47%
2022 | 32%
1. Business performance before separately disclosed items.
This measures underlying business performance.
2. Business performance earnings before interest, tax,
depreciation and amortisation (EBITDA) is calculated as
business performance operating profit, including the share of
net profit of associates and joint ventures, adjusted to add back
charges for depreciation and amortisation (see A3 in Appendix
A to the consolidated financial statements).
3. Reported earnings before interest, tax, depreciation and
amortisation (EBITDA) is calculated as reported operating profit,
including the share of net profit of associates and joint ventures,
adjusted to add back charges for depreciation and amortisation
(see A5 in Appendix A to the consolidated financial statements).
4. Business performance earnings before interest and tax
(EBIT) is calculated as business performance operating profit,
including the share of net profit of associates and joint ventures
(see A4 in Appendix A of the condensed consolidated
financialstatements).
5. Reported earnings before interest and tax (EBIT) is calculated
as reported operating profit, including the share of net profit
of associates and joint ventures (see A6 in Appendix A of the
condensed consolidated financial statements).
6. Attributable to Petrofac Limited shareholders, as reported in
the consolidated income statement.
7. Free cash flow is defined as net cash flows from operating
activities, plus net cash flows from investing activities, less
interest paid and the repayment of finance lease principal
plus amount received/paid from/to non-controlling interest
(see A9 in Appendix A of the condensed consolidated
financial statements).
8. Backlog consists of: the estimated revenue attributable to the
uncompleted portion of Engineering & Construction operating
segment contracts; and, for Asset Solutions, the estimated
revenue attributable to the lesser of the remaining term of the
contract and five years. The Group uses this key performance
indicator as a measure of the visibility of future revenue.
9. The prior year numbers are restated as detailed in note 2.9 to
the consolidated financial statements.
01
PETROFAC LIMITED | Annual report and accounts 2023
Petrofac at a glance
Our vision
To be the preferred services
partner to the energy industry.
Our purpose
We enable our clients to meet the
world’s evolving energy needs.
FIND OUT MORE AT /
petrofac.com
SEE OUR STRATEGY |
Page 10
SEE OUR ESG REPORT |
Page 32
SEE OUR GOVERNANCE REPORT |
Page 98
SEE OUR STAKEHOLDER |
ENGAGEMENT Page 26
Wherever our clients are
on their energy journey and
whatever energy sector they
operate in, Petrofac has
the expertise, capabilities
and experience to support
them across the entire asset
lifecycle.
Decommission
Design
Operate
Train
Our performance is driven
by our strategic priorities:
Consistent
delivery
Maintain strength
inour core
Improved returns
We believe how we do business is
just as important as what we do.
Our sustainability strategy sets
out our ESG goals, which are aligned to
our purpose and business model.
Environmental
Ensuring that Petrofac is able to
minimise its own environmental impact,
while supporting our clients in achieving
their lower carbon ambitions.
Social
Promoting safe local delivery of our
projects and services, drawing on ethical
supply chains to create in-country value,
address local skills gaps, and build a
diverse and inclusive workforce.
Governance
Underpinning everything we do with
clear, consistent standards of ethical
behaviour, bound by rigorous compliance
andgovernance.
Our values govern how
we operate and underpin
our purpose. They are
superseded only by our
unyielding commitment to
safety and ethical behaviour.
Driven
Agile
Respectful
Open
All these elements align
to create long-term value
for our stakeholders.
Shareholders and
other investors
Employees
Clients
Suppliers
Communities
Governments,
regulators and
industry bodies
Build
OVERVIEW FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
02
PETROFAC LIMITED | Annual report and accounts 2023
37% 58% 5%
% of revenue % of revenue
% of revenue
Engineering & Construction
The Engineering & Construction (E&C) division delivers
onshore and offshore engineering, procurement, construction,
installation and commissioning services for both the traditional
and renewable energy sectors. Lump-sum turnkey is the
predominant commercial model used, but we also offer our
clients the flexibility of other models. The division has more than
40 years’ track record in designing and building major energy
infrastructure projects.
FIND OUT MORE |
Page 80
FIND OUT MORE |
Page 83
FIND OUT MORE |
Page 85
Asset Solutions
The Asset Solutions division manages and maintains client
operations, both onshore and offshore, delivers small
to medium-scale EPC projects and provides concept,
feasibility and front-end engineering design (FEED) services.
Thedivision is also home to market-leading well engineering,
decommissioning and training capabilities. The majority of
Asset Solutions services are executed on a reimbursable basis,
but we are responsive to clients’ preferred commercial models
to deliver our expertise.
Integrated Energy Services
Integrated Energy Services (IES) is Petrofac’s upstream oil and
gas business. Our interest in the Production Sharing Contract
(PSC) for Block PM304 Malaysia’s offshore Cendor field is the
sole asset in the portfolio.
Revenue US$936m
2022 (restated)
3
| US$1,287m
Business performance EBIT
1
US$(422)m
2022 (restated)
3
| US$(323)m
Reported EBIT US$(422)m
2022 (restated)
3
| US$(324)m
Business performance net loss
1,2
US$(397)m
2022 (restated)
3
| US$(289)m
Employees 3,900
(as at 31 December 2023)
Revenue US$1,446m
2022 | US$1,158m
Business performance EBIT
1
US$2m
2022 | US$60m
Reported EBIT US$(5)m
2022 | US$57m
Business performance net profit
1,2
US$2m
2022 (restated)
3
| US$55m
Employees 4,100
(as at 31 December 2023)
Revenue US$121m
2022 | US$137m
Business performance EBIT
1
US$34m
2022 | US$58m
Reported EBIT US$41m
2022 | US$71m
Business performance net profit
1,2
US$23m
2022 | US$53m
Employees 200
(as at 31 December 2023)
1. Business performance before separately disclosed items. This measures underlying business performance.
2. Attributable to Petrofac Limited shareholders, as reported in the consolidated financial statements.
3. The prior year numbers are restated as detailed in note 2.9 to the consolidated financial statements.
03
PETROFAC LIMITED | Annual report and accounts 2023
Chair’s statement
As a result of the Company-specific and
industry-wide challenges experienced by the
Group in recent years, we are, at the time of
writing, at a critical juncture. The Board and
Management are focused on delivering a
comprehensive refinancing solution, including a
capital restructure (the Financial Restructure) to
address the Group’s financial fragility and secure
its operations, as outlined below.
Whilst the Board believes that there is a
reasonable prospect the Group will complete the
Financial Restructure, a number of events out
with the Company’s control could impact this
work. These risks, and the material uncertainties
in the assessment of the Going Concern
(see note 2.5 to the consolidated financial
statements), the status of which could change
rapidly in the coming days and weeks, are
outlined transparently in this report.
Of course, this report also details the operational
progress the Group has made. New order intake
during the year was exceptional, significant
progress was made in closing out remaining
legacy contracts and work is well underway to
strengthen controls and executive oversight.
With the right capital structure in place, I believe
that the Group can begin its return to consistent,
at-scale delivery and sustainable growth.
I want to say how grateful the Board is of the
continued efforts of our people, and the support
of our stakeholders as we navigate this path.
I would like to thank our stakeholders for their
continued patience and ongoing engagement with
the business.”
RENÉ MÉDORI
Chair
04
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Addressing our financial position
As the Group transitioned towards delivery of the
new portfolio of contracts, the Board’s attention
was focused on the Group’s financial position,
including the need to supplement the organic
deleveraging plan, strengthen the balance sheet
and improve liquidity.
To this end, we initiated the formal review of
strategic and financial options and appointed
Aidan de Brunner as a Non-executive Director.
With significant Board, management, investment
and financial advisory experience, he was
appointed to lead this review.
We have, at the time of writing, shared
with stakeholders our intent to pursue a
comprehensive balance sheet restructure.
This plan is underpinned by a proposal from a
group of existing noteholders, and as detailed
on pages 8 and 9, we are in discussion with
other lenders to secure the guarantees required
under the proposal. As well as new funding
and the creation of new facilities for guarantees
to support existing contracts and release
cash collateral, the conversion of a substantial
portion of the Group’s debt for equity would
drive a material reduction in its debt burden
goingforward.
The Board and I recognise that this will
unfortunately have a dilutive impact for existing
shareholders, however we believe that this
restructure is critical to ensure that the Group
has the capital structure and liquidity required
to support the strength of its backlog and future
business prospects.
Introducing new leadership
In April 2023, we welcomed Tareq Kawash
as our new Group Chief Executive. With a
strong track record in both new business and
operational delivery, backed by deep client
relationships, his impact was immediate. His
arrival coincided with a string of new business
wins, representing our best order intake for
many years. While several of these bids were
already in play, the awards were, to me,
evidence of the deep trust the industry has in
both Tareq and Petrofac.
Tareq’s immediate focus was to bring as much
of the problematic legacy contracts to a close as
possible, unwinding as much working capital as
possible, and gearing Petrofac up for sustained
and consistent at-scale delivery. To this end, he
strengthened the leadership team, bringing in
additional commercial and contractual expertise,
and recalibrating roles and responsibilities
to put more emphasis on assurance and
executiveoversight.
Notwithstanding the challenges we face and the
necessity of the ongoing Financial Restructure,
the achievements from 2023 also demonstrate
the strength of Petrofac’s competitive position.
With a healthy bidding environment and a
highly selective approach to new business, the
Group’s operations are well balanced across the
world’s most robust hydrocarbons markets, the
most material energy transition opportunities,
and the burgeoning market for mature asset
management anddecommissioning.
Maintaining a strong,
supportiveBoard
The main priority of the Board during this
challenging period was to provide leadership
and guidance, and we met on 23 occasions. I
would like to thank my fellow Directors for their
commitment, for making themselves available,
often at short notice, and for their determination
to deliver on their fiduciary responsibilities.
Other than Aidan’s appointment and Tareq’s
arrival, there were no other changes to the
Directors, ensuring stability in the Board
throughout a challenging year. To add to
this continuity, my term as Chair, which had
originally been due to end back in 2021, was
again extended. The question of succession
will be revisited following the 2024 Annual
GeneralMeeting.
As ever, the Board worked hard to stay in
touch with the inner workings of the Group
and employee sentiment, as well as those of
other stakeholders. Once again, the Petrofac
Workforce Forum provided an invaluable
opportunity for the Board to converse directly
with employees representing different levels,
functions and geographies. It’s clear we
benefit from an engaged team, who are loyal
toPetrofac.
Benefiting from a strong
ESGpositioning
The ability to demonstrate strong environmental,
social and governance (ESG) credentials is a key
strategic asset in today’s world, and the subject
was discussed regularly by the Board.
Much of the Group’s work is linked, either directly
or indirectly, to the energy transition. Alongside
a growing portfolio of energy transition contracts
(over 40% of the US$8.1 billion backlog) – not
least the offshore wind platform Framework
Agreement with TenneT – we are helping to
reduce the carbon intensity of new and existing
oil and gas facilities, get more value from mature
assets, and decommission ageing assets.
Meanwhile, the Group is on track to meet or
exceed commitments in areas such as diversity
and emissions reductions, and its local delivery
model continues to benefit local communities.
Looking to 2024 and beyond
Given the success in winning new business, the
scale and quality of the backlog, the buoyant
and differentiated markets in which we operate,
and the operational changes made by Tareq
and the team, I believe 2023 was a pivotal year
for operational progress. Commercially and
financially, the year demanded the continued
patience of our stakeholders, and more recently,
the news that our results would be delayed
provided a further source of frustration.
Our priorities for 2024 are therefore clear. We
must deliver the Financial Restructure, rebuild
the confidence of our stakeholders and return
to consistent and predictable operational and
commercial delivery.
I would like to thank the entire Petrofac team
for their continued commitment to the Group,
their level of engagement and their contribution
to the many achievements of 2023. I would
also like to thank our stakeholders for their
continued patience and ongoing engagement
with thebusiness.
RENÉ MÉDORI
Chair
31 May 2024
05
PETROFAC LIMITED | Annual report and accounts 2023
Group Chief Executive’s review
As I reflect on my first year as Petrofac’s Group
Chief Executive, I feel proud of the operational
progress our teams have made. We secured
high-quality order backlog, made solid progress in
closing out legacy contracts, began implementing
new controls to bring more consistency to our
delivery, and engagement reached a new high
across our team.
Of course, we also faced significant challenges,
as reflected in the 2023 financial and share
price performance. These challenges extended
into 2024, and we understand the recent
disappointment that we would delay the issue
ofour full year results.
As René has outlined, delivering our plan to
restore Petrofac’s balance sheet strength is
fundamental to securing the Group’s operations
and this has the absolute focus of the Board.
Further detail on this workstream can be found
onthe subsequent pages.
Notwithstanding the criticality of this work, rather
than repeat the detail here, I would like to take this
opportunity to highlight the work the Executive
team and I have been undertaking to position the
Group following the Financial Restructure, and,
as we navigate this period, reiterate the business
fundamentals that underpin my belief that, post-
restructure, Petrofac is positioned for a return to
sustainable, profitable growth.
Rebuilding the order backlog –
andpreparing to return to
selectivegrowth
By any measure, 2023 was an excellent year for
new business, during which we demonstrated
the strength of our competitive position with a
series of quality contract wins.
In total we achieved US$7.1 billion in new
order intake and increased the backlog to
US$8.1billion. These wins were well balanced
across the Group: in Engineering & Construction
(E&C), we returned to the UAE with two
new contracts for ADNOC, one of which is
a prestigious carbon capture project, and in
Algeria, we extended our presence with our
first petrochemicals project; for our burgeoning
business in energy transition projects, we
were awarded the first two HVDC offshore
wind platforms under the landmark TenneT
Framework Agreement; and in Asset Solutions
we achieved good geographicexpansion.
One of the things I always admired about Petrofac
is its record for project delivery. A clear priority
for the entire Executive team is to revitalise that
innatecapability.”
TAREQ KAWASH
Group Chief Executive
06
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
With a strong outlook across all our key markets,
on completion of the Financial Restructure, our
emphasis will continue to be on staying selective
in the future opportunities we pursue. The aim is
to build on – and build from – our core strengths,
with a narrow focus on the type of work we do
best, for the clients we know best, in the type of
geographies where we can execute best.
Stabilising the operations, and
further strengthening control
andoversight
One of the things that I always admired about
Petrofac is its record for project delivery. A clear
priority for the entire Executive team is to revitalise
that innate capability. We began this in 2023 –
adjusting our operating model, to take account of
learnings from the recent delivery challenges by
embedding a robust assurance function.
In 2023 several large-scale projects, like Ain Tsila
and Duqm, were substantially completed. We
expect all but two of the legacy contracts to be
completed in 2024. The two contracts that will
continue in execution beyond 2024 are the Thai
Oil Clean Fuels project and the Orlen Refinery
Upgrade project in Lithuania. Nearly 90% of
the E&C backlog is now coming from newly
awarded contracts. We continued to advance
contractual settlements collecting approximately
US$180 million, and negotiations are ongoing
in relation to the reimbursement of costs on the
Thai Oil Clean Fuels contract.
For new projects, the focus has been to start
strong and instil a deep-seated control, delivery
and safety culture – including a disciplined
approach to contractual management, and,
at a broader Company-level, assurance and
governance oversight. Benefiting from the
operating model adjustments made in 2023,
we continue with efforts to stringently address
controls learnings and ensuring we retain
oversight and appropriate operational and
financial controls across the Group’s operations.
In line with key lessons outlined in the Audit
Committee Report, the Board and management
are also overseeing a programme to reinforce
our key expectations on culture and conduct.
Recognising Petrofac’s considerable
strengths – and building on them
In terms of business strategy, we made some
subtle yet important refinements.
Overall, our aim is to build on Petrofac’s core
strengths, including a 40-year track record in
Middle East and North Africa (MENA), a 10-plus-
year pedigree in offshore wind, strong strategic
partnerships, and a renowned expertise in late
life asset optimisation and decommissioning.
In E&C, we are therefore re-pivoting back to
our core MENA markets, where there continues
to be high levels of investment, we have a
consistent record of success, and our local
delivery model is a key competitive advantage.
To address the needs of the energy transition
sectors, we have created a distinct delivery unit,
with a clear priority being the consistent delivery
across TenneT’s 2GW offshore wind programme
– which represents a multi-billion-dollar, multi-
year opportunity, and helps us demonstrate
the benefits of an integrated ‘design one, build
many’ solution to other energy transition clients.
In Asset Solutions, we are building on our
considerable strengths in operations and
maintenance, mature asset management,
anddecommissioning, and expanding
judiciously from the UKCS into other mature
basins, which are looking for the type of skills
and relationships we bring, and offer the
potential for highermargins.
Given the strong market fundamentals and
Petrofac’s differentiated position, with restored
balance sheet strength following the restructure, a
focus on selective growth in our core markets, and
consistent delivery, I believe we have line of sight
to sustainable and profitable medium-term growth.
Celebrating the calibre of the
Petrofac team – and safeguarding it
Ultimately, Petrofac is a people business. It is
the skills, the ethos and the behaviours of our
people that set us apart and, from the outset,
Ihave been impressed by the can-do attitude
and client-centric culture.
As we pivoted from the completion of legacy
contracts to the delivery of new projects
within our portfolio, one of 2023’s biggest
achievements was to recruit more than 3,000
employees in support of this new work, of
which a sizeable proportion were former
Petrofacemployees.
We also made progress towards achieving our
diversity targets. We increased the number of
women in senior management to 30.5% and
our workforce is comprised of more than 85
nationalities. Bit by bit, our teams are becoming
more representative of our local communities.
Meanwhile, with our highest ever employee
engagement ratings of 88%, it is clear that our
people are committed to Petrofac.
Making progress on sustainability –
and delivering on the
decarbonisation agenda
Our purpose is to help clients meet the world’s
evolving energy needs, and we aim to play an
active role in the global energy transition.
Aswell as helping clients to introduce new
cleaner energy assets, decarbonise existing
assets, and decommission ageing assets, we
are committed to running our own business in
asustainable way.
Proof points from 2023 include a 13% reduction
in our Group-wide Scope 1 emissions, including a
15% cut in emissions at our Malaysian operations.
We also exceeded our diversity targets, and were
awarded the Gold Impact Seal for delivering on
our sustainability strategy in the UAE.
With 47% of our project spend going to
in-country suppliers, we also have a local
delivery model that enriches communities,
creating new jobs and supporting
localeconomies.
Looking ahead
As I write these words, the clear priority is to
successfully complete the Financial Restructure
to materially strengthen the balance sheet,
secure project guarantees and improve liquidity,
in order to secure the Group’s operations and
help us deliver on the strength of our backlog.
By the time you read them, we may have been
in a position to make further announcements
onthis work.
With the implementation of the Financial
Restructure, I believe we are well positioned
to build on the operational progress made
in 2023 and capitalise on the opportunities
before us, returning the Group to a sustainable
growthtrajectory.
For now, I thank our clients for their trust in
Petrofac, and our employees for their continued
support and dedication.
TAREQ KAWASH
Group Chief Executive
31 May 2024
07
PETROFAC LIMITED | Annual report and accounts 2023
• m
Strategic framework
In December 2023, the Petrofac Board announced it
was reviewing a range of strategic and financial options
to materially strengthen the Group’s balance sheet
and improve liquidity. This work is critical to ensure we
can secure the performance guarantees required to
undertake current and future Engineering, Procurement
and Construction (EPC) contracts in our portfolio, and
therefore to securing for the Group’s ability to continue in
its operations.
At the time of writing, whilst discussions continue in
support of a comprehensive solution, including a capital
restructure (the Financial Restructure), there remain a
number of steps that must be achieved which are outside
of the Company’s control and which are dependent on
securing key stakeholder agreement.
Based on the status of discussions with stakeholders,
and taking into account the advice from the Company’s
external financial, legal and liquidity advisors, the
Directors have concluded that there is, at the time of
writing, a reasonable prospect of the Group implementing
the Financial Restructure which provides a realistic
alternative to liquidation or cessation of operations.
However, if negotiations with counterparties were to
be unsuccessful in the short-term, the Directors may
change their view. This is covered in more detail in the
going concern disclosure in note 2.5 to the consolidated
financial statements on page 152.
Background
Despite the challenges highlighted by our
financial results, 2023 was an excellent work
winning year for Petrofac, securing a number
of high-quality contracts to build its backlog
beyond US$8 billion, and providing visibility for
the future prospects of the business.
For EPC contracts, it is a standard contractual
requirement to provide clients with performance
guarantees. During 2023, we experienced
significant challenges in securing these
guarantees due to both market-wide and
Company-specific reductions in issuerappetite.
Securing guarantees on normal commercial
terms and the successful implementation of the
Financial Restructure is of criticalimportance.
Challenges in securing guarantees presents two
main issues:
• Further delays in obtaining performance
guarantees could lead to the termination of
existing contracts and affect our ability to
secure and deliver new contracts and/or
impact the timing of the receipt of contract
cash flows.
• Advance payment guarantees are typically
sought by the business to help support the
traditional cash-positive, negative working
capital, operating model.
In 2023, we secured performance guarantees
for both the ADNOC Habshan contract and the
first contract awarded under the Framework
Agreement with TenneT. However, as a result
of reduced issuer appetite, in order to secure
these guarantees, we were required to provide
significant cashcollateral.
With current levels of liquidity, the continued
provision of such cash collateral to secure
guarantees is not sustainable and this led to
the Board initiating a review of strategic and
financial options and the creation of the Special
Committee (page 110), chaired by a newly
appointed Independent Non-executive Director,
Aidan de Brunner (page 111).
As a result of the Company-specific and industry-
wide challenges experienced by the Group in
recent years, we are, at the time of writing, at a
critical juncture.”
RENÉ MÉDORI
Chair
Critical financial
restructure
OVERVIEW
08
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
Current status
As at 31 May, we are in active discussions with
creditors and prospective credit providers in relation
to the Financial Restructure, and the current
proposal being discussed is designed todeliver:
• A strengthened balance sheet, through the
conversion of a substantial portion of existing
debt into equity.
• An improvement in liquidity, through the
provision of US$200 million of new debt and
more than US$200 million through the return
ofcash collateral and retentions.
• Access to guarantees on normal commercial
terms, as a result of the strengthened balance
sheet and improved liquidity.
These discussions are underway, and, at the time
of issuing this report, the Company has received a
proposal from an ad hoc group of senior secured
noteholders, representing approximately 41% of the
outstanding notes, for the provision of new credit of
US$200 million to the business, as well as a further
US$100 million of ‘first loss’ underwriting support
to facilitate the provision of guarantees on existing
contracts. This non-binding proposal is dependent
upon, amongst other things, agreement with credit
providers to provide guarantees of approximately
US$400 million and would require the conversion of
a significant portion of the Group’s debt toequity.
We are also in discussions with other key
stakeholders who are required to consent to the
Financial Restructure, including other creditors,
prospective credit providers and shareholder and
prospective shareholders.
The success of this process is subject to reaching
an inter-conditional agreement with these
stakeholders as to the (as yet undefined) terms of
the Financial Restructure, as well as securing the
necessary approvals from our shareholders and
completing the judicial process required to complete
its implementation. Clearly, the timing and outcome
of these discussions are not wholly within the control
of the Petrofac Board and managementteam.
The Board carefully considered the status of discussions and has
assessed that there is a reasonable prospect that the Financial
Restructure will be successfully implemented and therefore has
concluded that it is appropriate to adopt the going concern basis
for the preparation of the financial statements. However, with the
outcome of discussions with key stakeholders currently pending,
there are a number of material uncertainties which form part of the
Directors’ assessment, the status of which could change rapidly
in the coming days andweeks.
Maintaining liquidity
We have been managing payment obligations and liquidity
carefully, and in line with the minimum liquidity covenant set out
under our current Revolving Credit Facility and Term Loans
(bank facilities), assisted by rolling weekly deferrals from
lenders in respect of amortisationpayments.
We have a number of payment obligations falling due in
the coming weeks, including the continuing obligation
to pay the US$29 million interest coupon under
the terms of the senior secured notes which was
due on 15 May 2023 (for which there is a 30-
day grace period and the ad hoc group of
noteholders have provided their forbearance
until 30 June 2023) and US$84 million
of amortisation payments in respect of
the bank facilities which are currently
due and deferrals for which have,
to date, only been granted on a
weekly basis.
Even without making payments to its noteholders
and lenders, to maintain liquidity at or above
the US$75 million covenant level, the Group
is having to manage its payment obligations
carefully, including by seeking to delay all but
critical payments to creditors and by not funding
obligations under operational joint venture
arrangements. This is of critical importance to
our ability to maintain sufficient liquidity in the
period before which the Financial Restructure
can be completed, which is not expected to be
before September 2024 at the earliest, albeit
with the necessary inter-conditional agreements
being reached approximately one to two months
prior to final implementation. Failure to do so
could put the Financial Restructure at risk, and,
in all likelihood, cause the Group to enter into
insolvency proceedings. While the Board is
absolutely focused on managing these risks and
executing the restructure as quickly as possible,
it is important that we highlight these risks openly
andtransparently.
Impact on the annual report andaccounts
Throughout the 2023 annual report and
accounts, we have reflected the fragility of
theGroup’s financial position, the uncertainty
and challenges faced, and the steps remaining
tocomplete the Financial Restructure.
However, the report also highlights the actions
we have taken to mitigate these challenges
and set the Group on a path for growth, realise
the potential of our new backlog and the
prospects in our future pipeline of opportunities.
The report demonstrates the resilience and
adaptability of our business model, our strong
client relationships and, importantly, our people.
The report demonstrates our commitment to
innovation, quality and client satisfaction, as well
as our social and environmental responsibility.
Key areas of the report in which additional
activities and information relating to the Financial
Restructure have been discussed in further
detailinclude:
• Risk management: pages 70 to 77
• Financial review: pages 86 to 93
• Viability: pages 94 to 96
• Corporate governance and Special Committee
reports: pages 98 to 110
• Audit Committee report: pages 115 to 124
• Going concern disclosure: note 2.5 of the
financial statements on pages 152 to 156
We recognise that the challenges faced in recent
times have a wider impact on our stakeholders,
demanding their continued patience and
cooperation during a time of uncertainty.
By recognising what matters to our
shareholders, investors, customers, suppliers
and employees, we have proactively and as
openly and transparently as possible, shared
relevant information in order to protect and
maintainrelationships.
09
PETROFAC LIMITED | Annual report and accounts 2023
Strategic framework continued
We are enabling our clients to meet the world’s evolving energy needs.
Wherever our clients are on their energy journey, and whatever market they
operate in, Petrofac has the expertise, capabilities and experience to support
them across the entire asset life cycle.
To secure our medium-term growth ambitions, we are pursuing three
strategic priorities which will position the Group for long-term success.
Consistent delivery
Maintain strength
in our core
Improved returns
• Consistent and predictable execution, effective
project governance
• Global capability, local execution
• Strategic partnerships/technologyneutral
• Digitally enabled innovation
Overview
An overriding strategic priority is to deliver our projects consistently,
by working predictably, mitigating risks and avoiding any surprises.
To achieve this, we continue to build on our traditional strengths,
focusing on our core markets, introducing new efficiencies and
bringing greater consistency to the way we operate the business.
During the year, we adjusted our operating model to drive the right
leadership focus, project governance and geographical oversight
across our growing portfolio, with the aim of increasing efficiency
and effectiveness in how we execute work.
A Petrofac differentiator is our local delivery model, helping us bid
appropriately and build strong, long-term relationships with local
stakeholders. To supplement this, we build local teams which
reflect the clients they serve whilst also delivering high levels of
in-country value (ICV) in our industry. These teams are supported
by experienced technical capability from our specialist hubs around
the world.
We invest in innovation, through digitalisation and our technical
expertise, to maximise productivity and provide optimal solutions
to our clients. Being technology neutral means we can use our
extensive experience to specify the best solution for each client
and project from a wide range of technology suppliers, developing
strategic partnerships to help us achieve the best outcome for
ourclients.
• Continue to build on our quality backlog
• Selective focus on core strengths, clients and markets
• Expand our capabilities in energy transition
• Customer-centric and flexible contracting approach
Overview
2023 was Petrofac’s strongest period for awards in many years.
Our underlying business is robust, with a high-quality US$8.1billion
backlog, generated from US$7.1 billion in new awards in both new
and traditional energy during the year.
We repivoted back to our core markets which remain attractive
with a significant addressable market for Petrofac of US$60 billion
expected in the next 18-months. These opportunities are within
our core areas of strength and with long-term clients. With regards
to the energy transition, the priority is to continue delivering on the
TenneT multi-year Framework Agreement, while also building the
proposition and positioning us well for other future EPC projects in
the energy transition markets, when they come for tender.
The adjustments we made to our operating model in 2023 will
allow us to be selective in our bidding process to ensure that the
backlog consists of quality projects which will lead us towards our
medium-term profitability ambitions.
As our clients and prospective clients work through energy
security, affordability and sustainability challenges, Petrofac is
working with them to develop ways in which to; access additional
energy sources, secure lower costs of production, extend the life
of their assets, decommission mature assets and decarbonise
theiroperations.
• Deliver a comprehensive refinancing
• A highly selective approach to bidding
• Deliver sector-leading margins consistently
• Capital light business model
• Establish and maintain a strong balance sheet
Overview
The immediate priority of the Company is to execute and
implement the Financial Restructure in order that the business can
continue to execute its medium-term strategy. Our ability to focus
on consistent delivery, maintain strength in our core markets and
improve returns is predicated on remaining a going concern up
to, including and beyond a successful execution of the Financial
Restructure (see page 8 for more details).
During 2023, we rebuilt the backlog and made progress towards
unwinding historic working capital. We are completing contracts
in the legacy portfolio, and we continue to deliver well in the initial
phases of the contracts awarded in 2023. With a large, high-quality
order backlog and a busy bidding environment, we now have
a clear pathway back to sustainable growth and the delivery of
superior returns.
Our local market model enables us to keep costs down, and
the changes made to our operating model provide strong risk
management and assurance. Our ESG commitment unlocks new
growth opportunities, and helps us meet client expectations – with
strong decarbonisation solutions across the Group.
Our medium-term ambition is to deliver US$4 billion to US$5
billion in revenue (more than 20% of which from energy transition
projects), EBIT margins of 6% to 8% and a strong balance sheet
with net cash.
10
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
Consistent delivery
Maintain strength
in our core
Improved returns
SEE OUR CASE STUDIES |
Pages 12 - 15
SEE OUR CASE STUDIES |
Page 14 - 17
SEE OUR CASE STUDIES |
Page 14 - 15
2023 Performance
• Further progressed the completion of the remaining E&C legacy
portfolio projects
• Adjusted our operating model and made key strategic hires to
ensure appropriate leadership support and projectgovernance
• Created a dedicated energy transition delivery unit within the E&C
business unit
• Recruited and onboarded over 3,000 new employees despite a
tight employment market. Attrition levels fell from 14.3% in 2022
to 11.5% in 2023. Overall employment levels increased by 677 to
reach 8,600, representing an 8.5% increase from 2022
2024 Priorities
• Extend and embed Group assurance procedures to ensure
consistent and predictable EPC delivery
• Strong execution on energy transition projects underpinned by the
TenneT multi-year Framework Agreement contracts
• Strengthen the integration of services within Asset Solutions to
secure more long-term frameworks
Link to KPIs
Employee numbers
8,600
In-Country Value (ICV) spend
47%
CDP rating
B
2023 Performance
• Rebuilt a large, high-quality order backlog including:
– A return to the UAE
– A multi-project offshore wind Framework Agreement
– Geographical expansion in Asset Solutions
– A greater than 80% renewal rate in Asset Solutions
– Further development of the one-stop-shop for integrated
decommissioning services
• Maintained a pipeline of future opportunities,
providing visibility to sustained growth
2024 Priorities
• Maintain strength in our core MENA markets for E&C, where we
have access to an 18-month US$60 billion Group pipeline, strong
ICV and a proven ability to deliver consistently andprofitably
• Further geographical expansion in Asset Solutions’ markets, and
enhance differentiation in mature markets
• Continue to engage in pre-FEED and FEED studies for energy
transition projects, maintaining market access, enhancing
knowledge and retaining optionality
Link to KPIs
18-month Group pipeline
US$60bn
Backlog
US$8.1bn
2023 Performance
• A challenging year for financial performance with:
– Increased losses on the Thai Oil Clean Fuels project
– Write-downs of receivables to protect cash flows in E&C
– Low activity levels with adverse operating leverage in E&C
– A bad debt provision for a client entering insolvency in
AssetSolutions
– Delays to securing guarantees contractually required to deliver
contracts awarded in the year
• Progress in completing legacy contracts and resolving open
contractual discussions
• Pivoted to more selective bidding, resulting in a high-quality backlog
and bids submitted in line with our medium-term ambitions.
2024 Priorities
• Strengthen the Group’s balance sheet, and secure the Financial
Restructure, a comprehensive solution which will underpin the
delivery of our strategic framework
• Securing performance guarantees for existing and future contracts
• Maintain bidding, cost and cash flow discipline
• Implement operating model changes to ensure consistent delivery
with differentiated margins
• Concluding commercial settlements and negotiations on the
reimbursement of additional costs, including on the Thai Oil Clean
Fuels Project
Link to KPIs
Revenue
US$2.5bn
Business performance EBIT
US$(393)m
New awards
US$7.1bn
11
Case study
One of the largest refineries
in the Middle East
Completed in 2023, the Duqm
Refinery project in Oman, delivered
as a 50/50 joint venture with Samsung
Engineering, is vast in every respect.
Duqm, Oman
US$2.0bn
project
230,000
barrels a day capacity
- nearly a quarter of
Oman’s output
2,000-acre
footprint
9,000
onsite personnel
at peak
OVERVIEW
12
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
A broad scope of work
The 47-month project covered engineering,
procurement, construction, commissioning,
training and start-up operations for all the
utilities and offsites at therefinery.
refinery
Extending our
downstream credentials
With global refining and petrochemicals capacity set to expand,
we have built deep downstream credentials, with prestigious
projects in the Middle East, North Africa, Southeast Asia,
and Central Europe.
We have a strong track record in designing, building, and
commissioning large, complex refineries. We also have
significant experience in supporting clean fuels refining
projects as clients transform existing facilities to produce
higher quality and more environmentally friendly fuels. In 2023
we also started work on our first major petrochemicals project.
Delivering value for Oman
The Duqm Refinery project is a good
illustration of our local delivery model.
Active in Oman for more than 34 years, we
have more than 200 in-country employees, and
work hard to support the local supply chain.
Among the components produced locally for
Duqm were nine huge LPG storage vessels,
some of the largest ever manufactured in
theSultanate.
Overall, the client set a target of 10% local
employment – which we exceeded three
timesover.
The heart of the refinery
Like any downstream project, steel tanks have
a central role, and a vast tank farm was built as
part of the project:
• We constructed more than 70 steel tanks
on site for storage of water, hydrocarbon,
benzene and finally the crude oil processed
in the refinery – 50 of which are now located
in the central tank farm.
• The largest tanks have a diameter of 60m
and a height of 30m.
• We used 33,000 tonnes of steel for the
tanksalone.
70
steel tanks
60m
diameter of largest tank
33,000 tonnes
steel used in construction
13
PETROFAC LIMITED | Annual report and accounts 2023
Case study
A landmark offshore wind
Framework Agreement
In early 2023, together with Hitachi
Energy, we were awarded a multi-year
Framework Agreement by TenneT to
help expand offshore wind capacity
inthe Dutch-German North Sea.
TenneT 2GW
The Framework, representing the largest in our history, covers
six projects – each one comprising engineering, procurement,
construction and installation (EPCI) of an offshore HVDC
transmission station, elements of the onshore converter station,
and associated infrastructure, while Hitachi Energy will supply
its HVDC converter stations, which convert AC to DC power
offshore and DC to AC onshore. The first of these was awarded
alongside the Framework Agreement in March 2023.
In December 2023, the second project was awarded, and
additional projects within the Framework are expected
to be awarded at approximately six-month intervals.
OVERVIEW
14
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
Powering a
sustainable future
An important facet of the 2GW consortium
is a sustainability programme which aims to:
• Contribute to society – creating maximum
impact for people who work for us and
live in the communities impacted
• Commit to the environment – avoiding,
minimising and compensating for our impact
on the planet
Promoting a
circular economy
Along with our 2GW consortium partners
we’recommitted to circular economy
principles, including:
• Designing for disassembly and recycling
• Creating raw material passports
• Thinking ahead to reverse logistics
offshore wind
Supporting the world’s
most ambitious offshore
wind initiative
TenneT’s 2GW Programme is a crucial step in
Europe’s transition to a lower-carbon future.
Between them, Germany, the Netherlands,
Denmark, and Belgium have agreed to install
at least 65 gigawatts (GW) of offshore wind
energy by 2030. Two-thirds of this capacity is
being installed by our client TenneT, the Dutch-
German Transmission System Operator.
The combination of Petrofac’s industry-leading
EPCI expertise and Hitachi Energy’s proven
technology will support TenneT in connecting
more effective wind farms, more quickly to
provide affordable clean energy to millions of
European homes.
6
platforms
12 GW
of clean power
12 million
homes powered with clean energy
Design one, build many
The adoption of a ‘design one, build many’
concept for the HVDC platform model
improves efficiency and cost-effectiveness,
enables scalability, encourages knowledge
sharing, and enhances overall success.
This standardised approach enables
a reliable, flexible, and economically
viable solution for achieving transmission
capacity of 2GW per platform.
Committing to ethical
supply chains
We have signed up to the TenneT Supplier
Code of Conduct, which in line with our
own values, advocates diversity, equal
opportunities, dignity, and respect for
fundamental rights – conforming with the
UNGlobalCompact.
As part of the programme, we carry out
ongoing human rights due diligence to
understand any human rights risks, and
identify, prevent, mitigate, and account for
adverse human rights impacts.
Working towards carbon
neutral platforms
We are working hard with supply chain
partners to source low-carbon and recycled
materials, use renewable energy, and optimise
fabrication processes. The environmental
performance of every aspect of the life
cycle is assessed. While we face obvious
constraints due to the pace of decarbonisation
across the sector, we expect to benefit from
progressively lower emissions – and ultimately
carbonneutrality.
15
PETROFAC LIMITED | Annual report and accounts 2023
Case study
Delivering an integrated
decommissioning solution
The decommissioning and
repurposing of existing oil and
gas assets are key enablers
of the global energy transition.
decommissioning
Petrofac has emerged as a leading player in a large and
rapidly growing market – in fact, we are the only tier-one global
contractor with the in-house capability to manage all well
engineering, mature, and asset decommissioning phases.
We are also heavily active in the North Sea, which is
one of the world’s most mature basins, one of the most
innovative, and the place where many new approaches
to decommissioning have been developed and proven.
OVERVIEW
16
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
•
integrated
The benefits of an
integrated approach
As an operator, we bring an operator’s
mindset to the task, and we aim to drive more
integration between mature asset management
and decommissioning – so the former
becomes more productive, the latter becomes
more predictable, and everything becomes
more carbon efficient.
An example
of global
best practice
3
offshore fields
12
offshore platforms
A series of significant award wins
In 2023, we were awarded a string of mature asset management
and decommissioning awards, including:
• Offshore Ivory Coast, we secured an integrated services
award for the Espoir Ivoirien FPSO vessel.
• In the UK North Sea, we will be working alongside Saipem
on a major new decommissioning programme involving
the removal of a 20,000-tonne topside.
• In the Gulf of Mexico, we added a third field and extended
the scope of an existing contract to decommission two fields.
Since mid-2022, we have been working on
a major decommissioning project in the Gulf
of Mexico. In 2023, the scope was significantly
increased to involve the safe, efficient, and
assured decommissioning of:
200+
wells
40
pipelines
During the year, our work there was highlighted
by the North Sea Transition Authority (NSTA)
as an example of global best practice.
Discrete to integrated solutions
Value
Strategic
planning
Integrated
decommissioning
services
Project
management
Execution
Definition
Mature
operations
solutions
17
PETROFAC LIMITED | Annual report and accounts 2023
Case study
Helping clients transition
to a lower-carbon future
Petrofac’s business is intrinsically
linked to the global energy transition.
Low-carbon
Our purpose is to help clients meet the world’s evolving energy
requirements. As well as introducing clean energy assets,
we work with clients to reduce the intensity of new and
existing hydrocarbon assets.
In meeting their decarbonisation ambitions, there is huge scope
for asset owners and operators to reduce carbon intensity
– because oil and gas production, transport and processing
currently account for 15% of the world’s total energy-related
emissions and, for some facilities, the operational emissions
can reach 40% of the full life cycle emissions
1
.
1. International Energy Agency, Emissions from Oil and Gas Operations in Net Zero Transitions,
2023: https://www.iea.org/reports/emissions-from-oil-and-gas-operations-in-net-zero-transitions.
solutions
OVERVIEW
18
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
How Petrofac can help
four examples of low-carbon solutions
Capturing natural gas
Natural gas, which would otherwise have gone
to waste, can be captured from across some
hydrocarbon facilities – we can engineer skid-
mounted, prefabricated facilities, comprising
vapour recovery units, electrical heaters and
gas pipes, which are operated from a central
control room.
Monetising flaring
Emission sources can be evaluated and
multiple flare reduction strategies explored –
such as packaged flare monetisation solutions
enabled by modular cylinder-filling systems.
Retrofitting brownfield assets
Having analysed emissions performance from
across an existing facility, a prioritised and
costed range of options can be developed
– such as re-routing vented and flared
gas emissions to the facility’s incinerator
orgenerator.
Decarbonising the supply chain
We engage and collaborate with key
suppliers to understand and encourage their
respective carbon assessment and reduction
programmes – putting an emphasis on the
most carbon intensive goods and services,
like steel, cement, aluminium, and copper.
Solar power
at Duqm
Solutions in action
We delivered the EPCm of a PV solar plant at the
Duqm Refinery, as part of the broader refinery
upgrade project. More than 47,000m
2
of solar
panelling was installed, expected to produce
nearly 8 million kWh of electricity a year.
Also, grid-independent solar-powered street
lighting was installed – generating an additional
194 MWh of electricity a year.
3.7 MWp
MWp capacity
+13,000
Solar PV modules
~7.9
GWh per year
generated
+47,000
m
2
area covered
Engineering for a
flare capture facility
in the GCC
We developed the engineering for a flare capture
facility in the Gulf Cooperation Council (GCC).
Gas is captured at three onsite locations using
prefabricated facilities, which are monitored
remotely, so minimum staffing is required. We are
delivering the EPC and ongoing operations and
maintenance. The project is cost neutral
to the client.
5 million
Mscfpd of
gas saved
100,000
Annual saving in
tCO
2
emissions
US$8m
Annual saving
in carbon costs
22,000
Annual reduction
in CO
2
e methane
Greening our
own offices
To help us meet our Net Zero commitments, we
conducted an energy efficiency and emissions
review across the Petrofac office estate and
delivered a programme of initiatives. This
included the replacement of the air conditioning
systems at our Sharjah office, switching to
100% green energy in our Mumbai office,
installing LED lighting and motion sensors in
our Muscat office, and achieving LEED Green
Building certification for our Chennai office.
+250 tonnes
CO
2
eq saved in Sharjah
22%
Savings in electricity usage in Sharjah
LEED Green
Building
Certification in Chennai
96,000kWh
Saved by switching to LEDs in Mumbai
19
PETROFAC LIMITED | Annual report and accounts 2023
Our business model
Our resources What we do... Value created in 2023
Oil and gas
processing facilities
Storage and
pipelines
Refining and
petrochemicals
Offshore
wind
Offshore
production
...across a broad range of
energy facilities
The right people and culture
As a service business, it is our
people, their capabilities and
skills that set us apart from our
competitors. Our values and
behaviours underpin our ways
of working. We are committed
to developing our people,
identifying and nurturing future
leaders, and enabling everyone
within the business to perform
to their true potential and make
a real difference.
Our knowledge and skills
Our deep understanding of our
sector allows us to develop and
deliver solutions that solve our
clients’ challenges.
Strong and trusted
relationships
We develop deep knowledge
of the many businesses in
our supply chain; we know
when and how to call on their
respective strengths to deliver
for our clients.
Making a positive
contribution
We aim to make a positive
contribution to the societies
in which we operate. We are
committed to ethical conduct,
put an emphasis on safety,
care deeply about creating
in-country value, and to minimise
our enviromental impact. We
are working towards a Net Zero
target for carbon emissions.
Build
We build some of the
world’s largest energy
facilities, leveraging
our differentiated
engineering,
procurement,
construction and
commissioning skills
to safely deliver
projects on time and
on budget. We offer
clients a range of
flexible commercial
delivery models, from
lump-sum turnkey to
fully reimbursable.
Design
Engineering expertise
is at the heart of
everything we do.
We provide a full suite
of engineering services
from conceptual and
feasibility studies and
Front-End Engineering
and Design (FEED) to
detailed design.
Operate
We safely operate
and maintain energy
facilities on behalf of
our clients through
a variety of services,
from the provision
of labour to fully
managed solutions.
The deployment of
digital technologies
is at the heart of
our offering as we
focus on maximising
productivity, efficiency
and extending field life.
Train
We develop local
workforces through a
range of services, from
assessing capability
needs and creating
tailored training
courses to designing,
building and managing
state-of-the-art training
facilities. Our unique
offering is supported
by industry-leading
software solutions.
Decommission
We decommission
energy assets.
As infrastructure
nears end of life,
we integrate our
services to extend
production, and to
minimise operating
and abandonment
expenditure,
ahead of safely
decommissioning it.
Client value
Benefiting from certainty
of quality and delivery, utilising
commercial models that meet
their needs.
In-country value
Developing local skills and
capabilities, benefiting local
development and stimulating
productivity in local economies.
Social performance
47%
spent on local goods and services
Tax spend
US$149m
Employee value
88%
Employee engagement score
8,600
employees (8.5% increase)
Emissions reduction
Reduced our absolute
emissions by 12% in 2023.
OVERVIEW
20
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
Why invest in Petrofac?
Consistent
delivery
Well-positioned
in resilient
markets with
attractive growth
opportunities
A local delivery
model that
creates value for
all stakeholders
Engineering
expertise, expertly
delivered across
the life cycle of
energy assets
A trusted partner
with long-standing
client, supplier
and partner
relationships
A problem-
solving culture
that harnesses
innovation and
technology to
find new ways
to add value
Positioning for a
return to growth
Exceptional track record
of safe, reliable, and
innovative execution
built over several
decades – enhanced by
adjusting our operating
model to drive the right
leadership focus, and
embedding robust
assurance procedures
to ensure consistent and
predictable delivery.
As demonstrated
by the size of our
addressable market,
our core markets are
returning to growth and
actively investing in their
energy assets – while
our decarbonisation
and energy transition
offerings continue to
build momentum.
We employ local people,
nurture local supply
chains, and develop local
talent and capabilities –
helping us to build client
relationships, reduce
costs, protect margins,
and de-risk delivery.
Providing integrated
services that span
the entire asset life
cycle – enabling us to
embed and extend client
relationships, deliver
additional value to all
our projects, and better
withstand the cycles of
the energy sector.
A diverse portfolio
of long-established
clients, including IOCs,
Independents, and NOCs
in the MENA region –
which enjoy some of the
lowest marginal costs of
production in the world
and resilient spending
on energy infrastructure
through the cycle.
With a client-focused
mindset, we always look
for new ways to
meet clients’ needs
– including applying
the right technologies,
working with a range of
vendors, and tailored
financialmodels.
We are focused on
strengthening the
Company’s balance
sheet to deliver our
medium-term ambition,
having made good
progress in completing
legacy contracts, and
rebuilding a large
high-quality backlog.
Partnership
Delivering a
landmark offshore
wind framework in
partnership with
Hitachi Energy
200+
More than 200 major
projects executed
across the world
$60bn
18-month
Grouppipeline
47%
In-country value spend
43 yrs
Our engineering and
construction experts
have been turning
complex concepts
into reality
Top 2
EPC contractor in
the Middle East
Sector-
leading
margins
Achievable in
the medium term
SEE OUR BUSINESS
MODEL | Page 20
SEE OUR MARKET
OUTLOOK | Page 22
SEE OUR SEGMENTAL
OVERVIEW | Page 78
SEE OUR STAKEHOLDER
ENGAGEMENT | Page 26
SEE OUR FINANCIAL
REVIEW | Page 86
MORE ON OUR FINANCIAL
RESTRUCTURE | Pages 8-9
SEE OUR ESG REPORT |
Page 63
SEE OUR CASE STUDY |
Page 14
21
PETROFAC LIMITED | Annual report and accounts 2023
Market outlook
Striking the right balance
between energy security,
affordability and sustainability
continues to be a key priority
for countries across the world.
selective
Strategic
bidding to capitalise on growth markets
Petrofac has an extensive track record
in helping clients to access additional
energy sources, achieve lower costs,
and decarbonise their operations.
OVERVIEW
22
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
0%
20%
40%
60%
80%
100%
NZE 2050APS 2050STEPS 205020222020
27% 27% 22% 20% 17%
26%
21%
29%
7%
28%
21%
1%
23%
6%
29%
22%
3%
18%
6%
29%
29%
23%
4%
12%
5%
23%
12%
5%
4%
0%
20%
40%
60%
80%
100%
NZE 2050APS 2050STEPS 205020222020
27% 27% 14% 7%
3%
8%
6%
71%
12%
16%
14%
1%
53%
9%
26%
20%
2%
31%
7%
29%
29%
23%
4%
12%
5%
23%
12%
5%
4%
20272026202520242023202220212020
387 413 507 556 571 559 582
55
61
65
80
100 106
103
107
110
112
122
145
131
127
582
83
95
Chart 2. Total primary energy supply
% by fuel and scenario 2030
Chart 1. Total primary energy supply
% by fuel and scenario 2050
Coal Oil Natural gas Traditional bio mass
Renewables Others Total Energy Supply EJ
Coal Oil Natural gas Traditional bio mass
Renewables Others Total Energy Supply EJ
Chart 3. Oil and gas spend / capex US$bn
Upstream Refining Petrochemical
However, in the medium term, fossil fuels are
expected to reach a peak during this decade
(IEA, World Energy Outlook). (see chart 2)
These conditions play well to Petrofac’sstrengths:
• Our Engineering & Construction business
is well positioned in the robust hydrocarbon
markets of the MENA region, spans the
upstream, refinery and petrochemicals
sectors, and helps clients to minimise
the lifecycle emissions of their assets and
infrastructure. (see chart 3)
• Our Asset Solutions business has long
been focused on helping clients to find new
operating efficiencies and extend the life
of their assets. We have also developed a
leading position in mature asset management
and decommissioning.
• Our energy transition projects capabilities
and track record positions us well in the
rapidly growing offshore wind market
underpinned by the TenneT multi-year
Framework Agreement, and when larger
hydrogen, CCUS and waste-to-value
opportunities materialise, our increasing
credentials and experience make us a natural
delivery partner for many clients. (see chart 4)
In the medium to long term
The long-term fundamentals for Petrofac remain
strong, with all plausible scenarios indicating
that absolute energy demand is expected to
remain robust. Oil and gas will continue to be a
significant proportion of the global energy mix,
even as far as 2050, albeit with lower levels of
carbon intensity. At the same time, there will be
an acceleration of investment in new energies,
including strong growth in offshore wind, carbon
capture usage and storage (CCUS), hydrogen,
and waste-to-value projects. (see chart 1)
23
PETROFAC LIMITED | Annual report and accounts 2023
20272026202520242023
7.2 10.1 14.6 16.0
5.8
9.9
4.1
11.1
10.4
9.1
2.0
2.1
17.2
7.0
31.1
9.4
45.5
13.5
8.9
47.4
21.5
9.3
16.3
10.3
57.4
+35%
Market outlook continued
202820272026202520242023202220212020
320 341 413
21%
21%
23%
23%
28%
26%
25%
450
27%
450 432 455
67
73
94
106 121 128
126
461
122
452
114
30%
Chart 5. Global upstream capex forecasts US$bn
MENA region to grow at 10% CAGR 2021-2025
Global (excl. MENA) MENA MENA % of total
Source: Rystad Energy, October 2023
Chart 4. Forecast offshore wind total capex
by region US$bn
US Asia UK Europe
Source: Rystad
• Energy transition
The International Energy Agency and
International Renewable Energy Agency
forecast that to limit warming to 1.5°C, the
world requires three times more renewable
energy capacity by 2030. The Global
Renewables and Energy Efficiency Pledge
agreed to triple worldwide installed renewable
capacity to at least 11,000 GW, and to
double the average annual rate of efficiency
improvements from around 2% to 4% every
year until 2040. This means that to deliver the
energy transition, governments and private
enterprise will need to spend heavily to build
new renewable energy infrastructure.
Against this backdrop, Petrofac has continued
to build on our credentials in these markets.
We have an already strong position in offshore
wind, which was reinforced in 2023 with the
landmark multi-year Framework Agreement
by TenneT, being delivered in partnership with
Hitachi Energy with a value of US$14 billion.
Two out of six projects in this framework
have already been awarded during 2023.
In the short to medium term
We enter 2024 with a large, high-quality order
backlog and a healthy 18-month Group pipeline
of US$60 billion. This means we can focus our
business development on the type of projects
that have the best strategic fit for Petrofac, and
we foresee strong growth opportunities across
the Group.
• Engineering & Construction
To satisfy immediate demand, compensate
for more than a decade of underinvestment,
and adjust to the changing geopolitical
climate, considerable capital investment is
required and expected in the hydrocarbon
production infrastructure, with high levels of
activity ongoing and forecast. Much of the
supply gap is expected to be met by the
National Oil Companies (NOCs), especially
in the MENA region. At the same time, with
core MENA countries seeking to diversify
their economies, their investments in refining
and petrochemicals are set to continue. (see
charts 5 and 6)
Petrofac has an extensive track record and a
leading position in MENA. In 2023, following
a series of large contract awards, we were
once again named as one of the region’s top
three EPC contractors by Oil & Gas Middle
East magazine – a position that is bolstered
by our local delivery model, which enhances
our understanding of local markets, de-
risks delivery, and generates sector-leading
margins, as well as supporting the economies
in the jurisdictions in which we operate.
24
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
2030 Energy transition estimated capex
US$41bn
Wind 24%
CCUS 24%
Hydrogen 24%
Decommisioning 15%
Waste-to-fuels 13%
In carbon capture and storage (CCUS),
Petrofac was awarded a major Engineering
Procurement and Construction (EPC) contract
by ADNOC Gas, one of the largest carbon
capture projects in the MENA region. We
also progressed with a series of contracts
across hydrogen and waste-to-value, and our
integrated plan-design-and-build approach
puts us in a strong position when associated
EPC projects start to beawarded.
• Asset Solutions
Petrofac is well-positioned to benefit from
several trends in the operations, maintenance,
and decommissioning market: with supply
gaps to fill, there’s an appetite for smaller
brownfield and modular projects; with IOCs
divesting carbon-intensive and non-core
assets, primarily to independent and private
equity-backed owners, there is a burgeoning
demand for outsourced operating models; and
with the decommissioning market is beginning
to mature and grow, and more clearly defined
policy regimes in several geographies, there
is strong demand for the type of integrated
model provided by Petrofac.
A significant addressable market
and a busy bidding environment
In the medium term, the addressable market for
Petrofac is expected to exceed US$137 billion,
comprising US$78 billion in upstream oil and
gas, refining and petrochemicals, US$24 billion
in operating expenditure and decommissioning,
and the addressable market for Petrofac
in energy transition is expected to exceed
US$35billion.
Embedding selective bidding to capitalise on
growth markets and differentiated opportunities
is a key component to our strategy. This enables
the Group to optimise the allocation of resources
and leverage our distinctive competitive
advantages, with every opportunity assessed
onthe strategic fit within the business plan.
Of course, uncertainty remains regarding the
geopolitical climate, the economic environment,
inflationary pressures, and supply chain
constraints. However, with healthy bidding
volumes, and an addressable 18-month Group
pipeline of US$60 billion, we expect to add
further to the quality of our order backlog and
deliver sustained growth over the medium term.
Against this background, our ambition is
to secure Group revenue of US$4 billion to
US$5billion, including around US$1 billion
fromenergy transition projects.
The immediate priority of the Company is
to execute the Financial Restructure as set
outonpages 8 and 9.
Chart 6. Cost of supply curve for remaining global resources
Brent breakeven price, USD per barrel
* Breakeven price is the real Brent oil price that gives a net present value
of zero given a real discount rate of 75%. Breakeven price only includes
future costs. Boxes are an average of all fields within each category.
Source: Rystad Energy, October 2023
Producing
Onshore Middle East
NA tight liquids
Deepwater
Extra heavy oil
Shelf
Russia onshore
Row onshore
Oil sands
0
20
40
60
80
100
120
0 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400
1500
Total remaining resources, billion barrels
Width indicates total remaining resources for each supply group as of 2023
Brent breakeven price, USD per barrel
24
36
40 40
44 48
60
42
46
Non-producing field
Brent breakeven price ($/bbl)
Total remaining resources resources (billion barrels)
25
PETROFAC LIMITED | Annual report and accounts 2023
Stakeholder engagement
focused
Petrofac is
on driving long‑term sustainable performance
for the benefit of all our stakeholders.
We believe that, by understanding what matters
to our stakeholders, we are better able to
secure long‑term success for the business.
We have a clear ambition to achieve proactive,
transparent, and open engagement with all key
stakeholder groups, with an aim of promoting
mutually beneficial relationships and value.
Given the challenges of recent years, including
the Covid‑19 pandemic, delays to client capital
expenditure and operational performance,
stakeholder engagement has been key to
navigating a volatile business environment
and pursuing our strategic goals. As we help
our clients meet the world’s evolving energy
needs, we aim to retain the support and
confidence of all stakeholder groups.
In this section of the report, we identify these
groups and their key interests, outline why
they are so important, and detail how we
engage with them, and factor their interests
and concerns into our decision making.
Further details on Board stakeholder
engagement can be found in our Governance
report on page 107.
Case Study
Financial Restructure
In its review of strategic and financial options, the
Company has kept its stakeholders informed of
developments throughout the period since it was first
announced. This has included market communications
and subsequent conversations with shareholders and
other investors, clients, our supply chain and employees.
The Company recognises that the challenges it has
faced in recent times have a wider impact on its
stakeholders, including the need for the continued
patience and cooperation of our shareholders,
investors, supply chain, and an element of uncertainty
for employees. By recognising what matters to our
stakeholders, we have proactively engaged with
them throughout, being as open and transparent
as appropriate, to share relevant information and
maintainrelationships.
MORE DETAILS ON THE FINANCIAL RESTRUCTURE |
Pages 8-9
OVERVIEW
26
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
Strong supplier relationships
ensure sustainable, high‑quality
delivery for the benefit of all
stakeholders. By understanding
the respective strengths of many
suppliers and vendors, we can
specify the most appropriate
solution and technology for each
client. By nurturing local supply
chains, we are able to reduce
delivery risk and freight miles.
With a commitment to
local delivery, we help
suppliers to develop their
capabilities, enhance their
delivery, and conform to
global ESG expectations,
helping businesses
become significant
international enterprises.
• Implementation of the
strategic framework
• Business
modelapplication
• Ethical and
HSEcredentials
• Transparent
tenderingprocess
• Reasonable terms
and conditions
• Sustainable
engagement
• Emissions targets
• Attendance at industry events and
trade shows
• Engagement between supply chain
partners and our Compliance
function to ensure understanding
and compliance with our Code
of Conduct
• Continued engagement to keep
them informed of the strategic and
financial review
• Through our website and social
media platforms
• An annual assessment of our
extended supply chain to identify
and address potential human
rights issues
• Supplier roadshows at the start
of major projects to understand
theircredentials
• Contractor safety forums
organisedto share HSE best
practice initiatives
• An in‑country value spend of US$764
million, equating to 47% of goods and
services purchased for our non‑joint
venture projects (page 63)
• Representatives from contractors,
local government and client attended
our first Contractors’ Safety Forum
inLithuania
• Following the migration to a new
due diligence platform in 2022, we
enhanced the way our suppliers and
business partners are monitored,
enabling more in‑depth due diligence
reviews to be conducted
• Continued to work openly with our
supply chain to update them on our
financial review, as well as imperatives
including human rights, to ensure that
everyone working on our projects
is treated with fairness, dignity,
andrespect
• We worked with our supply chain to
assist in setting their emissions targets
to support their lower carbon ambitions
Our suppliers
FURTHER LINKS
ESG |
Pages 63-65
Why they
are important
How we create
value for them
Their key
interests
Key engagement
channels
Outcome
of engagement
Our shareholders and other
investors are of critical
importance to Petrofac.
Continued access to capital
is vital to deliver the Financial
Restructure and ensure the
long‑term performance of our
business. We work to make
sure that our shareholders
and other investors, lenders
and other credit providers,
have a strong understanding
of our strategy, performance,
ambitions and culture. Investor
views are considered during
strategy discussions to enable
the Board to provide information
that will drive informed
investmentdecisions.
Returning Petrofac to
sustainable profitable
growth is a core priority
for the Board. We aim
to run a sustainable
business, with strong
fundamentals,
which is focused on
returning to long‑term
growth and the delivery of
predictable returns.
• Financial performance
andeconomic returns
• Application of our
business model
andimplementation
ofour strategy
• Governance matters,
includingBoard
effectiveness,
succession, and
remuneration
• Sustainability and
ESGperformance
• Strong leadership
• Reputation
• Our Annual General Meeting, where
shareholders can ask questions
• Regular meetings and roadshows
held with key investors to
discuss strategy, operational and
financialperformance
• Management presentations
provided to institutional and credit
investors following publication of
our results, which are streamed live
via a webcast and are available
on our website
• The Chair and Remuneration
Committee Chair engage with
investors on matters relating
to governance, succession,
andremuneration
• Regular updates provided
to the Board on investor sentiment
• The Board reflected on the ongoing
external impacts on the Group and
affordability, and consequently no
dividend was recommended
• Continued engagement was
undertaken throughout the year,
with over 200 meetings held with key
shareholders, investors and analysts
• Discussions with creditors, prospective
creditors, shareholders and prospective
shareholders in relation to the
FinancialRestructure
• Regular market updates to keep the
market informed on the business’
performance and the strategic and
financial review
Our
shareholders
and other
investors
FURTHER LINKS
FINANCIAL REVIEW |
Page 86
27
PETROFAC LIMITED | Annual report and accounts 2023
Stakeholder engagement continued
Why they
are important
How we create
value for them
Their key
interests
Key engagement
channels
Outcome
of engagement
Our greatest asset is our
experienced, diverse and
dedicated workforce. As a
service business, it is our people,
their skills, capabilities and
attitude, who set us apart from
our competitors. With a distinct,
delivery‑focused culture, we need
employees to have a positive,
problem‑solving approach.
Our employees are the driving
force behind our Group and we
are committed to ensuring we
have safe and effective working
environments, which enable
everyone to perform to their
true potential.
We are committed to
being a good employer,
with an engaged and
diverse workforce who are
fairly remunerated.
We provide all employees
with opportunities for
personal and professional
development. We
also have a strong
and demonstrable
commitment to keeping
people safe and looking
out for their wellbeing.
• Career and
development
opportunities
• Diversity and
inclusion matters
• Health, safety,
and wellbeing
• Fair pay and reward
• Job security
• Implementation of
the strategic and
energy transition
agenda and the
impact of digitalisation
• Two‑way engagement
• Regular interaction between the
Board and management during
and after Board meetings, focusing
on performance and strategy
• The Petrofac Workforce Forum
• Employee network groups
• Regular townhalls to update
employees on performance,
strategy and priorities
• Talent management and
succession plan discussions
• Board sessions with
graduates,future talent
andseniormanagement
• Annual employee
engagementsurvey
• Internal engagement campaigns
to reinforce important topics such
as health and safety, compliance,
diversity and inclusion, mental
health awareness, and Net
Zeroinitiatives
• Increased participation rate in our
employee engagement survey and
strong engagement scores
• The Petrofac Workforce Forum met
twice with the Board/Executive team
• Networking sessions held with our new
Group Chief Executive, members of the
Executive team and employees in key
offices across the Group
• Four employee network groups
supported more than 1,100 employees
• New reward and recognition initiatives
introduced, and reduced working hours
in the UAE
• Further development of our mentoring
programmes across the Group
• Achieved our 2025 target of 30% of
women in senior management roles
• Increased cadence of internal
communication to keep employees
abreast of progress on our strategic
and financial review
Our
employees
FURTHER LINKS
ESG |
Page 59-61
With strong client relationships,
we are better able to identify and
compete for new business and
growth opportunities. By taking
a client‑centric approach, and
seeking their feedback, we are
better able to develop innovative
solutions that create value and
improve their overall experience.
Drawing on demonstrable levels
of satisfaction among existing
clients, we are equipped to
expand into adjacentsectors
and new geographies.
Deliver a positive client
experience through
superior, innovative EPC
and service solutions,
while designing, building,
and operating safe,
high‑quality, highly
operable energy assets
andinfrastructure.
• Operational delivery
• Commercial flexibility
• Implementation of the
strategic framework
and evidence of a
rigorous and integrated
ESG strategy
• Ethical credentials
• Health and
safety processes
andinitiatives
• High levels of
in‑country value
• Digitally enabled
innovation
• Meetings with key clients, involving
Executive Directors, members of
senior management and our project
delivery teams
• Regular participation at
industryevents
• Our website and social
mediaplatforms
• Regular participation at trade
shows and conferences
• Materiality review surveys and
in‑depth interviews
• Continued engagement to keep
them informed of the strategic
and financial review, and working
with them towards securing a
comprehensive solution
• New contracts and contract extensions
signed during the year with several
longstanding clients, including ADNOC,
Sonatrach, bp, and TenneT
• Continued development of long‑term
client relationships, receiving support
during the Financial Restructure
• Successfully executed energy
transitionopportunities
• Development of a range of flexible
commercial delivery models
• Continued deployment of new digital
technologies, that allow site audits
and equipment inspections to be
conducted virtually
• Maintained our client‑centric ethos
to harness innovation and digital
technology to find new ways to
add value
Our clients
FURTHER LINKS
STRATEGY IN ACTION |
Pages 12-19
28
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
Why they
are important
How we create
value for them
Their key
interests
Key engagement
channels
Outcome
of engagement
Our local delivery model is a key
differentiator for Petrofac and we
want local communities to benefit
from our presence. We actively
support local communities to
address local issues responsibly
and manage the social and
environmental impacts of our
business, which we believe will
bring long‑term sustainability
to the communities where we
operate. Our aim is to be a force
for good in the communities we
serve and, in doing so, create
value for all our stakeholders.
Wherever Petrofac
operates, we are
committed to creating
shared value, by
engaging with local
communities, investing
in local supply chains,
employing local people,
training local workforces,
and stimulating local
economies, while
minimising any harm to
the natural environment.
• Investments in local
supply chains
• Supporting
infrastructure
improvement
programmes
• Sustainability
• Human rights matters
• Local employment
opportunities
• The impact of activities
on the wider community
• STEM education
initiatives
• Ad hoc face‑to‑face meetings with
local communities
• Vocational development
programmes with our local partners
• Public consultations
• Human Rights audits
at projectsites and in
neighbouringcommunities
• Public and media relations
• We invested more than US$158,000
in community engagement and social
performance initiatives
• Initiated a review of our approach to
social investment to deliver a more
holistic, joined up approach
• Several social programmes are in place
which are focused on building capacity
with the local supply chain, creating
local jobs, and supporting vocational
training and apprenticeships and
scholarship programmes
• Our in‑country value programmes are
continually reviewed and extended
to grow sustainable economies and
create value for the Group as well as
localcommunities
• Enhanced our labour rights due
dilligence screening
• In‑country value
Local
communities
FURTHER LINKS
ESG |
Page 61-65
We are subject to the laws and
regulations of many governments
and regulators across the world.
We work closely with our
regulators to help shape our
industry, agreeing commitments
and continually reporting our
performance against these.
As geopolitical situations evolve
and the energy transition gathers
pace, government policies will
inevitably have an increased
impact on our sector and
consequently, we are committed
to engaging constructively
on a range of issues, both
with government bodies and
regulators and through industry
associations to achieve the best
outcomes for customers and
theenvironment.
The global economy
runs on energy, and we
are involved in building
and operating significant
energy assets and
infrastructure and helping
clients to meet the
world’s evolving energy
needs and delivering the
energytransition.
Aside from our direct
investments in local
economies, we contribute
to public finances via
the taxes we pay. Our
local delivery model
also sees us investing
in local supply chains,
employing local
people, and stimulating
localeconomies.
• Health and
safetymatters
• Performance against
regulatory targets
• Governance and
compliance matters
• The energy
transition agenda
• Taxation
• The UN Climate
Change Conference
(COP28)
• Through the UK regulator
North Sea Transition Authority
(formerly Oil and Gas Authority)
• Through our representation with
trade bodies, such as OEUK,
the EIC, CBI and Renewable UK
• Participation in round table and
industry consultations on issues
that are relevant to our business,
e.g. carbon capture, usage and
storage (CCUS) business models
• Responding to numerous
consultations on issues affecting
the industry
• Attendance and participation in
industry events
• We engaged directly and actively
with state bodies, as well as national
oil companies, in almost all of
ourterritories
• We have developed a range of training
facilities, designed to increase capacity
and skills in the local economy
in several countries, and we are
participating in national skills training
initiatives in Algeria and Mozambique
• John Pearson, Chief Operating Officer,
Energy Transition Projects, is on the
Board of OEUK
• Our total tax spend reached
US$149million
Governments,
regulators
and industry
bodies
FURTHER LINKS
ESG |
Pages 32
29
PETROFAC LIMITED | Annual report and accounts 2023
US$(393)m 2023
US$(229)m (restated)
3
2022
2021 US$(12)m
(72)%
US$(418)m 2023
US$(236)m (restated)
3
2022
US$(189)m 2021
(77)%
2023 US$2,496m
2022 (restated) US$2,567m
3
2021 US$3,038m
(3)%
138%
2023 US$8.1bn
2022 US$3.4bn
2021 US$4.0bn
US$(310)m 2023
US$(150)m (restated)
3
2022
US$56m
(107)%
2021
US$(340)m 2023
US$(162)m (restated)
3
2022
2021
(110)%
US$(86)m
Key performance indicators
Measuring our progress.
Petrofac sets key performance targets
and assesses performance against
these benchmarks on a regular basis.
Part of the 2023 Executive Directors’ Remuneration
Revenue
Backlog
R
Reported EBITDA
Reported EBIT Business performance EBITDA
1
Description – Measures the level of revenue of the business.
Measurement – Revenue for the year as reported in the
consolidated income statement.
Description – Provides a measure of the visibility of
futurerevenues.
Measurement – Backlog consists of: the estimated revenue
attributable to the uncompleted portion of Engineering &
Construction operating segment contracts; and, with regard
to Asset Solutions, the estimated revenue attributable to the
lesser of the remaining term of the contract and five years.
Description – EBITDA means earnings before interest, tax,
depreciation and amortisation.
Measurement – EBITDA is calculated as reported operating
profit, including the share of net profit of associates and joint
ventures, adjusted to add back charges for depreciation
and amortisation (see A5 in Appendix A of the consolidated
financialstatements).
Description – EBIT means earnings before interest and tax
and provides a measure of the operating profitability of
thebusiness.
Measurement – EBIT is calculated as reported operating profit,
including the share of net profit from associates and joint ventures
(see A6 in Appendix A of the consolidated financial statements).
Description – EBITDA means earnings before interest, tax,
depreciation and amortisation.
Measurement – EBITDA is calculated as operating profit,
including the share of net profit of associates and joint ventures,
adjusted to add back charges for depreciation and amortisation
(see A3 in Appendix A of the consolidated financial statements).
Description – EBIT means earnings before interest and
tax and provides a measure of the operating profitability of
thebusiness.
Measurement – EBIT is calculated as operating profit, including
the share of net profit from associates and joint ventures
(see A4 in Appendix A of the consolidated financial statements).
Business performance EBIT
1
R
30
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
(93.4)¢/s 2023
(57.1)¢/s (restated)
3
2022
2021 0.8¢/s
(64)%
US$(223)m 2023
US$(188)m 2022
US$(281)m 2021
(19)%
2023 0.107
2022 0.094
2021 0.091
2023 0.021
2022 0.018
2021 0.018
8%
2023 8,600
2022 7,950
2021 8,200
1. Business performance before separately disclosed items. This measurement is
shown by Petrofac as a means of measuring underlying business performance.
2. Attributable to Petrofac Limited shareholders, as reported in the consolidated
income statement.
3. The prior year numbers are restated as detailed in note 2.9 to the consolidated
financial statements.
Business performance diluted loss
per share (EPS)
1,2,3
Recordable incident frequency rates
Employee numbers
Description – EPS provides a measure of net profitability of
the Group taking into account changes in the capital structure,
for example, the issuance of additional share capital.
Measurement – Business performance diluted EPS attributable
to Petrofac Limited shareholders, as reported in the consolidated
income statement and calculated in accordance with note 9 of
the consolidated financial statements (see A2 in Appendix A of
the consolidated financial statements).
Description – Provides measures of the safety performance
of the Group, including partners and subcontractors.
Measurement – Lost time injury (LTI) and recordable incident
(RI) frequency rates are measured on the basis of reported LTI
and RI statistics for all Petrofac companies, subcontractors and
partners, expressed as a frequency rate per 200,000 work hours.
We aim continually to improve our safety record, but our target for
these measures is zero.
Description – Provides an indication of the Group’s
servicecapacity.
Measurement – For the purposes of the Annual Report,
employee numbers include contract staff and the Group’s
shareof joint venture employees.
Description – This KPIs measures both the absolute amount
of cash generated from operations and the conversion of EBITDA
to cash.
Measurement – Free cash flow, as per appendix A11 of the
consolidated financial statements. Cash conversion is calculated
as cash generated from operations divided by business
performance EBITDA.
Description – Free cash flow is defined as net cash flows from
operating activities, plus net cash flows from investing activities,
less interest paid and the repayment of finance lease principal
plus amount received/paid from/to non-controlling interest.
Measurement – See A9 in Appendix A of the condensed
consolidated financial statements.
Free cash flow
R
Cash conversion
R
Lost time injury
2023 12.6%
2022 0%
2021 0%
31
PETROFAC LIMITED | Annual report and accounts 2023
Environmental, Social and Governance
ESG
Helping our
clients shape
the future
of energy
Working every day on the
decarbonisation of the global
energy system
Our purpose is to help clients meet the world’s
evolving energy needs, which means our
business is focused on the decarbonisation of
the global energy system.
This is not about emerging business lines or
future aspirations. It’s already central to what
Petrofac does and how we do it.
What we do – decarbonising
traditional energy sources
and transitioning to new ones
The energy transition is high on the agenda for all
our clients, and our everyday work reflects that
fact – whether that be decommissioning ageing
hydrocarbon assets, reducing the carbon intensity
of existing ones, building a new generation of
lower-carbon facilities, or introducing alternative
energy sources like wind and hydrogen.
32
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
Almost every Petrofac project or assignment is
linked to decarbonisation. We see the energy
transition as an opportunity for Petrofac to
innovate, to differentiate, and to meet client
needs in new ways. As the transition evolves and
more new solutions come online, it is proficient
and proven energy service firms like Petrofac
that will be needed to turn theory into reality.
How we do it – bringing benefits
to our business, people,
andcommunities
As we help our clients to deliver the energy
transition, we are determined to do so in a way
that brings benefits to our business, our people,
and the communities where we operate.
We have committed to minimising the
environmental impact of our own operations
and supporting our suppliers to do the same.
We have a local delivery model that enriches
communities, creating new jobs, and bringing
new wealth. Also, as a people-based business,
we care deeply about personal and professional
development, we have a culture that embraces
diversity, we are a leader in protecting the safety
and wellbeing of our people and, with a client-
centric ethos, we nurture innovation and value
creative problem solving.
Operationalising our
ESG commitments
With 40% of their incentives tied to it, ESG has the
attention of all Executive team members, and we
are making demonstrable progress on many fronts.
In 2023, for instance, we continued to strengthen
our Health, Safety, Environment and Quality
(HSEQ) teams through a range of internal
promotions and external appointments. We
further progressed our efforts to understand and
quantify the true source and scale of our Scope
3 emissions.
We also stepped up the focus on our
downstream Scope 3 emissions and, more
specifically, the total life cycle emissions of the
facilities we design and build on behalf of clients.
This is supported by our newly developed
emissions forecasting tool to model and predict
the emissions over the entire lifetime of an
energy facility.
These are just a few examples from many –
the details of which you can read in this report.
TAREQ KAWASH
Group Chief Executive
33
PETROFAC LIMITED | Annual report and accounts 2023
33
PETROFAC LIMITED | Annual report and accounts 2023
How we make a difference
Introducing
newclean
energyassets
We help clients to design, build and operate new clean energy assets, such as wind and hydrogen.
We have been working in wind power for more than a decade and have delivered the engineering for several pioneering
hydrogen projects. In 2023, we were awarded a multi-year Framework Agreement for offshore wind HVDC platforms
and gridconnections for TenneT in the North Sea. Being delivered jointly with Hitachi Energy, this is the largest contract
frameworkaward in our history.
Decarbonising
existing
energyassets
We help clients to reduce the carbon intensity of existing assets.
Examples include a series of refinery upgrades in countries such as Kuwait, Thailand, and Lithuania. In each case, the new
world-class facilities enable their clients to dramatically improve the environmental performance and quality of their fuels.
In 2023, we were also awarded the contract for the Habshan Carbon Capture, Utilisation and Storage (CCUS) project,
a key decarbonisation initiative for ADNOCGas.
Decommissioning
ageing energy
assets
The decommissioning and repurposing of oil and gas assets are key enablers of the global energy transition,
and we are the only tier-one global contractor with the in-house capability to manage all well engineering,
mature, and asset decommissioning phases.
We developed our innovative approach in the North Sea, where we have worked on projects for clients such as bp,
Tullow, and Hess. More recently, we have taken that expertise worldwide, including to the Northern Endeavour project
on behalf of the Australian Government, and to several fields in the Gulf of Mexico, again for bp – a project that was
recently highlighted by the North Sea Transition Agency (NSTA) as an example of global best practice.
Running our
business in a
sustainable way
For our own operations, we have committed to reach Net Zero on Scopes 1 and 2 by 2030.
This adds to our authority in the industry and incentivises us to develop innovative approaches within our own business –
and the 2023 award of a Gold Impact Seal award for delivering on our sustainability strategy in the UAE is indicative
ofour success.
Through our wider ESG approach, we are committed to the safety and wellbeing of our teams, a local delivery model
that draws on ethical supply chains, adiverse workforce, and consistent standards of ethical behaviour.
We aim to play an active role in the global energy
transition, and we do so across four dimensions:
34
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
Importance to Petrofac
Importance to external stakeholders
Somewhat material Material Highly material
Somewhat material Material Highly material
Understanding what matters most
to our stakeholders
To understand what matters to them most,
we formally engage with representatives from
various stakeholder groups (including clients,
suppliers, investors, NGOs, policymakers and
employees) and align our Environment, Social
and Governance (ESG) priorities tothe material
issues identified.
In 2023, we conducted a materiality survey
among 60 participants from various external
stakeholder groups, including clients, investors,
and supply chain partners, plus employees. We
also take soundings on stakeholder attitudes
and opinions in a number of face-to-face
meetings, such as sustainability working groups,
sustainability awareness sessions, investor
engagement meetings, and routine meetings
with clients andsuppliers.
Based on these findings, we updated our
materiality matrix, which is used to inform
our approach to sustainability and guide our
ESGprogrammes.
Defining our
material issues
Material issues
Environmental aspects
1. Climate change and
GHGemissions
2. Circular economy
3. Air pollution
4. Biodiversity
5. Water management
Social aspects
6. Diversity and inclusion
7. Worker welfare
8. Human rights
9. In-country value
10. Process safety
11. Modern slavery
12. Contractor safety management
13. Social licence to operate
14. Training and learning
15. Recruitment and retention
16. Occupational health
17. Emergency response
18. Security risks
Governance aspects
19. Whistleblowing
20. Responsible governance
21. Anti-bribery and corruption
22. Ethical conduct
35
PETROFAC LIMITED | Annual report and accounts 2023
35
PETROFAC LIMITED | Annual report and accounts 2023
Environmental, Social and Governance continued
Delivering on our sustainability strategy
We believe that by far the biggest contribution we can make to
sustainability is to help our clients transform the global energy
system. In the grand scheme of things, our own business
operations have less impact. Yet we are committed to running
Petrofac in a sustainable way, and our approach to sustainability
has a high profile within the business.
Our sustainability strategy is structured around the three ESG pillars:
• Environmental – ensuring that Petrofac minimises its own
environmental impact, as well as helping our clients to achieve
their lower carbonambitions
• Social – promoting safe local delivery of our projects and
services, drawing on ethical supply chains, building a diverse
workforce, and helping to address the skills gaps that will
support a just transition
• Governance – underpinning everything we do with clear,
consistent standards of ethical behaviour, bound by rigorous
compliance andgovernance
We maintain an online dashboard to track our performance
against each dimension, which is publicly available at
www.petrofac.com/who-we-are/sustainability-and-esg/
sustainability-and-esg-reporting/.
To build on the considerable progress made since our ESG
strategy was launched in 2020, we commenced a review in 2023,
and intend to present a refined approach to the Board in 2024.
Our strategic goals
Links to the UN Sustainable Development Goals
An ESG
framework
focused on
shared value
Environmental
Minimise our
environmental
impact
Social
Inform, educate
and engage
Governance
Embed integrity,
transparency
and trust
Achieving recognition
for our impact
In July 2023, we were awarded the
Gold Impact Seal for delivering on our
sustainability strategy in the UAE. The Gold
Impact Seal is the country’s official federal
recognition that certifies, measures and
rewards entities leading sustainable impact
practices aligned with ESG criteria, the UN
Sustainable Development Goals (SDGs)
and national priorities.
The Gold Impact Seal is administered
by Majra, the National CSR Fund, a
federal authority setting the framework
and governance for Corporate Social
Responsibility in the UAE. It highlighted
several areas of excellence including the
alignment of our procurement approach
with the UAE’s national objectives
anddriving in-country value.
Advances in new energies and digital
solutions to overcome sustainability issues
were also commended, along with our
approach to promoting innovation in
theworkplace.
Aligning with the Sustainable
Development Goals
Our sustainability strategy is aligned
withthe seven UN SDGs that we believe
are most relevant to Petrofac’sbusiness.
We are also a signatory of the UN Global
Compact, and this report serves as our
Communication on Progress on the
implementation of its ten principles.
The report is also prepared in
accordance with the recommendations
of the Task Force on Climate-related
FinancialDisclosures.
Strengthening our team
During 2023, we continued to strengthen
our central HSEQ teams through internal
promotions and external appointments.
For example, our new Group Head of
Health and Safety previously held senior
positions in Tier 1 companies such as bp,
Tullow Oil, and Perenco and her arrival
complements other recent appointments
in the wider HSEQ teams, helping us
to benefit from deep experience and a
diversity of viewpoints.
36
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
Strategic priority
Material
issues Targets
Progress in 2023
On target Progressing Target not achieved
Further information
Addressing climate risk
and resilience
1,3
Net Zero by 2030 (scope
1 and 2 emissions)
Our Flare Reduction Taskforce delivered a step-change in emissions performance for our PM304 asset in Malaysia,
and we have successfully reduced our GHG emissions intensity in the IES business division by 56% since 2021.
SEE | Page 41
Circularity, waste and
water management
2, 5
Circular economy
adopted by all sites
We continue to make good progress, phasing out most non-essential single-use plastics from all our offices and
project sites. Improved categorisations, segregation and reporting of waste has been implemented to promote
circular economy at our project sites, with 50% of recyclable waste recycled/reused.
SEE | Page 41
Sector-leading health
and safety
7, 10,
12, 16,
17
Zero harm Tragically, we reported one fatality in 2023 involving one of our contractors. The incident was investigated in detail
and reviewed by senior management and, separately, by the Board. Contractor management remains one of the
strategic pillars of our health and safety programme, with a focus on continually improving overallperformance.
SEE | Page 56
Enhancing diversity
and inclusion
6, 15
30% women in
leadership roles by 2025
We successfully met this target, with 30.5% women in leadership roles achieved during 2023.
SEE | Page 60
Respecting
humanrights
8, 11
All third parties screened
for human rights
Notwithstanding the controls’ deficiencies identified during the year (see page 65), we continued to screen
contracted third parties for human rights violations. The number of companies pre-screened, ahead of any
prequalification request, within the E&C business unit, was 2,401 (up from 1,911 in 2022). Our processes continue to
support us to uncover and address a small number of labour rights violations (such as late salary payments) at lower
tiers of our supply chain.
SEE | Page 65
Optimising
in-country value
9
Sector-leading
localdelivery
In-country value (ICV) action plans are implemented in all our key geographies focusing on nationalisation, supply
chain capacity building, local purchasing and investment. The proportion of local goods and services purchased was
47% of total project spend.
SEE | Page 63
Embedding ethical
values and behaviours
19, 20,
21, 22
No regulatory
non-compliance
We continued to embed a compliance ethos across the Group, saw improvements in the quality of Speak Up reports,
and have enhanced our processes and controls through the use of our cloud-based due diligence platform, operated
by Dow Jones.
SEE | Page 69
Enhancing transparency,
governance and
disclosure
20
Move beyond
compliance
We continued to integrate the TCFD recommendations into our existing risk and governance processes,
incorporating good practice recommendations from the Financial Reporting Council. Our governance practices are
recognised by third parties and ranked as ‘leading those of peers’ by MSCI.
SEE | Page 43
Our ESG priorities, targets, and performance
37
PETROFAC LIMITED | Annual report and accounts 2023
Environmental, Social and Governance continued
Why this is
important to
our business model
and strategy
As an energy services company that designs, develops and operates
large-scale facilities, Petrofac’s business is inextricably linked to
environmental considerations.
A central consideration is our role in the global energy transition, including
the decommissioning of ageing hydrocarbon assets, reducing the carbon
intensity of existing ones, building a new generation of lower-carbon
facilities, or introducing alternative energy sources like wind and hydrogen.
Of course, our approach also extends to mitigating the risk of environmental
incidents, as well as the environmental performance of our own operations.
environmental
Links to the SDGs
38
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
2023 167
2022 192
2021 188
2023 5
2022 5
2021 8
2023 113
2022 131
2021 256
Our Performance
1
Highlights
We are committed to reaching
Net Zero
1
in Scope 1 and 2
2
emissions by2030
Reduced our Scope 1 and 2
footprint by 12%
Saved 22% in electricity usage at
our office in Sharjah, UAE
Switched to 100% green
energy in our Mumbai office
inIndia
Scope 1 emissions
(direct from owned or controlled sources)
Tonnes of carbon emissions (000 tCO
2
e)
Scope 2 emissions
(indirect from purchased energy)
Tonnes of carbon emissions (000 tCO
2
e)
GHG Intensity IES
(000 tCO
2
e per million boe production)
2023 0.41
2022 0.30
2021 0.30
GHG Intensity E&C/AS
(000 tCO
2
e per million hours worked)
Number of spills above one barrel
1. Greenhouse Gas Protocol Standard Corporate Accounting and Reporting (equity share
approach) followed for Scope 1 and 2 emissions (market based), utilising SANGEA
Energy and Emissions Estimating System and UK Government greenhouse gas (GHG)
conversion factors.
2. To calculate GHG Intensity (GHGI): for IES - total scope (1+2) emissions of IES/
net production in boe and for E&C/Asset Solutions − total scope (1+2) emissions of
(E&C+Asset Solutions) / million of work hours are used.
2023
2022
2021 1
0
0
2023
2022
2021 2
0
Hydrocarbon spilled volume in barrels
0
39
PETROFAC LIMITED | Annual report and accounts 2023
SCOPE 3
Carbon
Management
Planning
Energy efficiency Renewable energy
SCOPE 1 SCOPE 2 SC OPE 3
Action on Scope 3
Transport electrification
Emissions reduction
Action on Scope 3
PE TROFA C’S ACTIVI T I E S
Environmental, Social and Governance continued
Moving towards our Net Zero goals
Our targets support the principles of the Paris
Climate Agreement and, with the wider sector
moving towards decarbonisation, they are
aligned with our clients’ ambitions.
Our main decarbonisation levers are:
• Reducing flaring, venting and
fugitiveemissions
• Switching our energy supply to
renewablepower
• Improving our energy efficiencies
• Electrifying our transport
Currently, 88% of our Scope 1 emissions
come from our producing asset Block PM304
in Malaysia. This production sharing contract
expires in September 2026, and we are not in
continued discussions with Petronas in respect
of an extension. Therefore, a material reduction
in our Scope 1 emissions is expected after 2026.
Our cloud-based emissions dashboard captures
and displays all of our Scope 1, Scope 2 and
Scope 3 emissions data at the corporate,
business unit, and project level. Available to
all employees via any online or mobile device,
this helps us to increase awareness of our
performance and adds to the urgency of our
Net Zero journey. We also began to publish our
environmental performance data (alongside
other ESG metrics) on our website.
Production operations
The Flare Reduction Taskforce was established to identify
decarbonisation opportunities related to gas re-injection
(sequestration and storage), condensate recovery, gas shut-
off, electrification, and gas export. The Taskforce worked
in partnership with the Block PM304 team in Malaysia to
deliver a 56% reduction in emissions intensity since 2021.
Supply chain
Low-carbon supply chain
elements were codified into our
vendor management systems to
facilitate low-carbon procurement
and project delivery.
Digitalisation
We matured our Scope 3 programme,
extending our assessment across all
applicable categories of the GHG Protocol,
including the energy footprint of the facilities
we design, build and operate, and use this to
identify low-carbon solutions for our clients.
Decarbonisation guidance rolled out
The detailed ‘how to’ guidance for the business was rolled out
across each business unit.
Emissions management tool
Net Zero action plans were put in place for all our main offices, focusing
on switching energy supply to renewable energy (where available),
advancing initiatives to promote more efficient use of energy and water,
and introducing electric vehicle charging points.
Construction
(9%)
Carbon footprint
14.8 kt CO
2
e
Value chain
(upstream)
1.1 million tCO
2
e (total Scope 3)
Operations
(88%)
Carbon footprint
152.6 kt CO
2
e
(Asset Solutions
10.6 kt, PM304
142kt)
Administration
(3%)
Carbon footprint
4.9 kt CO
2
e
Value
(downstream)
0.9 million tCO
2
e
For the latest on our environmental
performance data, visit our website /
petrofac.com
40
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
This is set to refocus our attention on the area
where we can have the biggest positive impact –
namely the decarbonisation solutions we offer to
our clients, and our energy transitionbusiness.
How we manage our
environmentalperformance
Our goal is to manage the environmental risks
of our projects and operations effectively,
optimise our use of resources, and minimise
ourenvironmental impacts.
In terms of emissions, we have committed to
reducing our own Scope 1 and 2 emissions in
accordance with our internal decarbonisation
strategy to be Net Zero by 2030. Since 2020,
we have already successfully reduced our
emissions by 34%. Increasingly, we are adding
low-carbon, clean fuel and decommissioning
projects into our portfolio, thereby helping our
clientsdecarbonise.
Each year, we participate in the Carbon
Disclosure Project (CDP), and in 2023 we
continued to enhance our climate change
programme and again achieved a CDP rating of
B, which is above the average of C for oursector.
We calculate our carbon footprint and energy
consumption in accordance with the UK
Streamlined Energy and Carbon Reporting
(SECR) regulations, and our data is assured and
verified by an independent AA1000 licensed
assurance provider.
We continually strive to improve our waste
management practices following the duty of
care as a basic principle. Project-specific waste
management plans are developed considering
local regulations and available infrastructure for
successful implementation.
In 2023, we expanded our internal waste
categorisation to enhance segregation, recycling,
reuse and reporting of waste to promote
a circular economy. Though we regularly
face challenges in terms of the availability of
recycling facilities in the vicinity of remote project
locations, our team recycled/reused around 50%
of the total recyclable waste generated, which
aligns with our circular economy target of 50%.
Reflecting on our 2023 performance
In 2023 our absolute emissions reduced by 12%
compared with 2022.
The key contributors to achieving this included:
the completion of a flare abatement and reservoir
management project at our PM304 asset in
Malaysia; the upgrade of our air conditioning
system in our Sharjah office; switching to
renewable energy in our Mumbai office; and
the implementation of various energy efficiency-
related projects across our office estate.
Although we made progress with our Net Zero
plans and emission reductions goals, this was
not reflected in our emissions intensity, which
rose slightly in 2023 for the core E&C business
(see below). We continue to monitor the energy
landscape in our geographies with a view to
switching to more renewable electricity sources.
In IES, we achieved an emissions reduction of
15% (141,982 tCO
2
e down from 166,341 tCO
2
e)
and emission intensity reduction of 14% (113
down from 131). This was due to a combination
of operational optimisations, flare reduction,
reservoir management, logistics enhancements,
and employee commuting patterns. This was
driven by our Flare Reduction Taskforce, in
partnership with the Block PM304 Reservoir
Management and Operations Teams in Malaysia.
Stepping up our downstream
Scope3 focus with a new emissions
forecasting tool
In 2023, we continued our efforts to understand
and quantify the source and scale of our Scope
3 emissions. More significantly, we stepped
up the focus on our downstream Scope 3
emissions – and, more specifically, the total life
cycle emissions of the facilities we design and
build on behalf of clients.
This is where we can have the biggest positive
influence, and where the potential impact far
outweighs the scale of our own operations.
By helping clients to introduce lower-carbon
intensity facilities, and by developing energy
transition projects, such as wind and hydrogen,
we play a role in the decarbonisation of global
energy systems.
To this end, we developed an emissions
forecasting tool to model and predict the
emissions over the entire lifetime of an energy
facility. By the close of 2023, we had reached
the minimum viable product (MVP) stage, ready
to trial and develop a fully production-ready
version in 2024.
Assessing our supply chain
To facilitate low carbon offerings, we have
embedded sustainability requirements into the
pre-qualification process for potential suppliers
via the Zycus supply chain system. This consists
of a mandatory ESG questionnaire.
Initiating a review of our
sustainability strategy
With several new contract awards and an
increased industry focus on decarbonisation,
we initiated a review of our sustainability
strategy and, more specifically, our approach
toemissions reduction.
Greening our offices
Chilling out in Sharjah
The replacement of the air conditioning
chillers at our Petrofac office in the UAE
achieved a 22% saving in electricity
usage and a reduction of 250 tonnes of
CO
2
emissions.
In E&C, absolute emissions increased by 3%
(19,475 tCO
2
e up from 18,911 tCO
2
e) and
emissions intensity increased by 47% (0.34
up from 0.23). The increases were largely
driven by the phasing of the projects in the
E&C portfolio. With many projects approaching
the commissioning phase, energy demand
increased, while the number of onsite employees
fell (thus less people power).
41
PETROFAC LIMITED | Annual report and accounts 2023
Environmental, Social and Governance continued
rehabilitating the land that had been previously
occupied by a Petrofac batching plant and
fabrication shop, including the planting of 250
trees, ready for community use; and observing
the Earth Hour Campaign with a complete
cessation of operations – encouraging our teams
to reflect on environmental impacts and, at the
same time, conserving 120 kWh ofelectricity.
Initiatives to enrich local biodiversity
Thai Oil Clean Fuels project, Thailand
Given its coastal location in the Gulf of Thailand
and its proximity to the local population,
community-based environmental initiatives
have always been an important theme of this
refinery upgrade. In 2023, our team marked
World Environment Day by hosting a mangrove
planting campaign. We worked with around
50 participants from the local community to
plant almost 500 mangrove trees at the Laem
Chabang Community Mangrove Forest.
Ravva terminal, India
30,000 mangroves were planted along the
coast of Ravva in collaboration with our client
Vedanta to protect the coast and enhance
localbiodiversity.
We shall continue to increase the robustness
of our emission inventorisation by transitioning
into a supplier-specific approach for our value
chain emissions and distance-based tonnage
calculations for our logistics-related emissions
inthe near future.
Decarbonising our global
officeestate
In 2023, we made a series of energy-saving
improvements across our global network of
offices, with 20% in renewable energy switches
achieved. Highlights included:
• UAE – upgrading the air conditioning system
in our Sharjah office, resulting in an annual
saving of 250+ metric tons of CO
2
e.
• India – running on 100% green energy in our
Mumbai office and achieving certification for
our Chennai office as an LEED Green Building.
• Oman – switching to LED lighting throughout
our Muscat office.
• UK – moving from the North Quay office in Great
Yarmouth to a far more energy-efficient building,
Havenbridge House, reducing overall electricity
use by a monthly average of 9,600 kWh.
Supporting a range of community-
based environmental initiatives
Across our global operations, we participated in
a wide range of community-based environmental
initiatives. Some highlights from 2023 include:
Visag refinery modernisation project
At this major EPC project in Andhra Pradesh,
India, environmental protection has been a
major theme of our community-based activity
and, to reflect our contribution, we received a
Collaborative Impact Award. Initiatives from 2023
include: planting saplings and running a children’s
competition to mark World Environment Day;
Reflecting on our 2023 performance
continued
In Asset Solutions, absolute emissions
decreased by 5% (10,955 tCO
2
e down from
11,568 tCO
2
e), while the emissions intensity
increased slightly to 0.60 from 0.55. The
changes were largely due to the completion of
several projects in the MENA region and the
move to more energy-efficient offices in the UK.
In terms of spill performance, we experienced
zero spills of above one barrel volume in 2023.
While minor releases below this volume do not
require official reporting, we continued to monitor
and learn from a small number of low volume
releases with localised impact. A full investigation
was conducted for every incident to identify the
root causes, and appropriate clean-ups were
conducted as defined procedures.
Addressing our Scope3emissions
We recognise that the emissions from our value
chain are a material part of our carbon footprint
and, in 2023, we continued with a Scope 3
programme to better understand the related
decarbonisation challenges and opportunities.
The spend-based and activity-based
methodologies
1,2
were applied as appropriate to
calculate the emissions. We evaluated our Scope
3 emissions across all relevant categories.
The total value chain emissions were 2.04 million
tCO
2
e with the majority of emissions falling under
two categories - Category 1: Purchased goods
& services (0.918 million tCO
2
e) and Category
11: Use of sold products (0.913 million tCO
2
e).
The 2023 Scope 3 emission figures were
significantly less than the previous year due to
a change in calculation methodology and lower
emission footprint of Category 11.
Sustainability in Thailand
Enriching local biodiversity
Our team marked World Environment
Day by hosting a mangrove planting
campaign. We worked with around 50
participants from the local community
to plant almost 500 mangrove trees
at the Laem Chabang Community
MangroveForest.
1. Greenhouse Gas Protocol: Corporate Value Chain (Scope 3)
Accounting and Reporting.
2. Greenhouse Gas Protocol: Technical Guidance for Calculating
Scope 3 Emissions.
42
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Governance
Climate change is a material governance and
strategic issue that is regularly addressed by
our Board and Executive team through strategy
and investment discussions, enterprise risk
management, and performance review against
our commitments.
Our Sustainability Steering Committee (SteerCo),
which reports to members of the Executive
team, and periodically to the Board, provides
support, guidance, and oversight of progress on
our decarbonisation programme. The Steering
TCFD Working Group monitors and evaluates
climate-related risks and opportunities and
tracks management actions.
Performance is reported periodically to the
Executive team and the Board through bimonthly
key performance indicator (KPI) metrics and
regular presentation of related technical and
strategic papers.
Informing our strategy
Our strategic risk and opportunity reviews
continue to be informed by a range of sector
analyses, including three scenarios developed
by the International Energy Agency (IEA). The
scenarios are used to aid our understanding of
how the pace and nature of the energy transition
may affect our strategy, and the actions
we can take to build resilience and pursue
relatedopportunities.
We actively manage climate-related physical
and transition risks, ranging from the increased
potential for extreme weather events to disrupt
our operations to the evolving policy landscape
that may impact the Group, such as insurance
premiums, carbon taxation or more restrictive
emissions legislation.
Climate risk management
Climate-related risks are classified according to
the TCFD’s risk management framework. This
addresses transition and physical risks, such
as the evolving policy landscape, the shift to
a low-carbon economy, changing stakeholder
perceptions and preferences, and risks that are
event-driven, such as the increased severity of
extreme weather, as well as longer-term shifts in
climate patterns.
Issues such as the changing energy usage and
the shift to a low-carbon economy are also
assessed for the opportunities they create as we
look to expand our new energies business.
Assessments are undertaken as short-term (0
to 3 years) and medium to long-term (4 to 10+
years) timeframes to align with business planning
and long-term strategic time horizons.
Climate-related risks and opportunities arising
out of the energy transition are fed into the
enterprise risk management programme and
consolidated into our principal and emerging
risks, which are reviewed by the Executive
team, endorsed by the Audit Committee, and
approved by the Board.
Metrics and targets
Our principal stated goal is to achieve Net
Zero (Scope 1 and 2) by 2030. However, we
are evolving the emphasis from an internally
focused Net Zero strategy to also focus on the
role we play externally in helping our customers
decarbonise (Scope 3) and accelerating
the energy transition through our energy
transitionprojects.
Task Force on
Climate-related
Financial Disclosures
We are committed to supporting the
recommendations of the Task Force on
Climate-related Financial Disclosures
(TCFD). This report outlines the progress we
have made against the recommendations.
We have also built on this programme, by
progressing on the financial quantification
of the climate risks and opportunities (CRO)
and identifying key mitigation measures
for every material risk. We have integrated
the recommendations further into our
existing risk and governance processes
and incorporated the TCFD Good Practice
Recommendations from the Financial
Reporting Council (FRC)
1
.
We continue to drive the circular economy
approach in our operations, with a target
of reusing/recycling 50% of our total
recyclablewaste.
This year, we established a separate delivery
unit for energy transition projects to expand our
new energies portfolio and have targeted that,
in the medium term, this will account for 20%
ofourrevenues.
In 2023, we made progress in the following
areas: we continued to develop a carbon
intensity ranking for each of our projects and
operations; we established the Sustainability
SteerCo at the Executive management level
and revived the Sustainability Working Groups
for each business unit with a focus on driving
decarbonisation at existing and new projects.
The role of the working groups is crucial in
embedding sustainability into existing systems
and processes. To have a better understanding of
decarbonisation opportunities, we conducted a
gap analysis using the decarbonisation checklist
on 75% of our existing projects for which an
implementation plan will be developed in 2024.
As part of our focus on Scope 3 emissions,
we have developed a low-carbon bid pack
which offers low-carbon products and services
via engineering solutions and green materials.
Furthermore, we are engaging carbon-intensive
parts of the supply chain on decarbonisation
with a preference for low-carbon goods /
services (prioritising plastics reduction,
low-carbon steel and bulk materials).
1. FRC CRR Thematic review of TCFD disclosures and climate in
the financial statements, July 2022.
43
PETROFAC LIMITED | Annual report and accounts 2023
Task Force on
Climate-related
Financial Disclosures
In compliance with Listing Rule 9.8.6(8),
our climate-related financial disclosures
are summarised here, with the status
of our compliance with the TCFD
Recommendations and Recommended
Disclosures set out in implementing the
Recommendations of the Task Force
on Climate-related Financial Disclosures
published in October 2021, including the
following guideline documents:
• 2017 Recommendations of the TCFD
• 2020 Guidance on Scenario Analysis for
Non-Financial Companies
• 2021 Implementing the Recommendations of
the TCFD
• 2021 Guidance on Metrics, Targets and
Transition Plans
• 2022 TCFD Status Report
• 2023 TCFD Status Report
Recommendation Response
Governance
a) Describe the Board’s oversight of climate-related risks and opportunities
Process and role
ofCommittees
Climate change is a material governance and strategic issue that is regularly
addressed by our Board and Executive team through strategy and investment
discussions, enterprise risk management, and performance reviews against
ourcommitments.
The Board is responsible for oversight of the overall conduct of the Group’s
business, which extends to setting our climate response strategy and approach
to the energy transition. The Board is assisted by four Board Committees: Audit,
Compliance and Ethics, Nominations and Remuneration. These Committees each
have risk management oversight relevant to their specific areas of responsibility,
and where relevant, this includes the management of energy transition and
climaterisks.
For example, the Audit Committee has delegated responsibility for monitoring and
reviewing the integrity and effectiveness of the Group’s overall risk management
framework, which covers the management of energy transition and climate risks.
The Board and its Committees typically meet every two to three months. Climate
and energy transition issues are discussed at each Board meeting.
DISCLOSURE LOCATION |
Pages 70-71, 106
Examples of the
Board and relevant
Board Committees
taking climate
intoaccount
In 2023, the Board progressed key actions defined by the Group Head of HSEQ to
monitor progress towards fulfilment of our sustainability strategy.
Performance is reported periodically (typically bimonthly) to the Executive team
and the Board through key performance indicator (KPI) metrics that include:
• Reducing GHG emissions (GHG intensity or absolute reduction)
• % of waste reused and recycled out of total recyclable waste
The Board also evaluates new business development opportunities (such as
mature asset management and decommissioning) against the potential to impact
our Net Zero commitments, balancing market needs for energy security with the
importance of enabling the transition to a low-carbon energy sector.
Disclosure level: Full
DISCLOSURE LOCATION |
Pages 2, 4-7, 38-42
Environmental, Social and Governance continued
Either at the pre-bid stage, the bid stage,
in project execution, or in operations and
maintenance, we collaborate to discuss
priorities, propose solutions, assess costs,
quantify benefits and – ultimately – deliver
tangible improvements.
Finally, accountability for climate change
leadership and decarbonisation continues
tobeembedded into executive performance
measures and remuneration. This means
thatwe are actively incentivising our
leadershipto accelerate our transition
to a low-carbonbusiness.
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PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Recommendation Response
Governance continued
b) Describe management’s role in assessing climate-related risks and opportunities continued
Processes used to
inform management
The Sustainability SteerCo consists of senior management representatives from
all key functions, and is responsible for providing support, guidance and oversight
of progress on our decarbonisation programme. The SteerCo is supported by
the business units. Sustainability Working Groups monitor progress, identify new
decarbonisation projects within the business units, address new client-related
requirements and any emerging regulations around climate change that may
impact our operations.
In 2023, the Sustainability Working Groups were revived within each business unit
to take local ownership for delivering decarbonisation. Additionally, an initiative
was launched under the E&C business unit to recognise where and how we need
to improve the way we work, and build on our existing strengths, to deliver and
grow more consistently. One of the key elements is to embed sustainability goals
into our business operations including decarbonisation initiatives. These initiatives
are monitored and followed up at the working grouplevel.
Progress around the following decarbonisation initiatives were periodically reported
to management:
• Energy efficiency solutions and renewal energy projects
• Transport electrification
• Scope 3/supply chain by initiating green procurement initiatives
• Engineering low-carbon solutions
• Data to decision via digitalisation
Communication mechanisms are well defined, with climate-related matters and
progress on our decarbonisation and new energies strategies discussed at each
of our global townhall meetings, business unit leadership calls, and quarterly HSE
webcasts accessible to all staff. In addition, a regular status update is provided to
the Executive team and Board on decarbonisation progress through the periodic
Group Chief Executivereport.
Disclosure level: Full
DISCLOSURE LOCATION |
Pages 26-29, 35, 61
Recommendation Response
Governance continued
b) Describe management’s role in assessing climate-related risks and opportunities
Who manages
climate-related risks
and opportunities
The assessment and management of climate-related risks and opportunities
is integrated into the Executive team’s area of responsibility as climate-related
objectives. Associated targets and KPIs are cascaded down through line
management and incorporated into employee scorecards.
DISCLOSURE LOCATION |
Pages 33, 130
How management
reports to the Board
The Board and its Committees are updated on climate-related issues by the
Company Secretary’s office, which works closely with the Executive team to
develop materials that assist the Board and its Committees in discharging
theirresponsibilities.
In addition to these Board Committees, there are a number of executive
management committees in place, which meet more frequently, and are involved
in assessing the materiality of climate-related and energy transition risks and
opportunities, and considering matters for recommendation to the Board and
itsCommittees.
The Group Head of HSEQ is the principal point of contact with the Boardand
Executive team for ESG-related matters.
DISCLOSURE LOCATION |
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45
PETROFAC LIMITED | Annual report and accounts 2023
Recommendation Response
Strategy continued
a) Describe the climate-related risks and opportunities the organisation has identified over the short,
medium and long term continued
Relevant time
horizons
In reviewing our strategy, we consider a wide range of opportunities and risks
across two discrete time horizons:
• Short-term (0-3 years): defined by detailed business and financial plans, which
are performance managed in delivery of our business plan targets.
• Medium to long-term (4-10 years medium-term, 10+ years long-term): given
the rapid pace of external change and the wide range of uncertainties, this
time horizon enables us to consider longer-term scenarios and possible energy
transition pathways.
Disclosure level: Full
DISCLOSURE LOCATION |
Pages 72-77
Low-carbon future <2°C – Announced Pledges Scenario – RISKS
Risk Driver Risk Time horizon
Potential financial
impact Controls / mitigations
Market –
Transition to
low-carbon
economy
Loss of market share
orguarantees for oil
andgas projects,
limitedquota for oil
andgasprojects
Mid -long term Decreased
revenue from
reduced demand
A separate delivery unit for energy
transition projects was created to build
capability to advance the Company’s
position within the energy transition and
target a greater market share of non-oil
and gas projects (20% revenue by2030)
Cost of carbon credits in
Net Zero scenario
Long term Increased
operating costs
Cost to be captured during proposal/
bidding stage of the project
Resourcing - erosion of
talent & resources, which
will impact our delivery
ofprojects
Short term Increased
operating costs
Current business unit resources
providesupport to the delivery of
energy transition proposals and
projects, marketing and any other
business partnering support required
for energy transition projects; upskilling
plans inplace
Current and
emerging
regulation
– Increased
climate change-
related regulations
Inclusion of carbon tax
or material import
regulation can directly
increase the cost
ofmaterials
Short term Increased
operating costs
Cost to be captured during the
proposal/bidding stage of a project
andclear provision in the T&Cs of
thecontract
The transition to a lower carbon economy presents both risks and significant business opportunities to Petrofac.
We have identified various climate-related physical and transition risks and opportunities based on the scenarios
mentioned above. Building on the progress from previous years, during 2023, we made incremental steps towards
identifying the potential financial impacts of the principal risks and opportunities through engaging with internal
stakeholders. For further information on opportunities in energy transition, please see the Market outlook section
onpage 22.
Recommendation Response
Strategy
a) Describe the climate-related risks and opportunities the organisation has identified over the short,
medium and long term
Processes used
to determine
material risks and
opportunities
Our strategic risk and opportunity reviews continue to be informed by a range of
sector analyses, including the full range of future scenarios developed by the IEA. The
following scenarios are used to aid our understanding of how the pace and nature
of the energy transition may affect our strategy, and the actions we can take to build
resilience and pursue relatedopportunities:
• Net Zero Scenario (Low Carbon): global warming <1.5°C by 2100. Technology,
investments, and policies are deployed in line with the objective of reaching Net
Zero emissions by 2050, with effective carbon-constrained policies, rapid and
widespread decarbonisation, with accelerated transition to a low-carbon energy
matrix. This scenario sets out a pathway for the global energy sector to achieve
Net Zero CO
2
emissions by 2050. It doesn’t rely on emissions reductions from
outside the energy sector to achieve its goals.
• Announced Pledges (Mid Carbon): global warming <2°C by 2100.
Effective carbon-constrained policies leading to progressive decarbonisation
across the majority of the energy system, emission cuts, transformation of
consumer behaviour and values, with transition to a low-carbon energy matrix.
This scenario assumes that all climate commitments made by governments
around the world, including Nationally Determined Contributions (NDCs) and
longer-term Net Zero targets (i.e. by 2100), as well as targets for access to
electricity and clean cooking, will be met in full and on time.
• Stated Policies Scenario (High Carbon, status quo): global warming >2.6°C
by 2100. Existing policy frameworks and intentions fail to meet targets of the
Paris Agreement, with absence of effective policy implementation at scale
to promote low-carbon economy or significant changes to the energy matrix
and the values and behaviour of society. This scenario reflects current policy
settings based on a sector-by-sector and country-by-country assessment of the
specific policies that are in place, as well as those that have been announced by
governments around the world.
We actively manage climate-related physical and transition risks, ranging from the
increased potential for environmental and safety incidents that disrupt our operations
(across all time horizons), to the current evolving policy landscape (short-term
horizon) that may impact the Group, such as carbon taxation or more restrictive
emissions legislation. Using our new energies transmission station project 2GW
as a case study, we were able to review the impact of the EU Green Deal and the
Carbon Border Adjustment Mechanism (CBAM) over both short and medium-
term horizons, with CBAM commencing in 2023 and the accompanying charging
regime commencing in 2026 and impacting our EU-based projects.
DISCLOSURE LOCATION |
Pages 22-25, 27-29,
72-73
Environmental, Social and Governance continued
Task Force on Climate-related Financial Disclosures continued
46
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Recommendation Response
Strategy continued
a) Describe the climate-related risks and opportunities the organisation has identified over the short,
medium and long term continued
High global warming >2.6°C Stated Policies Scenario – RISKS
Risk Driver Risk Time Horizon
Potential Financial
Impact Controls / Mitigations
Acute physical
– Increased severity /
frequency of extreme
weather e.g.,
cyclones, fires, floods,
extended monsoon
season impacts
marine operations,
onshore flooding of
vulnerable areas
Physical risk to critical
assets/people from
extreme weather events
Long term Increased
operating costs
and increased
capital
expenditures
Operations are carefully planned to
minimise weather-sensitive activities
(e.g. drilling, diving, etc.) during
monsoon season
Explore deployment of Petrofac
digital platforms (e.g. Digital Twin,
Connected Worker) to further
optimise O&M programmes
andminimise offshore
personnelexposure
Vendor development programmes
and ICV initiatives build capacity
across multiple geographies and
resilience of local supply chains
andreduce exposure to potentially
vulnerable international supply chains
Engage with customers and
insurance companies at early
stageto improve the contract
andpolicy T&Cs provision to
captureclimate-related risks
Increased disruptions to
supply chains, transport,
and logistics networks of
critical equipment
Long term Increased
operating costs
and increased
capital
expenditures
Increase in insurance
premiums and
coverageavailability
Long term Increased
operating costs
and increased
capital
expenditures
Market –
Reallocation of
capitalaway from
oiland gas sector
Unavailability of funding
due to reduced appetite
from financial markets
Short term Decreased
access
tocapital
Reduce reliance on debt funding and
accelerate new energiesprojects
Reputation
– Deteriorating
stakeholder
sentiments to oil
andgassector
Increasing perception
that oil and gas industry
is in decline and
reputational damage if
ESG performance and
disclosures are not as per
investors/ stakeholders’
expectations
Short term Decreased
access
tocapital
Continuous improvement of
ESGdatasheet, TCFD, CDP
andother ESG ratings; proactive
shareholderengagement.
Executive remuneration linked
Recommendation Response
Strategy continued
a) Describe the climate-related risks and opportunities the organisation has identified over the short,
medium and long term continued
Low-carbon future <2°C – Announced Pledges Scenario – OPPORTUNITIES
Risk Driver Opportunity Time Horizon
Potential Financial
Impact Controls / Mitigations
Market –
New energies market
Deliver material growth
and increased market
share through the
energytransition
Short term Increased
revenues from
new markets
Advance new energies strategy
totarget renewables and
low-carbon sectors
Build long-term stakeholder
partnerships promoting innovative
value-adding solutions in the
renewable sector that differentiate
our service
Market –
Decommissioning
of ageing assets
Due to tighter
regulations, new
opportunities, and
increased demands
fordecommissioning
ofageing oil and
gasprojects
Short term Increased
revenues from
new markets
Advance on energy
efficiencyservices
Products and
services –
Growthof low-
carboneconomy
Increased demand for
low impact materials and
equipment (and
disclosure of this) from
our new energies clients.
Thus we will have/are
having a competitive
advantage by providing
low-carbon offering
Short term Increased
revenues from
new markets
Advance our low-carbon offering
strategy by sharing case studies,
offering low-carbon products and
services via engineering solutions
and green materials, further engaging
with customers and suppliers to
discuss low-carbon alternatives for
high-carbon intensity bulk items,
collaborate and contribute to their
respective decarbonisation ambitions
47
PETROFAC LIMITED | Annual report and accounts 2023
Recommendation Response
Strategy continued
b) Describe the impact of climate-related risks and opportunities on the organisation’s businesses,
strategy, and financial planning continued
Impact on our
supplychain
During 2023, an initiative was commenced to assess our top 100/150 engineering
and construction suppliers on their GHG reduction targets and other sustainability
goals by building climate-related risks into our supply chain due diligence.
By extending our local delivery model, we are continuing to reduce our reliance on
international supply chains, matching local suppliers with project opportunities, and
improving our logistics efficiencies, carbon footprint and supply chain resilience.
DISCLOSURE LOCATION |
Pages 42, 63-64
Impact on valuechain
A low-carbon plan has been developed through consultation with key functional
teams and is being incorporated into bids, outlining Petrofac’s low-carbon service
offering and decarbonisation strategies. In 2023, we had further development of
our low-carbon services including the emissions forecasting tool.
DISCLOSURE LOCATION |
Page 42
Impact on our offices
Purchased energy emissions comprise 4% of our total carbon footprint. Our
target is to progressively transition to 20% renewable energy by 2023 and 50%
by 2030, and we are pursuing opportunities to switch to renewable energy across
theGroup.
Most of our UK offices and facilities have already switched to renewable power,
and we have transition plans in place for our other permanent offices globally.
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Page 42
Impact on operations
Our production operations account for 88% of our total carbon footprint, largely
due to flaring, venting, fugitive emissions and fuel gas. Our aim is to deliver a
25% reduction in emissions by 2030 through operational improvements, gas
shut-off and power generation changes. We are also targeting a 30% reduction in
emissions intensity by 2030 from our construction operations through savings from
energy efficiency and hybrid power generation initiatives. However, the production
sharing contract for Block PM304 in Malaysia expires in September 2026.
DISCLOSURE LOCATION |
Pages 40-42
Environmental, Social and Governance continued
Task Force on Climate-related Financial Disclosures continued
Recommendation Response
Strategy continued
b) Describe the impact of climate-related risks and opportunities on the organisation’s businesses,
strategy, and financial planning
Impact on strategy,
business, and
financial planning
The potential implications of climate change and energy transition building
momentum are described in the Market outlook and energy transition related
sections of this Strategic report. We review the renewables and low-carbon
sectors in depth to identify where our technical expertise and delivery experience
would be the most valuable to clients. Based on this analysis, we have aligned
our experience in high-voltage systems, offshore platforms, gas processing, clean
fuels and grey hydrogen to where clients need our ability to integrate and manage
risk around large complex capital project delivery. As a result, we are focusing
our energy transition strategy on offshore wind, CCUS, hydrogen, waste-to-
value, and emissions reduction. In the medium term, we are targeting that energy
transition will account for at least 20% (~US$1 billion targeted) of our revenues. In
addition to advancing energy transition, the Group’s ambition is to become a Net
Zero company by 2030 (Scope 1 and 2 emissions). The Group’s current climate
change strategy focuses on reducing GHG emissions, investing in low-emission
technologies, supporting emission reductions in the value chain and promoting
product stewardship, managing climate-related risks and opportunities, and
working with others to enhance the global policy and market response.
Petrofac is also working towards assessing and reducing our Scope 3 emissions,
engaging our value chain on decarbonisation strategies to enable their
low-carbon ambitions.
In 2023, we continued to consider the impact of climate-related issues on our
financial planning, for example analysing the likelihood and impact of acute
physical risk on the logistics and supply chain, price volatility of commodities,
access to capital market due to limited quota for oil and gas projects, increased
insurance premiums related to extreme weather events, and de-risking financial
assumptions and contract renewal terms against possible carbon taxation
ingeneral.
DISCLOSURE LOCATION |
Pages 4-7, 32-42
Impact on products
and services
To achieve our Net Zero ambition, we recognise that much of our workforce
will need to have additional skills and capabilities. One of the programmes
under implementation is a competency mapping exercise, to understand what
transferable skills we already have and what skills will be required to support
the transition and ensure alignment with government and industry initiatives and
clientrequirements.
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PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Recommendation Response
Strategy continued
c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-
related scenarios, including a 2°C or lower scenario
Embedding climate
into scenario analysis
We believe our strategy and targets are resilient to a range of energy transition
pathways (based on IEA scenarios) and are aligned to the outcomes of COP28,
the climate commitments of respective governments, and the drive for emissions
reductions which will continue to be a key priority in all markets. In particular, the
commitment to triple renewable generation by 2030, where our growing position in
offshore wind will enable us to participate and enable this target to be met.
In 2023, we started to systematically integrate the potential outcomes of different
climate scenarios into our strategy and financial planning process to ensure our capital
allocation was appropriately aligned with the energy transition and the evolving risks
and opportunities.
Our analysis and that of others, have shown that across a range of climate
scenarios, from a rapidly decarbonising world (our Paris-aligned 1.5°C Net Zero
scenario) to one where only current policy targets are realised (our high- carbon
future), the demand by clients for our services across both traditional oil and gas
and new energies (such as wind, CCUS, hydrogen, etc) remains resilient.
Overall, this analysis reinforced our confidence in the resilience of our strategy to a
wide range of transition scenarios and its long-term viability.
DISCLOSURE LOCATION |
Pages 22-25
How we factor
in evolving
governmentpolicy
We regularly engage with policymakers, contributing to their public consultation
programmes, offering our expertise, and incorporating evolving developments
into our strategy and scenario planning. We engage on a regular basis with UK
and Scottish government departments, particularly the Department of Business,
Energy, and Industrial Strategy (BEIS), Department of Business & Trade (DBT) and
the North Sea Transition Authority (NSTA). In 2023, at COP28, we engaged with
the DBT teams at various levels exploring opportunities to support the DBT in the
MENA region and advance Petrofac’s energy transition strategy. We engaged a
wide range of stakeholders at COP28, from major customers, small technology
companies, educational institutions (such as at the Heriot Watt Climate Hub)
UNIDO, NZTC, Khalifa University and financial institutions, and participated in a
panel at the FAB (First Abu Dhabi Bank) stand in the Green Zone.
DISCLOSURE LOCATION |
Page 29
Recommendation Response
Strategy continued
b) Describe the impact of climate-related risks and opportunities on the organisation’s businesses,
strategy, and financial planning continued
Impact on
financialplanning
The financial impact of climate-related risks and opportunities are periodically
evaluated, principally over short to medium-term horizons and across different
climate scenarios.
Allowances are incorporated into financial plans to mitigate risks and advance
opportunities. Examples include:
• Additional financial contingency built into project and operational budgets to
account for the increased frequency and severity of climate and its impact on
weather-sensitive events.
• Periodic review of voluntary offset carbon markets, projected carbon prices and
development of a carbon offset strategy to mitigate pricing and offset quality risks.
Contractual provisions to mitigate the risk of evolving climate legislation, such
as the EU Carbon Border Adjustment Mechanism, which was evaluated against
the projected steel imports for a range of EU-based projects under tender, and
contractual clauses implemented to mitigate potential supply chain cost impacts.
DISCLOSURE LOCATION |
Pages 22-25, 74
Impact on financial
performance
andliabilities
Disclosure level: Partial
In 2023, the Company
began exploring the
financial implications of
climate-related risks and
opportunities identified.
While progress has been
made in identifying these
factors, further
assessment workshops
are necessary to
accurately quantify their
financial impact. The
Company anticipates
ongoing incremental
progress in this area.
The IEA and International Renewable Energy Agency forecast that to limit warming to
1.5°C, the world requires three times more renewable energy capacity by 2030. This
means that to deliver the energy transition, government and private enterprise will
need to spend heavily to build new energy infrastructure, with the energy transition
representing a US$35 billion addressable market for Petrofac by 2030.
Against this backdrop, Petrofac has continued to build on our related credentials.
We have an already strong position in offshore wind, which was reinforced by the
2023 award of a multi-year Framework Agreement by TenneT, being delivered in
partnership with Hitachi Energy with a value of US$14 billion. Two out of six projects
in this framework have already been awarded during 2023.
In carbon capture and storage (CCUS), Petrofac was awarded a major Engineering
Procurement and Construction (EPC) contract by ADNOC Gas, one of the largest
carbon capture projects in the Middle East and North Africa region.
We also progressed with a series of contracts across hydrogen and waste-to-value,
and our integrated plan-design-and-build approach puts us in a strong position
when larger projects start to be awarded. We also continually monitor the financial
impacts and liabilities of a range of climate-related risks ranging from the global
policy landscape necessary to support our growth in energy transition, to carbon
pricing and fossil fuel policies that could impact the operating costs of our producing
assets (PM304). With regards to PM304, the production sharing contract in Malaysia
expires in September 2026, and we are not in continued discussions with Petronas
in respect of an extension. At present, while these risks are evolving, they are not yet
at a threshold to be considered material.
DISCLOSURE LOCATION |
Pages 22-25, 74
49
PETROFAC LIMITED | Annual report and accounts 2023
Recommendation Response
Strategy continued
c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-
related scenarios, including a 2°C or lower scenario continued
Ensuring continued
relevance of our
strategies
As the world adjusts to an unprecedented energy crisis and macro-economic
slow-down, our clients seek to find the best long-term balance between energy
security, affordability, and sustainability. Our growth strategy is continually
recalibrated to the near-term exigencies of energy security and affordability,
maximising current production with the lowest carbon footprint from our producing
assets and targeting opportunities within our traditional oil and gas and offshore
wind markets. In the mid to long term, we are accelerating decarbonisation and the
transition to a low-carbon energy sector through CCUS, hydrogen and waste-to-
value growthstrategies.
Evolving changes to the global climate change strategy or decarbonisation
milestones are continuously monitored by the TCFD Working Group.
As part of our governance processes, our strategy is validated annually by the
Board to ensure it remains relevant and resilient. As our approach matures, we will
look to begin incorporating greater financial quantification and internal assurance
into our climate risk analysis.
DISCLOSURE LOCATION |
Pages 70-71
How climate
resilience builds
future viability
Recognising the potential of the transition to occur faster or slower than
anticipated and on different pathways, we retain flexibility in our allocation of
capital and resources, to ensure these are aligned to the evolving climate risks
andopportunities.
Petrofac is well positioned across both hydrocarbons and the energy transition
markets. Our E&C business is well positioned in the robust hydrocarbon markets
of the MENA region, spans the upstream, refinery and petrochemicals sectors, and
helps clients to minimise the lifecycle emissions of their assets and infrastructure.
Our Asset Solutions business is focused on helping clients find new operating
efficiencies and extend the life of their assets and has a leading position in mature
asset management and decommissioning. With regards to energy transition, our
capabilities and track record positions us well in the rapidly growing offshore wind
market underpinned by the six-platform TenneT multi-year Framework Agreement,
and when larger hydrogen, CCUS and waste-to-value opportunities materialise,
our increasing credentials and experience make us a natural delivery partner for
many clients.
Disclosures regarding the resilience of our strategy in each of the warming
scenarios will be further enhanced in 2023.
Disclosure level: Full
DISCLOSURE LOCATION |
Pages 94-97
Environmental, Social and Governance continued
Task Force on Climate-related Financial Disclosures continued
Recommendation Response
Strategy continued
c) Describe the resilience of the organisation’s strategy, taking into consideration different climate-
related scenarios, including a 2°C or lower scenario continued
How we collaborate
with industry to
buildresilience
We believe substantive input from industry and other stakeholder organisations
leadsto better outcomes on evolving policy, practice, and standards.
In 2023, we maintained our relations with numerous external stakeholders
and industry trade bodies by participating in various initiatives by Offshore
Energies UKand the North Sea Transition Authority, where we shared
Petrofac’ssustainability approach and how we drive ESG across the whole
value chain. Wediscussed the importance of collaboration and communication
from operators down the chain, ownership from the supply chain upwards,
the importance of consistency, and ultimately the opportunity and benefit of
applying ESG in business growth to the supplier. We attended a decarbonisation
conference wherewe collaborated, shared ideas and expertise on emissions
reductionacrossthe energy sector in the UK, and discussed how governments
and regulators can help the industry by implementing supporting and
sufficient regulations. We were also a part of several working groups with
external stakeholders where we shared our expertise on topics like methane
measurements, emissions reduction, chemical applications, radiation and
circulareconomy. In addition, we maintained our collaborative initiatives of
various other industry trade bodies such as the Energy Industries Council,
andorganisations specific to the new low-carbon technologies, such as Global
CCUS, Wind Europe, NECCUS, the Hydrogen Fuel Cell Association, and the
Hydrogen Strategy Now campaign. This also included regional and international
trade bodies such as the EIC and the British Chamber of Commerce in UAE
andEgyptforexample.
We have also created alliances with several technology providers and developers
across our new energies strategic priority areas, as well as the Hitachi Energy
partnership in offshore wind, to best position the Group to advance opportunities
in these sectors.
We further deepened our collaboration and activities with key partners. Examples
of our engagement include:
• Our partnership with the Oman Hydrogen Centre (OHC), who we are
collaborating with in building capabilities for Oman’s renewable energy sector,
particularly in green hydrogen.
• Our delegation at COP28, enhancing collaborative partnerships with a
range of traditional and new energies stakeholders focused on scaling up
decarbonisation and climate resilience.
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50
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Recommendation Response
Risk Management continued
a) Describe the organisation’s processes for identifying and assessing climate-related risks continued
Process
Function Focus area
Technical &
Project
Management
Policy: transition risks of evolving policy landscape.
Market: shifts in availability, vulnerability and cost of critical
commodities and services we contract.
Technology: risks associated with the transition to a lower
carboneconomy.
2GW Project
(Case study)
Markets, Products and Services: impact on access to, and cost of
capital, potential impacts of carbon taxes, opportunities to access
green finance or ESG financial instruments, impact on availability and
cost of insurance.
We continue to integrate climate risk into the supporting policies, processes, and
controls for our key climate risks, and intend to update these as our climate risk
management capabilities mature over time.
Disclosure level: Full
DISCLOSURE LOCATION |
Page 74
b) Describe the organisation’s processes for managing climate-related risks
Process
Our risk management framework provides us with a consistent approach to
identify, manage, and oversee climate-related risks that may impact our business
and is designed to underpin the Group’s longer-term sustainability (for further
details see the Risk management section of this Strategic report).
As part of our business planning process, we review the Group’s principal risks and
uncertainties quarterly. Energy transition risks are captured within the principal risk
‘Failure to deliver energy transition projects strategy’ and covers various aspects of
how risks associated with the energy transition could manifest.
The scope of risks and opportunities were considered across three parts of our
value chain:
• Upstream: activities, products and services that are inputs to our business
sourced from third parties, such as the regulations and policies applied by
governments and the products and services provided by our supply chain.
• Direct operations: the day-to-day activities to deliver the projects/ services
toourclients.
• Downstream: the third parties benefiting from the outputs, products and
services of our business activities.
Risks were viewed over short, medium and long-term time horizons, with likelihood
of occurrence assessed as:
• Probable: > 50% chance of occurrence
• Possible: 15-50% chance of occurrence
• Unlikely: 5-15% chance of occurrence
• Rare: <5% chance of occurrence
Recommendation Response
Risk Management
a) Describe the organisation’s processes for identifying and assessing climate-related risks
Process
Our risk management framework provides us with a consistent approach to identify,
manage and oversee the risks that may impact our business. The scope and size
of issues considered is aligned to TCFD guidance and follows Petrofac’s Enterprise
Risk Management process. This effective risk analysis and response underpins our
ability to achieve our objectives and assess opportunities as our business evolves.
In 2023, we engaged with various functions via one-to-one sessions to identify and
discuss risks and opportunities related to climate change. In addition, we included
a case study from a new energies project.
Function Focus area
Risk, Finance,
Tax &
Insurance
Markets, Products and Services: impacts on access to, and cost
of capital, potential impacts of carbon taxes, opportunities to access
green finance or ESG financial instruments.
Physical Risks: impact on availability and cost of insurance.
Strategy &
Business
Development
Markets, Products and Services: shifts in supply and demand for
energy services.
Technology: risks/opportunities of low-carbon economy.
Comms &
Marketing,
Investor
Relations
Reputation: evolving stakeholder perceptions of fossil fuels and
changing social norms.
Markets: changing investor sentiments and impact/opportunities for
liquidity, investor confidence, share price.
Legal Legal: climate-related litigation and enforcement action risks.
Policy: transition risks and opportunities of evolving climate
policylandscape.
Supply Chain Market: shifts in the availability, vulnerability and cost of critical
commodities and services.
Operations Physical Risks: acute/chronic risks to people, assets, operations.
Policy: transition risks of evolving policy landscape and impact on
operating costs, access to licences.
Resource Efficiency: availability, vulnerability and cost of critical
commodities and services, as well as operability and efficiency
opportunities within the energy transition.
Technology: risks associated with the transition to a lower
carboneconomy.
DISCLOSURE LOCATION |
Pages 70-71
51
PETROFAC LIMITED | Annual report and accounts 2023
Environmental, Social and Governance continued
Task Force on Climate-related Financial Disclosures continued
Recommendation Response
Risk Management continued
b) Describe the organisation’s processes for managing climate-related risks continued
Process continued
Similarly, physical climate-related risks such as extreme weather are covered in our
principal risks related to HSE incidents.
Identified risks are prioritised in terms of their materiality, enabling decisions on the
adequacy of our controls and the most appropriate and cost-effective response
calibrated to the risk appetite of the Group. Ownership of risks falls within the
responsibility of each function, with the TCFD Working Group supporting the
monitoring and closing-out of actions.
Disclosure level: Full
DISCLOSURE LOCATION |
Page 75
c) Describe how processes for identifying, assessing, and managing climate-related risks are
integrated into the organisation’s overall risk management framework
Implement risk
management
Transition and physical climate-related risks are identified, assessed, and managed
across the Group, addressing issues such as evolving policy, threat of legal action,
market changes, reputational issues, and extreme weather.
Risks and opportunities are integrated into the overall risk management framework
through their contribution to and /or impact on principal risks and sub risks, for
example; how failure to deliver on our Net Zero commitments may impact ETP
strategy. Further examples include:
• Policy risks – government consultation and advocacy strategy that supports
appropriate climate action while providing stability for business.
• Market risks – the new energies business line was created in 2021 to build
capability to advance the Company’s position within the energy sector’s
transition. We have since established a medium-term revenue target of at least
US$1 billion or 20% of revenue.
• Capability and resourcing risks – Petrofac recognises that, to advance
our business as the energy sector transitions, we will need new skills and
capabilities. To enable this, a Workforce Reskilling Taskforce was set up
to bring together colleagues who can help develop solutions to enable the
upskilling of our workforce in line with our energy transition strategy and the UK
Government’s objectives set out in the North Sea Transition Deal.
• Production risks – to reduce our flaring and fugitive emissions, gas management
plans continued to be implemented. Developments in 2023 include a 14%
reduction in emissions intensity at our production asset in Malaysia.
Recommendation Response
Risk Management continued
c) Describe how processes for identifying, assessing, and managing climate-related risks are
integrated into the organisation’s overall risk management framework continued
Implement risk
management
continued
• Fines or other regulatory penalties – whilst difficult to predict how these might
crystallise, the base case cost contingencies and downside adjustments aim
to capture any exposure here as well as other legal/regulatory risks on other
aspects of the business. We undertake a periodic review of the voluntary carbon
offset market to have visibility of future offset costs and on current assessment.
• Extreme weather – in the base case, our business budgets are formulated using
industry knowledge of operating in extreme weather conditions (e.g. North
Sea storms, Malaysian monsoons, desert climates, etc.) and contingencies are
included accordingly, whether by way of cost or scheduling contingencies or
both. In the downside scenario, the business has captured the risk of further
downside within the scheduling delays and cost overruns in E&C, margin
reduction in Asset Solutions and production downside in IES.
Disclosure level: Full
DISCLOSURE LOCATION |
Pages 26-29, 70-71,
74-75
Metrics and Targets
a) Disclose the metrics used by the organisation to assess climate-related risks and opportunities in
line with its strategy and risk management process
Our business
performance
Petrofac sets KPI targets for business performance and delivery of our strategy
and assesses progress against these benchmarks on a regular basis.
Price assumption
A range of probable price scenarios are selected for carbon offset calculations and
the voluntary offset market is monitored to inform our future offset strategy.
The BloombergNEF Long-Term Carbon Offset Outlook is used as a primary
indicator of the evolving prices of offsets input into future offset price assumptions
to account for the cost of achieving Net Zero.
ESG Metrics
Our ESG strategy is guided by a full set of related KPIs which are included in the
ESG strategic sections of this report. The key climate-related metrics are outlined.
Performance is reported periodically to the Executive team and the Board through
monthly and regular presentation around our Sustainability strategy, key challenges
and performance progress.
52
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Recommendation Response
Metrics and Targets continued
b) Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas emissions and the
relatedrisks continued
Our value chain
We recognise that the emissions from our value chain are a material part of our carbon
footprint and, in 2023, we extended our Scope 3 programme to better understand the
related decarbonisation challenges and opportunities. The assessment of Scope 3
emissions is included in the Environmental section of this report with an explanation
of category selection. Since, 2022, we are using sold products, which gives us a more
holistic understanding of the true GHG impact of our business and its operations.
For 2023, our Scope 3 emissions were:
Scope 3 Category Tonnes CO
2
e
1. Purchased good & services 918,094.12 t CO
2
e
2. Capital goods Included in Category 1
3. Fuel- and energy-related activities 32,836.83 tCO
2
e
4. Upstream transportation & distribution 114,576.33 tCO
2
e
5. Waste generated in operations 33,036.64 tCO
2
e
6. Business travel 11,300.83 tCO
2
e
7. Employee commuting 19,456.40 tCO
2
e
8. Upstream leased assets Included in Category 1
11. Use of sold products 913,650.32 tCO
2
e
Disclosure level: Full
DISCLOSURE LOCATION |
Page 42
c) Describe the targets used by the organisation to manage climate-related risks and opportunities
and performance against targets
Sustainability Net
Zerotargets
In 2020, we committed to transition to a lower carbon business. To this end, we
aim to reach Net Zero in our Scope 1 and 2 emissions by 2030 and are promoting
decarbonisation across our supply chain. 2020 is our base year against which our
Net Zero (and Interim Targets) are measured from.
Objective Metric Target
Reduce GHG emissions
via energy efficiency,
emissions reduction
and shifting towards
renewable energy
GHG intensity reduction (ktCO
2
e/
million hrs) OR absolute reduction
(ktCO
2
e) – Scope 1 and 2 (excl. IES)
5% reduction from
previous year
Refer to pages 37, 39-42
Effective supply chain
decarbonisation
Incorporate ESG questionnaire into
the supply chain pre-qualification
100% (new suppliers)
Refer to page 41
Leadership
commitment in driving
ESG including climate
change relatedKPIs
Remuneration – promotion of
executive management remuneration
linked to ESG (including climate
change) consideration
40% of their incentives
Refer to page 130
Circular economy
adopted by all sites
% of waste reused / recycled out of
total recyclable waste generated
50% of waste
Refer to pages 37, 41-43
Disclosure level: Full
DISCLOSURE LOCATION |
Pages 37-43
Recommendation Response
Metrics and Targets continued
a) Disclose the metrics used by the organisation to assess climate-related risks and opportunities in
line with its strategy and risk management process continued
Board and senior
management
incentives
Through our incentives programme we continue to embed a net-zero mindset
and ownership of our climate response and new energies performance across
theBoard and Executive leadership.
Targets are set by the Remuneration Committee each year, taking into account
a number of internal and external reference points, including the Company’s key
strategic climate response and new energies objectives for the year (further detail
is provided in the Remuneration Committee section of this report).
The reward structure is aligned to our risk management framework and the
deliveryof critical long-term strategic goals. For FY2023, these goals remained
asthe previous year and included:
• Promoting sustainability – greenhouse gas intensity reduction
• Energy transition – revenue from new energies
Line management ownership of our climate response and advance our energy
transition strategy is also promoted through a broader range of business and
project-specific KPIs in senior management goal plans, that in addition to the
above also include: progress with site decarbonisation, Carbon Disclosure
ProjectCDP rating score, new energies business and capability development,
andTCFD recommendations compliance
Disclosure level: Full
specific metrics for climate
related risks and
opportunities will be
identified in the next review
cycle of the TCFD
b) Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas emissions and the
relatedrisks
Own operation
We report Scope 1, 2 and 3 GHG emissions from our operations and each
year, submit to the Carbon Disclosure Project (CDP). The data is presented
in the Environmental section of this report, and calculated based on the
belowmethodologies:
• The Greenhouse Gas Protocol: A Corporate Accounting and Reporting
Standard(Revised Edition)
• The Greenhouse Gas Protocol: Scope 2 Guidance
• The Greenhouse Gas Protocol: Corporate Value Chain (Scope 3) Standard
• American Petroleum Institute Compendium of Greenhouse Gas Emissions
Methodologies for the Oil and Natural Gas Industry
• Defra Environmental Reporting metrics
Our Scope 1 and 2 emissions were as follows:
• Scope 1 emissions = 167,000 tCO
2
e
• Scope 2 emissions = 4,900 tCO
2
e
• GHGi E&C/AS = 0.30 (000 tCO
2
e per million work hours)
• GHGi IES = 124 (000 tCO
2
e per million boe product)
DISCLOSURE LOCATION |
Pages 40-42
53
PETROFAC LIMITED | Annual report and accounts 2023
Environmental, Social and Governance continued
Why it is
important to
our business
model and strategy
social
Links to the SDGs
As a service business, it is our people, their
attitude and skills, who set us apart from our
competitors. We are therefore committed
to building a diverse workforce, which is
representative of the communities in which we
operate, while developing all our people, keeping
them safe, and looking out for their wellbeing.
Wherever the Company operates, we are
committed to creating shared value, by engaging
with local communities, investing in local
supply chains, employing local people, and
stimulating local economies. As well as being
the right thing to do, we see the creation of
in-country value (ICV) as a source of competitive
advantage, helping us to build strong client
relationships and bid selectively on complex
projects, while benefiting from the economies of
deliveringlocally.
Because of the nature of our global operations
and the types of geographies we work in,
where the rights and welfare of workers can
sometimes be at risk, we are committed to
protecting human rights throughout our business
operations and extended supply chain, ensuring
that everyone who works with and for us is
treated with respect, fairness, and dignity.
54
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
2023 0.107
2022 0.094
2021 0.091
2023 0.021
2022 0.018
2023 47%
2022 32%
2021 0.018
2021 54%
Male 83%
Female 17%
Male 90%
Female 10%
2%Executive
Management
Supervisory
<30 15%
30–39 30%
40–49 31%
50–59 19%
>60 5%
Professional
Support
11%
27%
45%
15%
Our performanceHighlights
In 2023, we achieved our target of 30%
of women in senior management roles
by 2025
18 years without an LTI on the North Sea
Kittiwake platform
Purchased US$764 million worth of
goods and services locally
1
Recordable incident frequency rate
Lost time injury frequency rate
Spend on local goods and services
1
(%)
Gender profile of our people (%)
Employees
Leadership
Grade profile of our people (%)
Age profile of our people (%)
1. Non-JV Projects.
55
PETROFAC LIMITED | Annual report and accounts 2023
Reflecting on our 2023 performance
Across our main indicators, our 2023
performance was broadly comparable with the
previous year, and well ahead of industry norms:
• Lost time injury (LTI) frequency rate –
increased slightly to 0.021 per 200,000 work
hours, compared to an industry average of
0.056 (International Association of Oil and Gas
Producers 2022)
Recordable incident frequency rate –
Increased slightly to 0.107 per 200,000 work
hours, compared to an industry average of
0.180 (International Association of Oil and
GasProducers 2022)
The slight increases mirrored an equivalent
upward trend across the wider industry.
However, there was a continued decrease
in the overall severity of workplace injuries,
with most incidents being classed as minor,
typically involving cuts, scrapes, trips and falls.
Also, the actual number of lost time injuries
and recordable incidents was down slightly
compared to 2022.
Tragically, we did report one fatality. Involving
oneof our contractors, this occurred in
Thailandon the Thai Oil Clean Fuels project,
which had previously been LTI-free for more
than 30 million work hours. The incident was
investigated in detail and reviewed by senior
management and, separately, by the Board.
Thelessons learned were fed back into our
ongoing safetyprogrammes.
Preventing serious injuries and ensuring the
workplace is fatality-free remains our number
onepriority.
Celebrating a series of significant
safety milestones
Some of the more significant safety-related
achievements from our Engineering &
Construction projects include:
• The HPCL Visakh Refinery modernisation
project in India celebrated five years LTI free
• The Qusahwira field development project in
Abu Dhabi celebrated five years LTI free
Meanwhile, in Asset Solutions, the LTI-free track
record on many sites dates back for more than a
decade, including:
• Kittiwake 18+ years
• BP Andrew, BP Clair, and BP ETAP 13+ years
• FPF-003 12+ years
Starting strong on all new projects
With several major project awards announced,
a safety-related focus for 2023 has been to
emphasise project start-up preparations. For
example, Executive team members undertake
site visits in the start-up phase of projects, which
set the tone and ensure that a strong safety
culture is established from the outset. Given that
most onsite personnel are not directly employed
by Petrofac, we also focus on contractor
management, including Contractor Safety
Forums at all new projects and Safety HOTSPOT
(Hands-On Training Spot) training, for their
respective employees.
Achieving a significant improvement
in driving safety
For several years, driving had been an area of
potential exposure across the Group. Along with
our contractors, our people drive the equivalent
of five times around the world each year, often in
challenging environments and, in 2023, the total
was more than 21 million miles.
Health, safety,
security and quality
Whatever their role and wherever
they work, we want everyone
involved with Petrofac to feel
safe, valued, and cared for.
Ultimately, our aim is for zero
safety incidents, which we see
as an entirely realistic goal.
Although our overall safety record is
among the strongest in the industry and,
as we return to delivering major projects
at scale, our emphasis for 2023 was to
ensure that the same uncompromising
safety culture exists across the entire
Group, and the same impeccable
standards are applied on every site.
Tragically, we did report one fatality
involving one of our contractors, which
was thoroughly investigated and lessons
learned implemented.
Similarly, we continued to work to
embed a culture of quality to prevent
issues and deliver consistently across
the organisation.
We expect that this commitment will
help us to improve on an already strong
safety performance, and attention to
the wellbeing of employees will be a
characteristic of the Petrofac culture.
Health and safety
Our health, safety and environment (HSE)
strategy, launched in 2022, is based around
fivepillars:
1. Leadership – the shadow you cast
2. Employee engagement – greater
engagement, fewer incidents
3. Contractor management – consistency
and performance driven
4. Training – formalise, simplify,
and standardise, with a refreshed
learnerexperience
5. Compliance – do it right, first time
The major themes of the strategy include:
• Data-2-Decisions – using data and analytics
from key leading and lagging indicators to
define areas of focus and reduce incidents
• Technology enabled – extensive
use ofmobile technology to increase
situationalawareness
• Engagement and communication –
engaging, insightful, focused, and even fun
• Proactive vs. reactive – observations and
interventions before an incident occurs
• Accountability – the joint ownership of HSE
performance by line management and the
HSE function
Environmental, Social and Governance continued
56
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
In 2022, we stepped up our programme of
road safety initiatives, including a total ban on
night-time driving for everyone who works for
or with our project sites, the introduction of a
driving improvement app, and recognising those
employees with the safest driving performance.
As a result, we are seeing the benefits of these
initiatives, as in 2023, the number of driving
incidents fell to eight – down from 34 in 2022.
Increasing employee engagement
and communication
To deliver on our HSE ambitions, we want the
topic to be a key priority for the entire workforce.
To ensure that our people are proactively and
routinely engaged in health and safety, we operate
several digital and mobile tools, including:
• HSE dashboards – all employees are given
access, via their mobile phones, to real-
time safety performance, which is available
at the project, country, and business unit
level. This helps us to raise awareness of
our safety performance, demonstrate that
everyone at every level is accountable, and
keep the entire organisation focused on
improvingperformance.
• HSE observation reporting tool – a mobile
app, available to all employees, enabling them
to report any safety observations, both good
and bad, via their mobile phones. In 2023,
25,000 reports were logged, representing
a two-fold increase on 2022, which helps
to keep employees engaged, and provides
useful insights and leading indicators of
potentialissues.
• HSE social networking – we use the Viva
Engage platform to host an HSE social
networking dialogue, which involves everyone
in the HSE team and is open to anyone in
the Company. With more than 400 active
members, this is the second most active
suchgroup in Petrofac.
In 2023, we also launched a new, all-Company
HSE newsletter. Issued twice a year, this aims
to keep engagement high, ensure a consistent
approach, and amplify lessons learned.
Maintaining our focus on health and wellbeing
We have strong focus on employee health and
wellbeing, which continued in 2023.
The fact that we employ a full-time Company
Doctor is indicative of our approach. As well as
running an in-house clinic, which is registered
with the UAE Ministry of Health and Prevention,
our Company Doctor heads up a range of
ongoing health and fitness initiatives.
For example, a Know Your Numbers campaign
focused on awareness of major risk factors,
such as blood sugar and cholesterol levels.
He travelled to several Petrofac offices to deliver
townhall sessions and provide checkups.
Engagement was high across the Company
and one employee, who was subsequently
referred to a local hospital, had cardiac
surgery as a result.
A mental health campaign led to more than
20 employees volunteering as Mental Health
First Aiders, helping us to draw attention to
mental health issues and reduce the stigma that
traditionally surrounds them.
Security and crisis management
Petrofac continues to commit to minimising risk
to our staff, subcontractors, and surrounding
communities. During 2023, to extend our
capacity and expertise in this area, we
progressed with a programme to increase the
training and development of locally recruited staff
into more senior roles within the Security and
Crisis Management function.
Our projects continue to focus on responding
effectively to crises through an ongoing
programme of planning and drilling responses
to a wide variety of scenarios. Through the life
of a project, effort is made to ensure that the
nature of drills reflects the specific threats to that
phase of the project. As an example, as projects
are commissioned, focus shifts to the specific
threats around the introduction of feed stocks,
the energisation of electrical systems, and the
risks of working in the vicinity of testing activities.
Cybersecurity and data protection
Given the rapidly evolving cybersecurity risks, and
to support Petrofac’s wider digitalisation initiatives,
cybersecurity and data protection continued to
be areas of focus. We have adopted a defence-
in-depth approach to cybersecurity drawing on
multiple layers of security controls to protect our
assets. Increasingly, our cybersecurity disciplines
and protections are audited by clients and
regulatory bodies, and in all cases, we have met
or exceeded their requirements.
During 2023, a focus was to embed a culture
of continuous improvement in our cybersecurity
practices and protections. Recognising the
significance of cloud security, we implemented
further measures to fortify our cloud infrastructure,
including strengthening various controls and
conducting regular security assessments to
identify and address any vulnerabilities.
In January 2024, Petrofac received ISO
27001:2022 accreditation, demonstrating our
commitment to information security management
practices that align fully with industry standards.
Related initiatives included:
• Extending and enhancing our internal
awareness programmes, drawing attention to
potential threats and how best to thwart them.
• Adding artificial intelligence (AI) capabilities to
our cybersecurity controls.
Focus on health and wellbeing
Know your numbers
We ran a Know Your Numbers campaign
which focused on awareness of major
risk factors, such as blood sugar and
cholesterollevels.
• Continuing to run regular vulnerability
assessments, penetration tests and Red
Teamexercises.
• Cybersecurity also remains a key priority in all
our digitalisation initiatives. We are committed
to the continuous improvement of our security
posture, and ensure that appropriate security
protection is embedded from the initial idea
and conceptual phases of every new initiative.
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PETROFAC LIMITED | Annual report and accounts 2023
Asset integrity
At Petrofac, we generally work with high-
hazard energy infrastructure, and many of our
projects relate to mature asset management and
decommissioning which tends to be intrinsically
high-risk. Maintaining the right mindset, backed
up by disciplined processes and controls, is
therefore critical to our success – as well as the
safety of our people and our clients.
In 2023, the Group was responsible for
managing and ensuring the integrity of 17
operating assets as the Installation Operator,
aswell as 47 wells as the Well Operator.
During the year, our reputation for the safe and
predictable management of high-hazard assets
was reflected through the award of several
significant new contracts: offshore of the Ivory
Coast, we secured an integrated services
contract for the Espoir Ivoirien FPSO vessel; in
the UK North Sea, we will be working alongside
Saipem on a major new decommissioning
programme involving the removal of a 20,000
tonne topside; and, in the Gulf of Mexico,
we increased the scope of an existing
decommissioning project that was recently
highlighted by the North Sea Transition Agency
(NSTA) as an example of global best practice.
Reflecting on our 2023 performance
In evaluating our asset integrity performance,
our main area of focus is managing process
safety hazards, reducing high-potential incidents
(HiPos) and those incidents that involve process
safety procedures.
In 2023, we did have one HiPo, which took
place at the Ain Tsila field in Algeria and involved
a fractured pipe during a commissioning test.
Giventhat this could have had escalating,
process safety-related outcomes, a full
investigation was initiated, and the lessons
learned will be fed back into the wider Group
in2024.
Areas of focus during the year included the
implementation of Process Safety Fundamentals,
a set of principles developed by the International
Association of Oil and Gas Producers (IOGP).
We also began preparing for an intervention on
the Process Safety Leadership Principles by the
UK Offshore Major Accident Regulator which is
due to take place in 2024.
Quality
An important part of the ethos at Petrofac is
to ensure that we operate predictably and
efficiently, and the energy facilities we design,
build, and operate are inherently operable and
safe, and they meet or exceed operational
standards. A disciplined approach to quality and
operational excellence is therefore embedded
into the way we work.
Beyond compliance
Since it was first established in 1995, our
robust Quality Management System and
ISO9001 certification has helped us to build
long-standing client relationships. It also
reflects our ability to provide a quality of service
that meets customer expectations as well as
regulatory requirements and equips Petrofac to
be a learning organisation that is committed to
continuousimprovement.
Environmental, Social and Governance continued
Refreshing our quality strategy
In 2023, we refreshed our quality strategy to
focus more on systematic issue prevention,
become even more effective on issue resolution
at the times we encounter defects, and drive
continuous improvement within our delivery.
This is accompanied by a new range of key
performance indicators (KPIs), comprised both
leading and lagging indicators, accessible across
the business in near real time.
Delivering a series of new initiatives
Based on the refreshed quality strategy,
initiatives progressed in 2023 included:
• A new global management system (GMS) –
asingle, global platform to contain, integrate
and streamline all processes and procedures
was developed and rolled out
• A new quality incident system – a single,
Company-wide digital platform to capture,
manage, and analyse any quality incidents
(non-conformance reports), was completed
and launched
• A new lessons learned process and
mechanism to capture and apply lessons
learned across the Company was developed,
ready for launch in 2024
Looking ahead to 2024
For 2024, the aim is to embed and benefit from
the use of these new platforms, emphasising
and enhancing our culture of continuous
improvement. This means we are prioritising
parts of the business where quality incidents
have historically been most prevalent and costly.
We will also enhance our approach to supplier
and subcontractor management, so that quality
can be replicated across the supply chain.
Health, safety and security
Asset integrity:
Gulf of Mexico
In the Gulf of Mexico, we increased the scope
of an existing decommissioning project that
was recently highlighted by the North Sea
Transition Agency (NSTA) as an example of
global best practice.
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PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Gearing up for growth
One of Petrofac’s key strategic themes is
selective and measured growth and, given the
contract awards announced throughout 2023,
we introduced several new talent acquisition
initiatives, such as:
• Focusing on talent acquisition
In 2022, we appointed our first Global Head
of Talent Acquisition and had begun to make
good progress with improving the candidate
experience, enhancing the employee value
proposition, improving our recruitment-
related social media activity, and nurturing
our employment brand. This work continued
in 2023, putting us in a strong position and
helping us to identify, select, onboard, and
integrate new employees in sufficient numbers.
• Building and benefiting from a strong and
engaging online presence
Online channels play a critical role in talent
acquisition. Our Petrofac LinkedIn profile,
with 1.2 million followers, is one of the most
effective in the industry and helps us to
maximise our opportunity. Also, all open
positions are listed on our careers portal
on petrofac.com/careers plus our internal
jobs board encouraging movement of
people internally. These channels help us
demonstrate that, besides offering rewarding
work and good career prospects, Petrofac is
a people-based business that cares deeply
about personal and professional development,
has a culture that embraces diversity, and
is a leader in safeguarding the safety and
wellbeing of ourpeople.
• Reflecting the communities in which
weoperate
An important Petrofac characteristic is our
local delivery model. We want our teams
to berepresentative of the communities in
which we operate, and the recruitment of
local nationals continued to be an important
themeof our recruitment activity.
For example, we hired around 110 Emiratis
and 27 Omanis, as well as several local team
members to support our operations in Algeria,
Libya, Lithuania, andThailand.
• Supporting our entry into
newgeographies
An important strategic theme for Petrofac is
the judicious entry into geographies where
key clients are present, or where we believe
we can deliver safely and consistently. To this
end, we have been establishing a presence in
countries such as Ghana, Indonesia, and Ivory
Coast. As well providing more international
career opportunities for existing employees,
we recruited several local nationals.
• Attracting and developing the
next generation of engineers
Creating a new generation of talent is another
priority for the Group, and we have active
graduate schemes in several countries. For
example, in India, we received over 4,000
applications for 60 graduate positions, while
in the UK we recruited 14 newly qualified
engineers, half of whom are women. These
schemes will be scaled up in 2024 when we
expect to recruit around 150 graduates and,
in preparation, we appointed our first Global
Graduate Recruitment Manager.
• Benefiting from efficient and
consistent onboarding processes
In recent years, we made significant changes
to our global human resources operations,
including investments in cloud-based systems
and the creation of a single, centralised
back-office team in Chennai, India. This
helped us to manage the increase in talent
acquisition activity. Our teams were able to
review applications at the rate of 500-per-day,
process job offers at the rate of 250-per-
month, and ensure that, from day one, all new
employees are issued with online accounts,
computers and passes.
People
From a people perspective,
2023 was a busy year for Petrofac.
With the entire sector in an upcycle
resulting in a very tight labour market,
we had to work hard on two fronts. We
needed to ensure that our people feel
engaged and appreciated, and that they
see clear opportunities for personal and
career development; and, with several
large contract awards and the Group
gearing up for growth, we also needed
to attract large numbers of qualified
candidates to join Petrofac and integrate
them into our teams.
With a concerted focus on talent
acquisition, we identified and onboarded
new people at the rate of around 250 a
month, welcoming a total of 3,104 new
employees to Petrofac.
Attrition levels fell from 14.3% in 2022
to 11.5% in 2023. Overall, employment
levels increased by 677 to reach 8,600,
representing an 8.5% increase on 2022.
Next generation of engineers
Indian graduates
Our offices in Mumbai and Chennai
welcomed 71 engineering graduates
across disciplines, including mechanical,
process, electrical, civil, instrumentation
and telecom and piping.
• Integrating new employees
into the workforce
An important Petrofac characteristic is our
distinctive, client-centric culture, and an
important dimension of our talent acquisition
activity is the onboarding and integration
of new employees. Together with in-depth
induction training, we worked hard to ensure
that new employees feel welcome and
valued and understand what is expected of
them. For example, we focused on buddy
systems, which pair new recruits with well
establishedemployees.
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PETROFAC LIMITED | Annual report and accounts 2023
Developing our people
Petrofac Academy
We reopened our Petrofac Academy
learning facility in the UAE, providing
training and development opportunities
for employees across the Company.
Gearing up for growth continued
• Understanding and addressing
challenges faced by new employees
While employees typically remain with us
for many years, we recognise that a number
choose to leave us within their first 12
months. To understand why, we put a focus
on exit interviews, made further improvements
to the onboarding experience, and provided
additional guidance for line managers.
Continuing to make progress
on diversity and inclusion
In 2023, we continued our focus on diversity and
inclusion, building on past achievements and
introducing new initiatives. Although we have a
long way to go, we are committed to being a
more diverse company, which embraces differing
perspectives, is representative of the communities
in which we operate, and provides equal
opportunities to all employees and jobapplicants.
Key developments and achievements include:
• Achieving a better gender balance
Given the nature of our business and the
location of many of our operations, achieving
a better gender balance is a challenge.
One focus is our senior management
positions. In 2023, women accounted for
30.5% of our senior managers, up from 6% in
2018. We exceeded our target of 30% by the
end of 2025, two years ahead of schedule.
As well as building diversity from within, we
mandate that at least one woman is included
on the final interview shortlist for all external
recruitment into middle and senior management
roles. Since 2020, the proportion of women
recruited externally into senior management
roles has increased from 6% to 23% in 2023.
As a result, we were able to appoint several
highly qualified women to executive senior-
level positions in 2023, such as our new
Group General Counsel, and the Head of
ourEngineering Centre in Chennai.
Across the Company as a whole, the
proportion of women employees increased
from 8% in 2018 to 17% by the close of 2023
– which is a big move in the rightdirection.
Environmental, Social and Governance continued
• Giving voice to diverse viewpoints
To ensure that the Company hears and
engages with a wider spectrum of viewpoints,
we have several global Employee Network
Groups. Since 2021, we have established
four groups representing women, LGBTQ+
colleagues, young professionals and older
employees. Our Employee Network Groups
are thriving, and they support over 1,100
employees. The aim is to provide safe spaces
where people can network, problem-solve and
mentor each other.
In 2023, we received a commendation in the
‘People and Culture’ category at the Scottish
Renewables’ Net-Zero Energy Transition
awards, acknowledging the success of our
Employee Network Groups.
• Putting even more emphasis
on Emiratisation
Active in the United Arab Emirates (UAE) for
30 years, Petrofac has major centres in Abu
Dhabi and Sharjah which, together, are home
to around 3,000 people. In line with our local
delivery ethos, and the UAE Government’s
Emiratisation agenda, we are keen to employ
more local nationals at every level of the
organisation. However, with Emiratis making
up just 10% of the total UAE population and
occupying 1% of its private sector jobs, this
can be a challenge. However, we made great
progress in 2023, hiring 110 Emiratis and
closing the year with 164 Emirati employees.
Investing in training and development
We continued to enhance our training and
professional development programmes,
including our early career education initiatives,
our Leadership Pathway programmes, and we
reopened the Petrofac Academy learning facility
in Sharjah, UAE.
Highlights of the year included:
• Stepping up our Leadership
Pathway programmes
To support the anticipated growth across
the Group, we stepped up our Leadership
Pathway programmes, which provide training
and development opportunities to junior,
middle and senior managers. During the
year, more than 300 three-to-five day training
modules were completed, with a further 700
scheduled for 2024.
• Introducing a new Project Management
Pathways programme
One of our main strategic themes in Petrofac
is to deliver to a consistent standard. With
several major new projects coming on stream,
we introduced a new Project Management
Pathways programme. Around 500 people
will be participating in the first phase of this
structured 18-month programme of practical,
face-to-face and online learning.
• Assessing and enhancing the leadership
skills of our top 150 managers
To help them lead their teams effectively, we
conducted a 360-degree feedback process
for our top 150 managers. By identifying
individual leadership development needs and
opportunities, we were able to recommend a
personalised training programme for all of them.
• Providing access to LinkedIn Learning
for all employees
To give employees the opportunity to pursue
a wide range of online learning opportunities,
free of charge, we paid for unlimited access
to the LinkedIn Learning platform for all our
employees. This platform includes more than
16,000 business, creative and technology
courses and certifications.
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PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Focusing on employee engagement
We have several mechanisms and programmes
to support and monitor employee engagement,
build on strengths and address concerns.
Forexample:
• Maintaining an open,
two-way conversation
One of the ways we engage with and hold
conversations with our workforce is through
our Petrofac Workforce Forum. Established in
2019, the Petrofac Workforce Forum builds
on the framework set out in the UK Corporate
Governance Code. Meeting with the Board
and the Executive team twice a year, the
Workforce Forum comprises 12 employee
representatives from across the Group.
The Workforce Forum enables the Board and
the Executive team to understand the mood of
the workforce, better understand their ideas,
concerns, and perspective, plus ascertain
what it is about Petrofac that motivates and
engages them. Following Company-wide
elections in 2022, the second term of the
Forum commenced in 2023. It is seen as a
successful initiative and has a high profile
across the Group.
• Keeping track of attitudes and opinions
Each year we ask our employees to
participate in our confidential employee
engagement survey, run by an independent
third party (Willis Towers Watson).
In 2023, the participation rate increased to
77%, its highest ever level and a
10-percentage point increase on 2022. The
Sustainable Engagement score increased to
our highest ever score of 88%, up from 86%
in 2022, and 79% of our employees said that
Petrofac has improved as an employer, up by
8% from 2022. In fact, the scores for all ten
main categories improved year-on-year.
Recognising and rewarding
ourpeople
It is important to Petrofac that our people are
appropriately rewarded. Wherever we operate,
we want to be seen as a good employer
offering competitive rates and conditions. And,
irrespective of their role, location, or seniority, we
want all our people to enjoy dignified working
conditions and a decent standard of living.
Recent initiatives include the introduction of a
new recognition scheme, total reward statements
for employees, and reduced working hours in
the UAE. In 2023, more than 1,000 employees
received a monetary recognition reward, and
around 1,000 were promoted to a new role with
an improved package. Also, we made several
incremental improvements to our rewards
programme – such as the option for annual
health and dental checks, the inclusion of dental
and optical coverage in our healthcare benefits,
and extended educational allowances for
employees with school-age children in theUAE.
Community
engagement
Making a positive contribution
to our local communities
Our local delivery model is a key
differentiator for Petrofac and,
wherever we work, our aim is for
local communities to benefit from our
presence. We therefore engage with
local stakeholders to better understand
and manage the social impacts of our
business, address any concerns they
may have about our work, and maximise
the benefits we are able to bring to
theircommunities.
Stakeholder engagement is one of
the pillars of our Petrofac Social
Performance Framework, which consists
of our Social Performance Standards
and a set of guidelines that enable us
to meet the commitments set out in our
Code of Conduct, Environmental Policy
and Diversity and Inclusion Policy.
The framework begins with social
assessment, followed by community
engagement, grievance management
and social investment.
Reviewing our approach to
socialinvestment
For many years, we have had a formal social
investment strategy and a set of guidelines
to ensure our activities create value for both
Petrofac and the recipients, are conducted in
compliance with our Code of Conduct, and are
subject to rigour and transparency. Under the
terms of these guidelines, our social investment
initiatives are aligned with three broad priorities:
• Promote STEM education and improve
educational access and employability.
• Contribute to community improvement,
capacity building and disaster relief.
• Support a just transition, as the energy sector
evolves and reduces its carbon intensity.
Any initiatives that we support are subject to
formal due diligence and regular review process
overseen by our compliance teams.
In 2023, following the strengthening of our
sustainability team, we initiated a review of our
approach to social investment. Our aim going
forward is to progress from a series of individual
initiatives to a more holistic, joined-up approach.
The process is set to continue into 2024 and
will involve engagement with local country and
project teams, as well as an assessment of
material, in-country priorities.
An indicative selection of our 2023
investments and initiatives
In addition to the dedicated Corporate and
Social Responsibility representatives across our
global operations, several of our employees –
who are passionate about the environment and
social issues – generously volunteer their time to
help with our social investment activity. Some of
the indicative initiatives from around the Petrofac
Group in 2023 include:
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PETROFAC LIMITED | Annual report and accounts 2023
• Algeria – building strong
communityconnections
Our teams in Algeria have developed strong
connections with their local communities,
helping marginalised groups, and improving
access to education and employability.
One of our key initiatives in the country is
oursupport of the Chams Association, a
not-for-profit organisation based in Algiers,
which provides artistic, educational, and
recreational workshops for young people
withlearning disabilities, mostly those with
Autism Spectrum Disorder (ASD).
In 2023, we provided support with funding,
procuring, and providing musical instruments
and equipment, enabling ongoing therapy,
care anddevelopment.
As in previous years, our Ain Tsila and Tinrhert
project teams also collaborated with the local
authorities to contribute towards Ramadan
food parcels containing a range of staple food
supplies for distribution to disadvantaged
families in Ouargla and IlliziWilaya.
As we report on pages 63-64, a significant
contribution to the local economy is the
operation of our Hassi Massaoud Training
Centre, and the work we do with the public
authorities in Illizi and Ouargla to promote and
deliver training opportunities to the local
population. Trainees, who are provided
withaccommodation, food, personal protective
equipment and a stipend to cover out-of-pocket
expenses, are prioritised for employment with
Petrofac and oursubcontractors.
• Australia – promoting diversity
and wellbeing
With the scale of our Australian operations
set to increase, we contributed to several
community initiatives, with a joint emphasis on
diversity and wellbeing. We participated in the
Shooting Stars programme, and sponsored
a young female from a remote community
of Aboriginal Australian people to attend a
senior leadership course in Perth, aimed at
empowering young women to not only succed
in life, but also give back to their community.
Other initiatives included a push-up challenge
for suicide prevention, and the Movember
men’s health campaign.
Our state-of-the-art training facility in
Hassi Massaoud equips trainees with life-
changing technical and safety skills that
ultimately lead to employment with us
directly or through our subcontractors.
Community engagement in Algeria
Training local workforces
Environmental, Social and Governance continued
• India – enhancing employability and
promoting environmental sustainability
There is a regulatory requirement for us to
spend a proportion of our net profit in India on
social investments, equating to an investment
of approximately US$158,000 in 2023. To
increase engagement with our own teams, we
typically support programmes located locally to
our operational bases in Mumbai and Chennai,
and activity is coordinated by the respective
social responsibility representatives.
In 2023, we continued to work with local
charities and contributed to several projects
which provide support to schools for blind
children, orphaned children, and those from
underprivileged families. This included the
building of several new classrooms, providing
library facilities and furniture, new drinking
water systems, and other such upgrades.
Another notable initiative was the sponsoring
of 40 young women from underprivileged
backgrounds on a formal year-long
Manufacturing Technician programme to
improve their employability and earning potential.
Other initiatives included support for a range
of environmental causes, including a forest
plantation and maintenance project,
installation of composting facilities at local
schools, and restoration of a village pond and
surrounding watercourses.
• UK – demonstrating our commitment
to equity and opportunity
Several of our UK community engagement
initiatives demonstrated our commitment
to equity and opportunity for people from
disadvantaged backgrounds. In Aberdeen,
we delivered an outreach programme with
Camphill School for vulnerable children
and young people with learning disabilities.
With support from NGO partner ExNoRa
International, we educated and engaged
with students on the importance of
environmental conservation while
planting over 5,500 tree saplings in
fourremote schools in Tamil Nadu.
Community engagement in India
Urban dense forest
Wealso formed a partnership with the STEM
Returners organisation to help engineers
get back into STEM-related work following
a career break – and ultimately recruited five
candidates into full-time positions.
Often, our community engagement programmes
complement and supplement our wider
environmental initiatives (see page 42) and our
in-country value (ICV) programmes (seepages
63-64).
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PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTSOVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
2023 47%
2022 32%
2021 54%
2023 22.7
India 85%
2022 31.6
2021 33.0
Thailand 81%
Oman 54%
Bahrain 66%
Germany 3%
UAE 71%
Algeria 24%
Lithuania 64%
Generating economic value
in-country
Wherever Petrofac operates, we are committed
to creating shared value by employing local
people, supporting local supply chains,
developing local capabilities, and stimulating
local economies.
As well as being the right thing to do, we see
the creation of in-country value (ICV) as a source
of competitive advantage. It enables our local
delivery model, helping us to bid on challenging
projects, keep costs down, improve the quality
and capability of local vendors and supply
chains, and build stronger relationships with
local stakeholders.
Alongside shareholder and client value, we regard
ICV as one of the most important outcomes of
our business model. We therefore aim to make
a positive and measurable contribution to the
economies in which weoperate.
Pursuing a formal ICV
deliverystrategy
The creation of ICV has always been a hallmark
of our approach. We continued to enhance
and extend our commitment with a formal ICV
strategy based on four levers:
• Employing and developing a world-class
national workforce – strengthening our local
teams, making them more representative of
communities they work in, and enhancing our
in-country delivery capabilities
• Building the capacity and technical
capability of local suppliers –
understanding the capabilities of local supply
chains, supporting skills development, and
promoting technology transfers
• Sourcing goods and services locally –
reducing our reliance on international supply
chains, matching local suppliers with project
opportunities, and improving our efficiencies
• Investing in our local presence and host
communities – ensuring that our community
engagement initiatives support our local
operations, and are closely aligned with our
strategic priorities (see pages 10-11)
In addition, our E&C business initiated a new
change management programme. In this, ICV
is identified as one of the pillars to increase our
competitive differentiation, by enhancing our
economic contribution, supporting the economic
goals of the countries where we operate, and
maintaining our social licence to operate. Focus
areas include:
• Reviewing our ICV strategy, including the
definition of additional key performance
indicators and setting new goals in
partnership with the respective in-country
managementteams
• Expanding the number of ICV-compliant
vendors in each country
• Increasing the number of local nationals to
meet project-specific needs
• Securing annual ICV certification for
operations in key countries
Supporting local economies
In 2023, we purchased around US$764 million
worth of goods and services locally, and
supported over 22,700 jobs related to our major
non-joint venture projects (as listed on page81).
The proportion of locally sourced goods and
services increased to 47% in 2023, up from
32% in 2022. This reflects our continued work to
source more local goods and services along with
our initiatives to build the capability of our supply
chain and invest in our local presence.
Indicative examples from across our
operationsinclude:
Algeria
One of the ways we contribute to local
economies is by helping to build capacity and
improve skills. In Algeria, our state-of-the-art
training facility in Hassi Messaoud, located close
to several high-profile projects, equips trainees
with life-changing technical and safety skills that
ultimately lead to employment with us directly or
through our subcontract workforce. The training
centre boasts air-conditioned classrooms and
modern workshops, and offers five specialist
areas, including instrumentation, electrical,
mechanical, pipework, and welding. Since its
inception in 2010, more than 1,300 Algerian
nationals have benefited, with 400 trainees
graduating in 2023 alone.
In 2023, partnership agreements were renewed
with the Vocational Training and Education and
Labour Departments in three municipalities
(Illizi, Ouargla and Oran) to recruit and upskill
local trainees. The renewal of this strategic
collaboration, which was temporarily halted
during the pandemic, reflects our commitment to
investing in Algeria’s workforce and supporting
nationalisation in the south of Algeria by
recruiting and upskilling the next generation of
energy professionals.
We also progressed a Partnership with Algerian
Petroleum Institute (Institut Algerien de Petrol).
With preparatory work underway, several
new initiatives are due to be rolled out in
2024, including the upgrade of the Arzew fire
training centre by Petrofac, the introduction of
a new competence management system, the
implementation of a range of new e-learning
courses, and the delivery of a series of Energy
Transition training sessions.
% Spend on local goods and services
47% (US$764m)
Key project jobs (’000)
Project spend on materials and services
In-country
value
63
PETROFAC LIMITED | Annual report and accounts 2023
Algeria continued
In 2023, on average, national hires represented
65% of our in-country workforce across our
Algerian projects and operations, while the
proportion of subcontracts sourced from local
companies stands at 87%.
Lithuania
For the Orlen project, where we have adopted
the slogan ‘Built by Lithuanians’, all major
contracts have been awarded to local suppliers,
and in-country sourcing accounts for around
85% of our total spend.
In addition, our Lithuania team hosted a
2023 Contractor Safety Forum to help drive a
strong local safety performance and increase
collaboration among all stakeholders. This
became a major step in engaging with local
companies, building capacity, and agreeing
minimum safety standards. Colleagues from
our local office, project sites and the global
leadership team were joined by representatives
from subcontractors, local government, and our
client, who discussed and shared best practices.
We also increased our engagement with local
government, discussing community needs and
agreeing on how best to collaborate with and
contribute to the Mazeikiai city community. As
an outcome, we supported the local basketball
team, which represents the city in the highest
basketball league in Lithuania. This contribution
helped the team reach the mandatory financial
threshold and provided funds for the renovation
of the old arena in Mazeikiai, which will become
a multi-purpose facility for children to practice
sports and local community events.
Plans for 2024 include local clean-up
campaigns, and helping the city to improve
thequality of outdoor spaces, such as
community parks and riversidewalks.
UAE
Our Sharjah base is home to 1,450 employees
and a significant part of our heritage. The office
continues to serve as an operational hub for
many of our projects, and we routinely source
goods and services in the UAE for our projects
inthe country, as well as abroad.
In 2023, we further increased our Emirati
headcount to about 160 – representing 9% of
our UAE workforce 77% of whom are female.
We expect the trend to continue into 2024 as
weprogress with our projects on the Estedama
and Habshan CCUS projects.
Since its launch in 2018, we have participated
in the ICV Certification programme run by Abu
Dhabi National Oil Company (ADNOC) to quantify
the contribution of goods and services produced
by businesses within the UAE, as well as local
investment and employment. This certification
emphasises our commitment to the expansion
and development of the UAE economy.
Across the UAE, we are also active in supporting
vocational skills training. In 2023, we signed a
memorandum of understanding (MOU) with the
Emirates National Oil Company (ENOC) Group
to support its Technical Training Development
Programme, a strategic initiative to bridge
industry skills gaps and develop the next
generation of energy professionals.
Another in-country highlight is our long-standing
relationship with the American University
of Sharjah (AUS). In 2023, the university
presented us with its Leader of Excellence
award recognising the many ways we support
its advancement. We were also awarded
the Employer of Choice award, reflecting the
achievements of AUS Alumni at Petrofac, along
with the many capacity-building opportunities we
provide for young talent across our engineering
disciplines and wider functions. We continued to
support the university, participating in initiatives
such as the AUS Environmental Day, the
College of Engineering Senior Design Projects
Competition, the Institute of Electrical and
Electronics Engineers (IEEE) UAE Student Day,
and the annual Alumni Association event.
Making a significant contribution
to public finances
Through the taxes we pay, Petrofac makes a
significant contribution to the public finances of
the local economies in which we operate.
The total amount paid to governments in 2023
was US$149 million, comprising corporate
income tax, employment taxes, and other forms
of tax and social security contributions.
Environmental, Social and Governance continued
Creating value in Lithuania
Built by Lithuanians
For the Orlen project, where we have
adopted the slogan ‘Built by Lithuanians’,
all major contracts have been awarded
to local suppliers, and in-country
sourcing accounts for around 85% of
ourtotalspend.
64
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
In 2023, we initiated the updates to our Labour
Rights Standard and Social Performance
Standard and associated guidelines to include
enhanced implementation and monitoring
processes, guidelines, and tools. We also worked
to increase engagement and awareness on
the subject among employees responsible for
social performance and grievance management
and increased our support for subcontractor
representatives to enhance their respective labour
rights awareness, performance monitoring, and
grievance management systems.
Evaluating our performance
Each year, we assess our operations for human
rights issues and take a risk-based approach
to addressing any incidents of modern slavery
related to forced and bonded labour, worker
welfare infringements, and other labour rights
abuses. This review is detailed in our annual
Modern Slavery Statement, published in
accordance with the UK Modern Slavery Act
2015, which outlines the steps taken in respect
to human rights. This can be found on our
website at petrofac.com.
Labour rights due diligence screening is an
integral part of our approach to supply chain
management. To prequalify as a Petrofac
supplier, all companies must undergo mandatory
human rights and labour rights due diligence
screening, and are required to read and commit
to Petrofac’s Labour Rights Standard.
In addition, all prospective suppliers are
screened for human rights issues using a
cloud-based platform provided by Dow Jones,
and clauses requiring compliance with Petrofac’s
Labour Rights Standard are included in all
purchase orders and in the general terms and
conditions of supplier contracts.
When identifying new suppliers, we promote
early engagement and encourage them to
undertake screening on registration, ahead
of prequalification. In 2023, we enhanced the
labour rights due diligence screening, and the
number of new and existing suppliers within
the E&C and Asset Solutions business units
that were positively screened and approved
reached 38% (2,401 out of 6,343), up from
36%(1,911out of 5,349) in 2022.
We also review compliance with our standards
through our audit, review, and inspection
programmes. If any issues are identified, we
work collaboratively with third parties to support
improvement plans.
During the year, there were no incidents of
modern slavery or human rights violations
reported through our auditing or internal incident
reporting mechanisms. However, we did become
aware of some potential labour rights issues
among our supply chain partners, primarily
involving delayed salary payments and benefits,
and the matters brought to light were proactively
addressed. In all instances, we mediated between
our supply chain partners to facilitate solutions,
monitoring the situation until it was resolved.
Conducting in-depth audits
We conduct periodic in-depth human rights
audits of our EPC project sites to assess worker
welfare conditions and identify any labour rights
concerns. Carried out as part of our business
assurance programme of HSEQ audits and
conducted by the corporate sustainability team,
these include:
• Inspecting accommodation – we visit
accommodation camps to check that
all workers (who are typically employed
by subcontractors) have dignified living,
sleeping, leisure, and sanitation facilities.
Ifwe have concerns, we follow-up with the
subcontractors, and raise action-trackers
untilthey are resolved.
• Interviewing workers – interviews are
conducted on a random basis, covering the
entire spectrum of the workforce, to assess
and ensure that welfare and human rights are
being respected. Any findings or grievances
are investigated, and we work collaboratively
with our subcontractors to resolve them.
• Assessing the impact on local
communities – we aim to understand
the impact that our operations may have
on local communities, including noise and
nuisance and the influx of workers. Regular
community engagement is established with
Community Liaison Officers and community
representatives. Any grievances are
investigated, and we work with the relevant
parties to resolve them.
In 2023, these audits revealed a lack of
consistency in the way human rights issues
are perceived and lower than expected levels
of awareness among some onsite teams,
and recommendations were provided to the
respective leadership teams.
Maintaining project
grievanceprocesses
At each project site, we operate grievance
processes, which are designed to be transparent
and accessible, and based on engagement
and constructive dialogue. Workers can raise
complaints and suggestions for improvement
both anonymously and in person, and we
engage with all parties to support the fair and
prompt resolution of any issues raised. We
continued to work to raise awareness of these
grievance systems and how to access them.
Giving a voice to workers
In order that all onsite workers feel comfortable
with raising formal grievances, we continued
to elevate the role of project Worker Welfare
Committees. The committees represent an
important component of our commitment
to labour rights and a vital communications
channel with the wider workforce. We worked
to ensure that regular meetings – at least
monthly – are held, that workforce groups are
fairly represented, and an effective dialogue is
maintained between all parties. Also, regular
townhall sessions are conducted by site
project management teams to engage with
thewiderworkforce.
Human Rights
Respecting human rights across
our supply chain
We strive to protect and respect
human rights throughout our business
operations and extended supply chain.
Our commitments are set out in our
Code of Conduct, and we work in
accordance with our Social Performance
Framework, the UN Guiding Principles
on Business and Human Rights, and
the Fundamental Conventions of the
International Labour Organization.
We are also proud of our long-term
commitment to the United Nations
Global Compact and disclose annually
our progress against its Ten Principles.
However, we acknowledge that the
nature of our global operations and
the type of geographies we work in
at times present human rights risks.
Our main exposure is in the extensive
supply chains of our large EPC projects,
particularly the labour practices of
subcontractors and the recruitment
agents and intermediaries they use.
65
PETROFAC LIMITED | Annual report and accounts 2023
Environmental, Social and Governance continued
Why this is
important
to our business
model and strategy
governance
Links to the SDGs
Responsible governance and ethical business
practice are critical considerations for Petrofac.
As a key stakeholder and a significant part
of the supply chain in the industries and
countries in which we operate, we must
uphold the highest standards of integrity and
transparency, and consistently earn the trust of
clients, governments, partners, and the wider
energyindustry.
We therefore recognise the responsibility and
opportunity we have to enable and embody
ethical behaviours. We take this commitment
seriously and continue to invest in our people
and processes to ensure that we live up to it.
66
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
2023 95.4%
2023 111
2022 95.1%
2022 118
2021 98.5%
2021 125
2023 25
2023 98.0%
2022 33
2022 98.5%
2021 41
2021 97.2%
2023 1,209
2023 29
2022 752
2022 27
2021 1,449
2021 39
Our performanceHighlights
Speak Up reports continue to indicate a
more transparent Speak Up culture, in
line with market practice.
98% of employees with line
management responsibility completed
mandatory Code of Conduct e-learning.
Proportion of employees who completed
mandatory e-learning (Share Dealing Code,
Standard for the Prevention of Bribery &
Corruption, Code of Conduct)
Alleged breaches of the Code of Conduct
reported via Speak Up
Number of employees facing discipline or
dismissal following substantiated allegations
Proportion of employees with line
management responsibility who completed
mandatory Code of Conduct e-learning
Number of employees attending training
conducted by the compliance team (Code of
Conduct, trade compliance, investigations)
Number of substantiated allegations
67
PETROFAC LIMITED | Annual report and accounts 2023
Our approach to compliance is also backed
by an unequivocal Code of Conduct and
clearly codified behaviours and values, and its
importance to Petrofac is demonstrated by
the frequent delivery of clear and consistent
messages from all tiers of leadership.
To help us monitor our performance and
scrutinise our approach, we retain the services
of specialist legal and compliance advisers to act
as a key part of our assurance processes.
Ensuring our approach is efficient,
effective and proportionate
In 2023 we conducted a detailed review
of our compliance regime to ensure that it
remains efficient, effective and proportionate.
We scrutinised related policies, controls and
procedures, and made a number of refinements
which are due to be rolled out in 2024. We also
began the process of certifying our systems
and processes against ISO 37001 (Anti-Bribery
Management Systems).
Continuing to embed a compliance
ethos across the Group
To ensure that everyone who works with and
for Petrofac is aware of our Code of Conduct,
we continued with our ongoing training and
communications programmes.
Everyone at middle management levels and
below is required to complete a Code of
Conduct e-learning module annually. We also
distribute a quarterly Lessons Learned bulletin
to all employees, drawing on reported breaches
of our Code of Conduct, how they have been
addressed, and guidelines for how to behave in
challenging or ambiguous situations. Meanwhile,
to complement the communications and
frequent messaging from the senior leadership,
wecontinued to focus on fostering more
openness among middle managers and their
direct reports, especially those working in
higher-risk roles and locations.
In previous years, all employees were expected
to complete an annual declaration confirming
their compliance with the Code of Conduct. To
enhance our approach, we decided to migrate
to a more active and engaging process, involving
a Code of Conduct refresher module, scheduled
for launch in early 2024.
Ethical behaviour
and compliance
Over recent years, we have put
significant effort into reinforcing
the importance of ethical
behaviour to our people and
have invested considerably
in our related teams, systems
and processes.
We operate a three lines of defence
structure – comprising rigorous
management, strong governance,
and independent assurance. This
ensures that ethical behaviour and
compliance are topics which receive
consistent attention, enhancement
andcontinualimprovement.
Environmental, Social and Governance continued
Encouraging more people to Speak Up
It is vital that everyone working with and for
Petrofac can raise any concerns they might
have, without fearing retaliation, and have the
option to do so anonymously.
The ongoing priority is to encourage more
open reporting of any suspected breaches of
the Code of Conduct. This entailed ongoing
training, again targeting middle-level managers,
to promote a strong and healthy Speak Up
culture, reinforced by a top-down cascade to
all employees on the importance of speaking
up. Our compliance teams also visited Petrofac
offices in Mumbai, Kuala Lumpur, Aberdeen and
Lithuania to deliver town hall sessions, provide
face-to-face training, engage with the leadership,
and encourage open conversations about risks,
ambiguities, and raising concerns.
1.
Leadership
and people
2.
Processes
and controls
3.
Assurance
Three lines of defence
Each line in our defence system includes
a feedback loop that informs improvement
68
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Continuing to focus our
investigationsfunction
We see the investigations function as a critical
part of our compliance programme. Whenever
concerns are reported, we respond to them
promptly and investigate them objectively and
independently. We therefore ensure that whoever
reports a concern is kept abreast of the outcome
and that recommended actions are implemented
in a timely manner.
We also regard an investigation as an
opportunity to engage in a dialogue with
everyone involved. In this way, we are able to
equip line managers with the tools they need to
identify high-risk situations, and ensure that their
teams remain mindful of the related sections of
the Code of Conduct.
The investigations function is monitored against
several key metrics – including the time-to-close
of each case.
Enhancing our due diligence processes
and controls
Through our due diligence processes, we
want to be sure that suppliers and prospective
suppliers understand and abide by our
expectations, including our Code of Conduct.
Equipped with a new cloud-based due diligence
platform, operated by Dow Jones, we conduct
real-time monitoring of all registered suppliers
and can respond immediately to any concerns
flagged by the platform. As well as mitigating
counterparty risks, this helps us to extend our
local delivery model, by identifying locally based
suppliers, and supporting their onboarding.
As part of the review of our wider compliance
regime, we looked to improve the due
diligence experience for our own teams and
for suppliers by simplifying and rationalising
thequestionnaires we use, and setting a
targetof five working days for all reviews.
Adapting to the new
geopoliticalenvironment
Given the challenging geopolitical environment,
our compliance teams ensured that Petrofac
complied with the rapidly evolving sanctions
andrelated regulations.
Continuing priorities for 2024
For 2024, the priority is to build on recent
achievements and continue to nurture a culture
of openness and transparency. We need the
compliance team to be integrated closely into the
way the business works, for our delivery teams to
view them as trusted advisors, and for all related
processes to be user-friendly as well as effective.
We will also need to be reassured that all our
people feel comfortable discussing our Code
of Conduct, and all tiers of management
understand the right ways to engage in these
discussions and, where appropriate, to escalate
the outcomes.
Tax transparency
Petrofac is committed to ensuring compliance
with the tax laws and regulations of the
countries where we operate. We have an
open, cooperative and collaborative working
relationship with tax authorities.
Our Tax Strategy and Tax Policy explain
howweapproach the management of our
tax affairs (these are available for download
atpetrofac.com).
The total amount that we pay in taxes is not
limited to the corporate income tax disclosed
within the financial statements. It also includes
employee and employer taxes and social security
payments, VAT and sales taxes, and other taxes
such as withholding, property and other indirect
taxes. The total amount paid by Petrofac to
governments worldwide includes those taxes
which are borne by Petrofac, as well as taxes
collected by Petrofac, but which are recoverable
from tax authorities or clients andsuppliers.
We report our taxes paid and collected on a
cash basis, except for VAT and sales taxes,
which are shown on an accrual basis. We
believe this is the most meaningful way to
demonstrate our annual tax contribution.
69
PETROFAC LIMITED | Annual report and accounts 2023
Risk management
Our risk management framework provides us
with a consistent approach to identify, manage
and oversee the risks that may impact our
business and is designed to underpin the
Group’s longer-term sustainability. Based on the
principles and guidelines of BS ISO 31000:2018
Risk Management, our framework encompasses
the policies, standards, procedures, culture,
behaviours, organisational design, systems
and other aspects of the Group that, taken
together, enable Petrofac to operate effectively
andefficiently.
Governing our risk
managementframework
Petrofac’s system of risk governance comprises
several committees and management processes
that bring together reports on the management
of risk at various levels.
The Board has overall responsibility for risk
management, which includes establishing
the Group’s risk appetite and its enterprise
risk arrangements, and ensuring we have an
effective risk management framework in place.
The Audit Committee has been delegated the
responsibility of monitoring and reviewing the
integrity and effectiveness of the Group’s overall
risk management and internal control systems.
The Audit Committee primarily, but not solely,
uses the processes and reports outlined below
for evaluating the Group’s risk management and
internal control activities:
• Principal Risk Report identifies and
assesses the principal risks and emerging
risks facing the Group, outlines how these
aremanaged, reviews the effectiveness of
relevant controls and monitors exposures
withrespect to our risk appetite.
Coupledwith updates from the Group Chief
Executive, Chief Financial Officer and the Group
Risk Team, this report is submitted quarterly
and is considered at both Committee and
Board level throughout the year. A summary of
this Report is provided on pages 72 to 77.
• Management Reports for various principal
risks are submitted, either to the Board or
to one of its Committees whose area of
expertise best aligns with the risk area under
consideration. The goal is to enhance the level
of oversight for each principal risk. The relevant
Committee is responsible for reviewing the
status of each principal risk, seeking information
on controls and processes and considering
mitigation and management strategies.
Following its review, each Committee provides
feedback to the Audit Committee and to the
Board for discussion andrecommendations.
• Control Self-Assessment certificates are a
way for management to review and maintain
adequate internal controls. These certificates are
completed by each function and business unit
to check and assure the adequacy of controls
and disclose any reportable weaknesses in the
control environment. They are consolidated to
confirm the extent to which the internal controls
have operated effectively throughout the year.
Further reviews are performed by the Internal
Audit team, and the Audit Committee receives
regular updates from the Head of Internal Audit
on the effectiveness of the internal controls.
In addition to these activities, reports are
submitted to the Audit Committee by our internal
and external auditors. In reviewing each of the
submitted reports, the Committeeconsiders:
• How effectively risks have been identified
• How they have been mitigated and managed
We operate in challenging environments
and understand that risks are an inherent
part of our business. Identifying and
managing risks and opportunities is key to
the successful delivery of our strategy.
Our industry knowledge and insight,
coupled with the right set of tools and
processes, help us understand the factors
that lead to risk, and enable us to manage
themeffectively.
Risk governance framework
Board
• Sets risk appetite
• Approves principal risks
• Reviews and approves significant
opportunities
Audit Committee
• Reviews principal risks, emerging risks
and risk appetite
• Provides assurance on risk management
and internal controls framework
Executive Team
• Oversight of the Enterprise Risk
Management Framework, including
the principal and emerging risks and
riskappetite
• Reviews and recommends significant
opportunities
Divisional Risk Review Committees
• Divisional management oversight and
review of opportunities
Service lines
• Risk management is embedded within
each service line
Group functions
• Assurance to management, the Audit
Committee and the Board
Divisional
Risk Review
Committees
Executive
Team
Service
lines
Group
functions
Board
Audit
Committee
Internal
Audit
70
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
• Whether appropriate and prompt action
is being taken to remedy any failings
orweaknesses
• Whether the cause of the failing or weakness
was the consequence of poor decision making,
a need for more extensive monitoring, or a
reassessment of process effectiveness
These considerations are intended to provide the
Audit Committee with a balanced assessment of
the Group’s principal risks and the effectiveness of
the systems of internal controls. During 2023, the
responsibilities of the Group Risk Committee were
transferred to the Group Executive Committee to
help streamline risk governance. This alignment
ensured a leaner, more efficient governance
structure, with more effective and productive
useof senior management time.
The Group Executive Committee is therefore
responsible for the effective operation and
oversight of the risk management framework,
as agreed by the Board, including the review
of Group policies and the management of the
Group’s DelegatedAuthorities.
The Group Executive Committee meets regularly
to discuss safety, compliance, operational,
commercial and financial matters, with changes
in risks and opportunities being identified and
addressed as appropriate.
The diagram on page 70 sets out the
risk governance framework, showing the
interaction between the various risk review
andmanagementcommittees.
Identifying and managing our risks
The Group’s divisions and functions conduct
regular risk assessments and the risk information
from these is consolidated into our principal
risks. Emerging risks are identified as part of
the business planning cycle, with a view to
considering those risks that may have a material
impact beyond the planning horizon.
The list of principal and emerging risks is reviewed
by the Group Executive Committee, endorsed
by the Audit Committee and approved by the
Board. Once approved, each principal risk is
categorised and assigned to an executive owner,
who is accountable for coordinating the risk
assessment, reviewing the adequacy of relevant
internal controls, establishing a response plan and
reporting.
Depending on the category of the risk, the
Assurance team may be engaged to devise and
support an effective assurance programme. The
Board may also appoint a relevant Committee to
enhance the level of oversight.
We assess the materiality of each principal risk
and aim to contain them within the context of
our risk appetite framework. Our risk appetite
statements are established in three layers:
• The first layer aligns with Petrofac’s vision,
purpose, business model and strategy
• The second layer ties into the business plan
through overall risk indicators
• The third layer operationalises the previous
layers through specific statements and
indicators relevant to each of our principalrisks
The Board and the Group Executive Committee
jointly govern all significant new business
opportunities and projects (including bid
submissions, new country entries, joint
ventures, investments, acquisitions and
disposals) and provide direction as to the
management and mitigation of any related risk
exposures. Proposals are only presented to
the Group Executive Committee after being
reviewed and supported at divisional level.
Based on the recommendations of the Group
ExecutiveCommittee, the Board then has
responsibility for approving or declining any
high-risk opportunities.
Enhancing our risk management
framework
In 2023, the business significantly strengthened
the second line of defence controls with
the introduction of an enhanced Assurance
function. The new team was formed, alongside
the appointment of a new Group Head of
Assurance.The Assurance team have engaged
with all key business stakeholders via a series
of discovery sessions in order to complete a
gap analysis inrespect of operational risks
andcontract portfolio oversight.
This review focused on enhancing existing
controls and processes with further improvements
to ensure the Group’s overall governance
framework was appropriate and effective. The
newly enhanced Value AssuranceFramework:
• enables early identification of risks and
mandates stakeholder involvement
throughoutthe project lifecycle; and
• provides an independent perspective
on project and portfolio performance,
instilling the Executive team with greater
confidence regarding project health and
businessperformance.
Progress was also achieved in integrating
and enhancing the alignment of contract and
portfolio level risk assessment procedures, via
enhancements in the second line of defence
controls and risk management assessments.
We will continue to further develop these areas
during 2024.
Risk management process
Integration with key
business processes
• Delegated authorities
• Strategic planning/budgeting
• Treasury/financial planning
• Stage-gate reviews
• Project controls and management
• Procurement and vendor
management
• Business continuity and
crisis management
Alignment with assurance
functions via principal risks
• Compliance
• Value assurance
• Financial control
• HSE
• Cybersecurity
Communicate and consult
Assurance
Company values and culture
Enterprise Risk Management system (and other tools)
Leadership, communications and engagement
1.
Risk
identification
2.
Risk
assessment
3.
Risk
treatment
4.
Risk
monitoring
5.
Risk
reporting
71
PETROFAC LIMITED | Annual report and accounts 2023
Principal risks and uncertainties
Risk appetite
Risk appetite measures
Sub-risks
Assessment Mitigation and managementRisk
Risk category: Strategic
Link to our strategy: Return to growth
Adverse geopolitical and
macro-economic changes
in key geographies
The impact of adverse geopolitical changes
in our key geographies includes risks to
the successful delivery of our strategy,
our operations and associated impact
on margins, the safety of our people,
security issues, material logistics and
travel restrictions. The Group’s backlog is
concentrated in emerging markets, which
may increase our vulnerability to adverse
geopolitical events.
– We actively assess risks associated with geopolitical
changes in our key geographies, and we have
appetite for more risk in this area where we have the
experience of managing it.
– Where we operate in countries that have high or very
high geopolitical risks, we actively monitor risks
associated with geopolitical events and have plans in
place to support the ongoing delivery, or suspension,
of our business in each country.
The Group Executive Committee and the Board actively monitor
geopolitical developments and seek to avoid or minimise our exposure to
jurisdictions with risk levels beyond our appetite. A detailed risk analysis
is conducted before entering any new country and while pursuing and
executing projects in new geographies.
We have good experience in project execution and maintain positive
relationships with key stakeholders. Careful consideration is given to
contractual terms and security conditions through our detailed risk
review process, and we seek external advice on specialist issues
asrequired.
The delivery model is modified to suit each project and we limit exposure
to single sources of supply and service. We limit our fixed asset
commitment within each contract and closely monitor and manage our
cash flow andcommitments.
Our Business Continuity Management System considers response
to and recovery from geopolitical incidents. There is also continued
focus on evacuation and emergency response. Our operations are
assessed and executed in accordance with our Security Policy and
SecurityStandards.
In 2023, we continued to evaluate any residual impact of the ongoing
situation in Ukraine, and the new developments in the Middle East
region. This involved keeping our people and operations safe, ensuring
we remained compliant with sanctions, and carefully monitoring the
global supply and logistics scenario.
– Cash flow exposed to geopolitical risk
Sub-risks are specific to
each country where we
operate based on scenarios
triggered by various threats
such as:
– Political conflicts
between countries
– Civil unrest
– Recession and
fiscalstress
– Increased controls over
trade and payments
For more information see | Pages 10-19, 22-25
INCREASED
There was an increase in our risk
profile. This was primarily driven
by the October 2023 attacks in
Israel and the subsequent conflict
which triggered significant
military activities in this region.
Consequently, increased tension
in the wider Middle East region
has been observed and the risk of
further escalation remains. Whilst
the impact from the continued
conflict between Russia and
Ukraine has reduced and our
exposure to these countries is
very low, commodity escalation
and new sanctions unsettled
markets and created new
compliance requirements for
theGroup.
Based on the above, it is possible
in the coming months there could
be some impact in the markets
affecting commodity prices and
logistical routes, which will need
to be carefully monitored.
The Group’s principal risks were reviewed and revised at the end of 2023, drawing on feedback
fromthe business, Executive team and the Audit Committee.
During the year no new emerging principal risks were identified.
As of the start of 2024, the Group’s current principal and emerging risks are outlined below:
Risk Category Principal/Emerging Risk
Strategic Risks Adverse geopolitical and macro-economic changes in key geographies
Low order intake
Failure to deliver strategic initiatives
Failure to deliver energy transition strategy
Operational Risks Operational and project performance
Insufficient IT resilience
HSE incidents
Financial Risks Loss of financial capacity
Misstatement of financial information
Legal & Compliance Risks Breach of laws, regulations and ethical standards
People Risks Inadequate leadership and talent management
72
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Risk appetite
Risk appetite measures
Risk appetite measures
Sub-risks
Sub-risks
Assessment Mitigation and managementRisk
Risk category: Strategic
Link to our strategy: Return to growth
Low order intake
The risk is that our clients exercise capital
discipline, which impacts the demand for
our services through the cancellation or
delay of planned investments. The potential
impact is that the Group could fail to deliver
its anticipated backlog and growth targets.
The Group wins most of its work
through a competitive bidding process,
and as competition increases, there
is a risk that we could fail to maintain
differentiatedmargins.
– We pursue opportunities consistent
with our strategic focus and core
competencies, and expect to secure
a diversified portfolio in order to
de-risk adverse events in our
coremarkets
– We have appetite for more risk
provided we review each
opportunity, taking account of its
respective risk profile and putting in
place relevant controls to
adequately mitigate risks to the
planned execution strategy. We do
not enter, or will exit, an opportunity,
if we cannot ensure compliance with
laws and regulations, execution
quality or the safety and security of
our people orreputation.
Our order intake is driven by
our strategy, the development
of which is overseen by the
Board. Our service lines work
together to identify, review and
win opportunities. We regularly
analyse our business development
activities, bid-to-win ratios, and
ourcompetition.
In 2023, we continued to focus on
addressing evolving client needs in
areas such as increased in-country
value and improved sustainability
performance. We further enhanced
our competencies in energy
transition, securing contracts
withkeycustomers.
We see a healthy and diverse
pipeline of bidding opportunities in
the coming years across markets
and geographies.
– Book-to-bill ratio
– Oil and gas industry downturn
– Loss of key markets due to
geopolitical/litigation/
budgetaryconcerns
– Increased competition in our core
geographies/sectors
– Reduced bidding competitiveness
– Global events and subsequent
impact on investments
For more information see | Pages 10-19, 22-25
DECREASED
The decrease in the principal risk was due
to the significant level of new contract wins
secured in the year, including the first two
contracts awarded under the six-project US$14
billion multi-year Framework Agreement with
TenneT in support of their 2GW programme.
In addition, the E&C division secured three
major contracts with ADNOC in the UAE and
Sonatrach in Algeria, and an additional contract
in Lithuania with Orlen Group.
Furthermore, Asset Solutions secured a series
of contract renewals and new work resulting
in total annual book-to-bill of 1.1x in 2023.
As a result, the Group’s backlog increased
to US$8.1 billion (2022: US$3.4billion).
Furthermore, the outlook remains positive,
mainly driven by new investments being
undertaken by customers in both the
conventional energy and energy transition
sectors, and good visibility of the pipeline
for2024 and beyond.
– Failure to maintain cost competitiveness
– Failure to deliver functional excellence
– Failure to rebuild backlog
– Failure to deliver client-centricity strategy
Risk category: Strategic
Link to our strategy: Best-in-class
delivery and
Return to growth
Failure to deliver
strategicinitiatives
Each of our strategic priorities is supported
by various strategic initiatives that are
overseen by senior management and the
Board. To build enterprise value, we ensure
each initiative is de-risked and respective
success targets are met, assuring all
stakeholders that we are pursuing an
appropriate strategy capable of delivering
shareholder value. The impact is reflected
in the appetite from new investors and,
consequently, the market valuation of
theGroup.
– We have limited appetite for risks affecting our strategic
initiatives, although we recognise that the delivery of these is
also a function of market dynamics. We identify and
adequately mitigate the risks to each initiative, having some
appetite to be flexible over the timing of their delivery.
– Initiative impact (cost and value) and schedule targets
– Initiative-specific success goals
For more information see | Pages 6-7, 10-25
NO CHANGE
We made progress
across all our
strategic initiatives,
and the risk
remained stable
during 2023.
Each strategic initiative is governed by a stage-gate process and overseen
by the Group Executive Committee. The Board regularly assesses our strategic
initiatives and overall strategic plan to satisfy itself that the right balance of risk,
capability, and reward is maintained. We conduct detailed sensitivity analysis to
assess the robustness of our plans.
The Group Executive Committee reviews all material new business
opportunities and projects, new country entries, joint ventures, investments,
acquisitions anddisposals.
In a challenging environment, we continued to deliver our key strategic
initiatives in2023.
Key achievements for the year included:
– Rebuilt a large, high-quality order backlog
– Good progress in completing legacy contracts and resolving open
contractual discussions
– Adjusted the operating model and made key strategic hires to ensure
appropriate leadership support and project governance
Risk appetite Assessment Mitigation and managementRisk
73
PETROFAC LIMITED | Annual report and accounts 2023
Principal risks and uncertainties continued
Risk appetite
Risk appetite
Risk appetite measures
Sub-risks
Assessment
Assessment
Mitigation and management
Mitigation and management
Risk
Risk
Risk category: Strategic
Link to our strategy: Best-in-class
delivery and
Return to growth
Failure to deliver energy
transition strategy
Due to climate change and the energy
transition, our markets are changing, and
the portfolios of our clients are going
through a major transformation. Our
new energy transition delivery unit was
established to respond to this change, and
the Group has outlined a medium-term
ambition for 20% of revenue to come from
this sector. An inability to meet changing
market needs will limit our future growth
and would hinder our commitments with
regards to our response to climate change.
– We are willing to be exposed to more risk in the
energy transition sectors, and recognise that lower
margins are to be expected as we seek growth.
Petrofac’s energy transition projects focus on five clearly defined
segments of the market, namely offshore wind, CCUS, hydrogen, waste-
to-value and emissions reductions where we have a strong track record
and relevant experience. The growth will be facilitated by: partnering
in relevant technologies and with established developers; monitoring
relevant government policies; and supporting the energy transition delivery
unit with technical expertise to successfully execute and deliver energy
transitionprojects.
In 2023, we:
– Further developed our strategic partnership with Hitachi Energy in
offshore wind, securing the first two contracts awarded under the
six-project US$14 billion multi-year Framework Agreement with
TenneTin support of their 2GWprogramme
– Successful in securing strategic early-stage contracts in HVAC
offshore wind, CCS, hydrogen and waste-to-value sectors aligned to
our energy transition strategy
– Engagement with European fabrication yards to explore potential
partners to support future HVAC contracts and onshore modular
energy transition projects
– Continued improvements in our ESG performance, as demonstrated
by positive ESG ratings (e.g. AA rating from MSCI)
– Short and medium-term growth forecasts
– Inability to secure strategic technical and
deliverypartnerships
– Adverse changes to/delays in implementation of
government policies
– Client risk allocation requirements driven by funders’
conditions (terms and conditions)
– Failures/resource constraints in our supply chain
– Failures in delivery and execution of energy
transitionprojects
For more information see | Pages 6-7, 14-15, 22-25
DECREASED
The risk decreased in 2023
due principally to the first
two contracts secured (with
a value of approximately
US$2.8billion) under the six-
project US$14billion multi-year
TenneTFramework Agreement
and the ADNOC Habshan CO
2
award. Also, good progress
made in carbon capture sector
with early engineering awards
for CCS projects for offshore
pipelines, cement and energy
from waste emitters.
– Project execution
– Operation of assets
Risk category: Operational
Link to our strategy: Best-in-class
delivery and
Superior returns
Operational and
projectperformance
Our portfolio typically includes a relatively
small number of high-value contracts, a
larger number of lower-value contracts, and a
sizeable oil and gas asset. Cost or schedule
overruns on any of the high-value contracts,
or operational issues affecting production
within our key assets could negatively impact
the Group’s profitability, cash flow and
relationships with keystakeholders.
– We have limited appetite for risks affecting
execution of our portfolio. Portfolio margins
will be maintained to support the delivery of
our target total shareholder return relative to
our global peers over the cycle.
– Division-level cash flow and EBIT
For more information see | Pages 6-7, 12-21, 78-85
INCREASED
Project and operational challenges continued
during the year, as the small number of projects
and the legacy portfolio continued to be executed
andcompleted.
A difficult commercial environment resulted in
write-downs of receivables and an increase in
legacy project losses as a result of clients not fully
reimbursing – or expected to reimburse – costs
incurred or to be incurred on Covid-19 pandemic-
affected projects (see Segmental Overview on
pages78-85).
Project delivery was also adversely impacted by the
increased difficulty in securing project guarantees,
with the tightening of the overall guarantee market
also contributing to this increased challenge (see
separate sub-risk within Loss of Financial Capacity
onpage 76).
Key risks to project delivery are initially identified at the
tender stage, through the risk review process by relevant
risk review committees and escalated to the Group
Executive Committee or the Board, as required. On award,
detailed execution strategies are further developed. During
the execution phase, emerging risks and opportunities
are managed through assurance, operational and project
reviews. Lessons learned are cascaded through leadership
lines and our quality initiatives are focused on a right-first-
time approach.
In 2023, we continued to embed our technical support
functions, ensuring the value assurance framework was
integrated to govern all aspects of project delivery across
our operations. We also engineered solutions to emerging
production risks in IES, project recovery plans were
maintained, and project delivery remained a significant area
of focus for the Executive team and the Board throughout
the year.
Risk appetite measures
Sub-risks
74
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Risk appetite
Risk appetite
Risk appetite measures
Sub-risks
Assessment
Assessment
Mitigation and management
Mitigation and management
Risk
Risk
Risk category: Operational
Link to our strategy: Best-in-class
delivery
Insufficient IT resilience
The Group’s performance is increasingly
dependent on the ongoing capability and
reliability of our IT platforms. We (as with
all companies) continue to be exposed to
external cybersecurity threats.
– We will manage our IT infrastructure to
ensure the security of confidential
information and the availability of our
critical systems is not compromised
– We have some appetite for risks to our
IT infrastructure and cybersecurity that
do not impact services provided to our
clients or deteriorate the effectiveness
of key controls
We operate a Group-wide cybersecurity programme and
have a cloud strategy to maintain a resilient ITplatform.
In 2023, we continued to improve our IT
resiliencythrough:
– The successful implementation and migration from
an on-premises EBS system to a cloud-based Oracle
ERP system for Asset Solutions and E&C
– Adding artificial intelligence (AI) capabilities to our
cybersecurity controls
– Continuing to run regular vulnerability assessments,
penetration tests and Red Team exercises
We continued to align our information security
management practice with the ISO 27001 standard
andother best practices.
In 2024 cybersecurity remains a key priority in all our
digitalisation initiatives, and we will continue our journey
of continuous improvement in cybersecurity practices
and protections.
– Number of significant cyberincidents
– System resilience and access
– Removal of legacy systems
– System breach due to malwareattack
– Unavailability/loss of data due to inadequate response/recovery
– Cyber attacks
– Network unavailability due to end-of-life devices
– Compromise of user accounts through phishing and social engineering attacks
– System unavailability due to legacy and unsupported applications and
serverinfrastructure
– Operational technology breach leading to operational disruption
For more information see | Page 57
NO CHANGE
The risk remained
stable during 2023.
Risk category: Operational
Link to our strategy: Best-in-class
delivery
HSE incidents
There are several factors that could impact
our ability to operate safely. These include
safety and asset integrity risks and they
extend to a range of environmental risks.
The risk is the potential harm to our people,
and the commercial and/or reputational
damage that could be caused.
– Oil spills/gas leaks
– Integrity failure
– Loss of well control
– Driving accidents
– Fall from heights/lifting accidents/
accidents during commissioning
– Contractor/JV partner/client with
inadequate HSE standards/controls
– Threats to security of our staff
– Threats to employee health and wellbeing
For more information see | Pages 34-37, 56-58
– We have no appetite for activities that do
not meet our Horizon Zero vision
– Number of projects/assets at risk
– Total recordable incident rate
NO CHANGE
Despite some high-
potential incidents,
including a fatality
within our contracting
community in the
year, the risk remained
stable in 2023 and
was mitigated by the
continued enhancement
of our new HSEstrategy
implemented in2022.
Safety is fundamentally important and intrinsic to Petrofac’s behavioural DNA. It is governed
largely by our operating framework, Group policies and systems that cover all elements of
occupational health and safety, security, environmental and asset integrityprogrammes.
In 2023 we improved on an already strong HSE performance with further enhancements to
the updated HSE strategy implemented in 2022. Key achievements for the year include:
– Increased focus on the Thai Oil Clean Fuels site where the fatality in our contractor
community took place with leadership interventions and visits from senior management
across all disciplines, increased HSE support at site delivering ‘boot camp training
onsite and in the classroom’ and contractor interventions to support improvements
– Enhanced leadership visibility and oversight on site performance through site visits and
safety scorecards
– Focus on driving safety in higher risk areas, embedding the use of the GreenRoad app
which gives real-time performance feedback to the drivers and the transport manager
– Collaboration with contractors through annual performance reviews and rollout of
Safety Hotspots at worksites to improve their respective safetyperformance
– Improved engagement with worksites and the use of digital technology, such as the
Petrofac Go observation app, Journey Management Planning app and observation
reporting tool
Details of our HSE strategy, 2023 initiatives and 2024 priorities are outlined on pages 56
and58.
Risk appetite measures
Sub-risks
75
PETROFAC LIMITED | Annual report and accounts 2023
– Inaccurate revenue recognition/cost forecasting
– Breakdown in transactional accounting controls
– Asset carrying amounts exceeding
recoverableamounts
– Breakdown in system access controls
– Inaccurate financial consolidation and reporting
– Inaccurate corporate income tax reporting
Principal risks and uncertainties continued
Risk appetite
Risk appetite
Risk appetite measures
Sub-risks
Assessment
Assessment
Mitigation and management
Mitigation and management
Risk
Risk
Risk category: Financial
Link to our strategy: Best-in-class
delivery
Misstatement of
financialinformation
We execute complex projects in a dynamic
environment across various jurisdictions
with numerous clients. Our business
performance and financial results reflect
our current assessment of assumptions
and financial estimates, however actual
outcomes may vary. These may negatively
impact investor confidence.
– We have no appetite for reporting materially
incorrect financial information
Our Financial Control Framework is designed so that adequate controls are
identified, implemented and monitored throughout all our key financial activities.
Adequacy of these controls is self-certified and reviewed by various assurance
activities and overseen by the Audit Committee.
In 2023, we continued to improve our controls in this area with the ongoing
implementation of a new Enterprise Resource Planning platform, which will be
completed in 2024, in addition to a fully integrated centralised payment hub.
Furthermore, in response to the identified deficiencies in internal controls identified
in the current and prior years, we continued to implement additional assurance
activities. These included enhanced post balance sheet event reviews and specific
verifications that contract revenue and cost forecasts, and consequently the financial
statements, reflected the latest third-party advisor analysis where this had been
provided and enhanced and increased post balance sheet enquiries. The Board and
management are committed to identifying the root cause of such incidents and will
oversee a programme of work to address any cultural, behavioural or organisational
design issues that may have contributed to the incidents.
– Assessment of effectiveness of financial controls
– Reporting errors/restatements
INCREASED
In 2023, control deficiencies
within the business were
identified, following
another incident in 2022.
Management performed
additional assurance activities
to satisfy itself that there were
no other similar occurrences
across the broader contract
portfolio, including additional
procedures performed by
an independent third-party
expert (see Audit Committee
report on pages 115-124).
Overall, the risk was assessed
to haveincreased.
Risk category: Financial
Link to our strategy: Return to growth
and Superior
returns
Loss of financial capacity
Failure to maintain adequate liquidity or
provide guarantees to our customers
could adversely affect our ability to deliver
our strategy and may ultimately result in
financial loss and/or ability to comply with
our financial covenants.
Costs of debt may rise as a result of rating
agency downgrades or reduced access
tofunding.
Access to funding is critical to our
sustainability and future growth. Reduced
access to funding could hamper the
Group’s growth and/or adversely affect
theGroup’s financial performance.
– Failure to maintain adequate liquidity
– Failure to provide guarantees
– We have no appetite for a loss of financial
capacity that results in a failure to meet our
financial obligations as they fall due and
remain solvent, or that impairs our ability to
meet client requirements for guarantees.
– We have limited appetite for financial risks that
arise principally from market risk and credit risk.
– Liquidity
– Credit rating
– Unfunded facilities
For more information see | Pages 86-93
For more information see | Pages 94, 118-124
INCREASED
The risk was assessed to have
increased during 2023, due to the
significant difficulties in securing
performance and advanced
payment guarantees, which
resulted in delays in collecting
progress invoices and advances
on certain E&C contracts, and
therefore significantly impacted the
Group’s liquidity. These guarantees
are critical to the continued
going concern and viability of
thebusiness.
The Group received credit rating
downgrades in late 2023 and2024.
However positively, in late
2023 we secured performance
guarantees (albeit with significant
collateral) for two substantial E&C
contracts awarded in 2023, which
unlocks the release of milestone
and progress payments on
thosecontracts.
As a result of the difficulty in securing guarantees and the resulting liquidity
pressures, the Board appointed Aidan de Brunner as a Non-executive Director
and established a Special Committee in December 2023 (pages 110 to 111)
to undertake a financial and strategic review of the Group, and is currently
progressing a comprehensive Financial Restructure. This seeks to strengthen
the Group’s balance sheet, improve liquidity and secure performance and
advance payment guarantees to support current and future workload.
The successful implementation of this restructure is of critical importance and
further details are on pages 8 and 9.
The Group continues to carefully manage liquidity and its ongoing payment
obligations and we ensure a minimum level of liquidity (as defined by bank debt
facilities financial covenants) in the form of readily available cash, short-term
investments, or committed credit facilities. To assist with this working capital
management, we reduced cash held in joint ventures and in highly regulated
jurisdictions during the year.
Debt, cash and liquidity balances are monitored on a daily basis. We typically
prepare cash flow forecasts on a quarterly basis, aligned to our reforecast
cycle, and rolling cash forecasts on a weekly basis to help manage liquidity
andshort-term forecasting.
Additionally, the Company’s lending banks have agreed to a number of rolling
short-term deferrals of contractual amortisation payments while the Company
progresses the financial restructuring. The Company continues to engage with
its lending banks on extending these deferrals as required.
Risk appetite measures
Sub-risks
76
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Risk appetite
Risk appetite measures
Sub-risks
Assessment Mitigation and managementRisk
– Violation of laws and regulations,
including: Foreign Corrupt
Practices Act, UK Bribery Act,
whistleblower protection, trade
compliance, Modern Slavery Act,
anti-money laundering and
antitrust and competition
Risk category: Legal and
compliance
Link to our strategy: Best-in-class
delivery
Breach of laws,
regulations and
ethicalstandards
Non-compliance with laws, regulations
and ethical standards due to failures in
our compliance controls or unethical
behaviour, including but not limited to
bribery, corruption, money laundering,
trade sanctions and labour rights, may
result in fines and/or adverse impact on
ourreputation.
– We have no appetite for non-
compliance with laws and
regulations
– We expect our direct and indirect
staff and third parties to act
according to the highest ethical
standards and in line with our
Code ofConduct
– Third-party due diligence
– Employee completion of
mandatory compliance
trainingand annual declaration
ofcompliance
– Investigations of Speak Up cases
For more information see | Pages 29,
34-37, 65-69, 125-126
INCREASED
The overall risk level was assessed to have increased in 2023, notwithstanding
the changes and improvements implemented following the SFO investigation,
which concluded in 2021.
Compliance breaches in respect of the financial statements and information
management were identified during the year and are detailed in the Audit
Committee report on pages 115 to 124.
Additionally, the Company appointed external advisors to undertake a thorough
assurance review to check that the steps taken as part of the Group’s exit from
its Russian operations in 2022 and 2023 complied with sanctions imposed from
the end of February 2022 onwards, following Russia’s invasion of Ukraine, had
been effective. Despite the compliance measures put in place by management,
instances of administrative non-compliance were identified and have been
assessed to give rise to a UK enforcement risk. These have been notified to the
relevant authorities and appropriate financial provisions recorded.
The Company has, from time to time over the last four years, received
correspondence from claimant law firms making reference to the possibility
of civil claims in connection with the now concluded SFO investigation
into the Group. Last year, four claimant groups, representing mostly former
shareholders, commenced civil claims against the Company in the UK. The
claimants seek damages under s90A of FSMA 2000, which concerns the
making of allegedly false, misleading or delayed statements and/or material
omissions in its public disclosures. It is possible that further claims could be
made in the future.
The merits, likely outcome and potential impact on the Group of any such
litigation is subject to a number of significant uncertainties (and the litigation
is still in very early stages) and as such, the Group cannot make any reliable
assessment of the likely outcome or quantum of any such litigation as at the
date of this disclosure.
We operate a Group-level Compliance
Programme overseen by the Compliance and
Ethics Committee. We continued to enhance this
programme during 2023, including:
– Streamlining the due diligence process to
focus on the risk-based approach
– Enhancing the gifts, entertainment and
hospitality platform to ensureeffectiveness
– More focus on managing trade compliance
matters and Speak Upinvestigations
Priorities for 2024 will clearly focus on the
ethics breaches identified, and the Board and
management are committed to identifying the
root cause of such breaches, informed by the
findings of the investigations, and will oversee
a programme of work to address any cultural,
behavioural or organisational design issues that
may have contributed to the incidents.
Executive management has also communicated
with the wider organisation about the incidents to
reinforce core expectations in relation to culture
and conduct.
Other priorities include digitalisation of compliance
risk management processes, streamlining third-
party screening risk management strategies,
progressing the Company’s ISO 37001 application
and targeted training in support of new country
entries. Further information on our compliance
programme is provided on pages 66 to 69.
Risk appetite Assessment Mitigation and managementRisk
Risk category: People
Link to our strategy: Best-in-class
delivery
Inadequate leadership and
talent management
Our operations are heavily dependent on
our ability to attract, retain and lead the right
level of skilled and experienced personnel.
Failure to do so could negatively impact our
distinctive, delivery-focused culture, and
prevent us from maintaining our operational
capability and positive relationships
withclients.
– We take a balanced approach towards risks to establishing and maintaining a
talented workforce within the context of prevailing job market economics
– Our leaders live our values and behaviours and operate as one team at all times
We remain confident that our policies to attract,
retain, train, promote and reward our people
are appropriate for the Group, and will enable
us to meet our strategicgoals.
In 2023, we leveraged our new resourcing plan
to meet our future human capital requirements.
These efforts were coupled with further
improvements in our overall benefit structure
and reward and remuneration initiatives.
Pathway Programmes were relaunched and
LinkedIn Learning successfully rolled out to
allemployees.
– Employee morale and engagement
– Overall attrition rate
– Diversity and inclusion targets
– Diversity and inclusion practices
– Leadership to live our values and behaviours
– Retain the capability necessary to deliver
For more information see | Pages 28, 34-37, 59-65, 112-113
DECREASED
The risk has reduced during the
year with a lower attrition rate
and following the introduction
of the new resourcingplan, we
successfully hired approximately
3,000 new employees during
the year, in addition to over
800 internal promotions, in
response to the high level of
newawardssecured.
Risk appetite measures
Sub-risks
77
PETROFAC LIMITED | Annual report and accounts 2023
Segmental overview
overview
Segmental
Engineering &
Construction
Asset
Solutions
Integrated
Energy Services
Group revenue
contribution 2023
5%
Group revenue
contribution 2023
58%
Group revenue
contribution 2023
37%
Headcount at
31 December 2023
3,900
Headcount at
31 December 2023
4,100
Headcount at
31 December 2023
200
OVERVIEW
78
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
2022 1,158
2021 1,111
2023 936
(422) 2023
(45.1)% 2023
2023 1,446
2023 0.1%
2023 2
2023 121
2023 34
2023 28.1%
2022 (restated)
2
1,287
2021 1,952
(62)
2021
(323) (restated)
2
2022 2022 60
2021 74
2022 58
(6) 2021
(25.1%) (restated)
2
2022
(3.2%) 2021
2022 5.2%
2021 6.7%
2022 42.3%
2021 12.0%
2022 137
2021 50
Engineering &
Construction
Asset
Solutions
Integrated
EnergyServices
Revenue (US$ million) Revenue (US$ million) Revenue (US$ million)
Business performance EBIT
1
(US$ million) Business performance EBIT
1
(US$ million) Business performance EBIT
1
(US$ million)
Business performance EBIT margin Business performance EBIT margin Business performance EBIT margin
Revenue EBITDA
1
EBIT
1
US$ million
For the year ended 31 December 2023 2022
2
2023 2022
2
2023 2022
2
Engineering & Construction 936 1,287 (412) (311) (422) (323)
Asset Solutions 1,446 1,158 13 70 2 60
Integrated Energy Services 121 137 90 109 34 58
Corporate, others, consolidation
adjustments and eliminations
(7) (15) (1) (18) (7) (24)
Group 2,496 2,567 (310) (150) (393) (229)
Revenue growth EBITDA margin EBIT margin
%
For the year ended 31 December 2023 2022
2
2023 2022
2
2023 2022
2
Engineering & Construction (27.3) (34.1) (44.0) (24.2) (45.1) (25.1)
Asset Solutions 24.9 4.2 0.9 6.0 0.1 5.2
Integrated Energy Services (11.7) 174.0 74.4 79.6 28.1 42.3
Group (2.8) (15.5) (12.4) (5.8) (15.7) (8.9)
1. Business performance is shown by Petrofac as a means of measuring underlying business performance (see note 4 of the consolidated financial statements).
2. The prior year numbers are restated as detailed in note 2.9 to the consolidated financial statements.
79
PETROFAC LIMITED | Annual report and accounts 2023
Backlog at 31 Dec 23 by country
US$6.1bn
The Netherlands 46% Lithuania 8%
UAE 21% Thailand 4%
Algeria 19% Others 2%
Backlog at 31 Dec 23 by market
US$6.1bn
Energy transition 56%
Petrochemicals 17%
Upstream gas 14%
Refining 12%
Upstream oil 1%
Segmental overview continued
2023 overview
2023 was the strongest period for new awards in
E&C in five years, with backlog more than trebling
in the year to US$6.1 billion (2022: US$1.6
billion). We secured US$5.5 billion of new order
intake split between traditional hydrocarbon and
renewable energy markets. Ofthe US$6.1 billion
backlog, approximately half relates to energy
transition contracts, with the remainder being
hydrocarbon contracts.
Throughout the year we adjusted our operating
model to drive the right leadership focus, project
governance and geographical oversight across
our growing portfolio. These adjustments
were crucial in ensuring that we strengthen
our operational performance and maintain the
successful delivery and execution of projects.
Furthermore, we took steps to strengthen
our business development organisation and
approach, with a focus on driving greater
selectivity in the work that we bid for. Through
a dedicated recruitment initiative, we welcomed
talented new team members at all levels of the
organisation, including the reinstatement of the
graduate developmentprogramme.
2023 was not without its challenges:
• Activity levels were lower in the year, resulting
in a 27% year-on-year reduction in revenue
as the contract portfolio transitions from the
legacy contracts, which are largely reaching
completion, to a portfolio consisting of new
contracts progressing on the initial phases.
Additionally, the liquidity challenges in the
second half of the year impacted progress on
some contracts.
• Securing guarantees for the new contracts
awarded in 2023 has taken longer than
expected, and required the provision of
cash collateral for the first two performance
guarantees secured in 2023, with no
advances. The process is ongoing for the
remaining contracts.
• A tough commercial environment has resulted
in write-downs of receivables and an increase
in legacy contract losses as a result of clients
not fully reimbursing additional costs incurred
on Covid-19 pandemic-affected contracts.
Operational performance
Operationally, we continued progress on the
completion of the portfolio of legacy contracts,
which consisted of eight contracts at the start
of 2023. During the year, two of the projects
reached the completed or substantially
completed milestone
1
. We expect all but two of
the legacy contracts to be completed
1
in 2024.
The two contracts that will continue in execution
beyond 2024 are the Thai Oil Clean Fuels
project and the Orlen Refinery Upgrade project
inLithuania.
Engineering &
Construction
1. Completed and substantially completed contracts: contracts where (i) a
Provisional Acceptance Certificate (PAC) has been issued by the client,
or (ii) transfer of care and custody (TCC) to the client has taken place,
or (iii) PAC or TCC are imminent, and no substantive work remains to be
performed by Petrofac.
ELIE LAHOUD
E&C Chief Operating Officer
The Engineering & Construction (E&C)
division delivers onshore and offshore
engineering, procurement, construction,
installation and commissioning services in
both traditional hydrocarbon and energy
transition markets. Lump-sum turnkey is
the predominant commercial model used,
but we also offer our clients the flexibility
of other models.
The division has more than 40 years’
track record in designing and building
major oil, gas, refining and petrochemicals
infrastructure projects. It also has over 10
years’ experience in delivering HVAC and
HVDC electrical substation projects in the
offshore wind market.
80
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
With respect to the Thai Oil Clean Fuels project,
good progress continues to be made on the
construction phases and we are achieving
our interim milestones. However, additional,
unbudgeted costs have been incurred on this
contract. Through the negotiations with our
clients, alongside our partners, we continue
to seek the reimbursement of additional costs
with the aim of reversing some of these adverse
impacts in future periods.
The initial phases of the new contracts secured
in 2023 are progressing well, including those
for which guarantees are not yet secured. Of
the US$6.1 billion backlog, approximately 90%
relates to new order intake awarded in 2023, with
only around 10% attributed to legacy contracts.
We remain in active discussions with credit
providers to secure the contractually required
guarantees on the remaining new contracts as
well as with the clients of these new contracts
(Financial Restructure, pages 8 and 9).
Energy transition
In offshore wind, Petrofac has over a decade of
experience in designing and building offshore
HVAC and HVDC electrical substations and
partnering with original equipment manufacturers
(OEMs). Petrofac’s expertise in this sector lies
in the construction of offshore wind substations
which are designed and built onshore and
transported to site. In 2023, TenneT awarded
the Petrofac-Hitachi Energy partnership a
multi-year Framework Agreement covering six
projects worth approximately US$14 billion
(ofwhich approximately half of the value will be
attributable to Petrofac) as it expands offshore
wind capacity in the Dutch-German North Sea.
Two platform contracts were subsequently
awarded under the Framework Agreement in the
year and comprise approximately 45% of the
US$6.1billionbacklog.
Petrofac also has experience in delivering carbon
capture utilisation and storage (CCUS) projects
for clients, as well as concept and FEED studies
on prospective future CCUS projects. In 2023,
we extended our portfolio in this field, with a
significant award for the ADNOC CCUS EPC
project in the UAE (see new ordersbelow).
Financial performance
Revenue for the year decreased 27% to US$0.9
billion (2022: US$1.3 billion), reflecting the low
opening backlog and the maturity of E&C’s
legacy contract portfolio, with initial phases
of contracts awarded in the year providing
limited contribution. Full year EBIT was a loss of
US$422 million (2022 restated: US$323 million),
including approximately US$90 million of one-off
write-downs on legacy contracts to protect and
accelerate cash flows. Excluding the one-off
write-downs, E&C had an EBIT loss of US$332
million, driven by adverse operatingleverage and
additional losses on onerous contracts, including
additional unbudgeted costs on the Thai Oil
Clean Fuels project, as discussed above.
The challenges faced in obtaining guarantees for
new contracts has resulted in the provision of
cash collateral of over US$100 million to secure
performance guarantees, with no advance
payment guarantees available to secure advance
payments on these awards. The combination of
these dynamics with delays and reductions in
contract settlements and further cost overruns
has added further challenge to the Group’s
liquidity position. This has been partly offset by
proactive working capital management.
New orders
E&C made significant progress in securing
new awards and rebuilding backlog in our core
traditional markets and with expansion into
tangential markets. By driving greater selectivity
in the work we bid for, we are continuing our
focus on winning high-quality work in jurisdictions
where we have a track record of successful
delivery and with customers we know.
In 2023 this included three major contracts
in our core markets of the UAE and Algeria,
which significantly, were with key clients and
included a re-entry to the UAE, a CCUS project
and our entry into the petrochemical sector,
in partnership with a petrochemical technical
specialist. In addition, we further converted our
potential in the energy transition sector with
the first two platforms under the six-platform
Framework Agreement with TenneT.
ADNOC Gas Habshan, UAE
In June 2023, Abu Dhabi National Oil Company
(ADNOC) subsidiary, ADNOC Gas Processing
awarded Petrofac a US$700 million EPC
project for a new gas compressor plant,
comprising three gas compressor trains and
associated utilities and power systems, at its
HabshanComplex.
This is a significant award for Petrofac in our
home market of the UAE. Petrofac has a long
and strong track record supporting ADNOC in
the UAE, having first established a presence
in the UAE in 1991, with a focus on in-country
value maximising local delivery, investing in the
local supply chain, and developing local teams.
ADNOC Habshan CCUS, UAE
In October 2023, Petrofac was awarded a
second EPC contract by ADNOC Gas for
its Habshan Carbon Capture, Utilisation and
Storage (CCUS) project, one of the largest
carbon capture projects in the Middle East
andNorth Africa region.
MGCP, Oman
Clean Fuels Project, Thailand
Erawin, Libya
Orlen ISBL, Lithuania
Tinrhert EPC 2, Algeria
Orlen OSBL, Lithuania
TenneT #1, The Netherlands
ADNOC Habshan, UAE
STEP, Algeria
Habshan CO
2
, UAE
TenneT #2, The Netherlands
90.1%
82.8%
66.2%
52.7%
39.8%
0%
0.6%
1.3%
9.1%
4.1%
NOC/NOC-led consortium
IOC company/consortium
1. Excludes projects that are >95% complete.
1.8%
Engineering & Construction – Key project progress
Key project status, % completion, December 2023
1
81
PETROFAC LIMITED | Annual report and accounts 2023
Segmental overview continued
The contract is valued at more than
US$600million and involves the delivery of
carbon capture units, associated pipeline
infrastructure and a network of wells for carbon
dioxide recovery and injection. The project is
part of ADNOC’s accelerated decarbonisation
plan and is further evidence of Petrofac’s role in
helping clients with their decarbonisation journey.
STEP Polymers, Algeria
In May 2023, a Petrofac-led joint venture in
partnership with China Huanqiu Contracting
& Engineering Corporation was awarded a
significant petrochemical EPC contract by STEP
Polymers SPA (100% Sonatrach subsidiary)
valued at approximately US$1.5 billion, with
Petrofac’s share valued at over US$1.0 billion.
The contract is currently being delivered via a
joint venture and so will be equity accounted.
This is a downstream project, which will form
part of the Arzew Industrial Zone, located west
of Algiers, supporting Algeria’s energy strategy.
This award broadens Petrofac’s portfolio into the
petrochemical sector and builds on its 25-year
track record in Algeria.
TenneT 2GW Offshore Wind
Projects, Netherlands
With regards to energy transition, the Petrofac-
Hitachi Energy partnership was awarded the
first two projects under the TenneT multi-year
Framework Agreement which covers six projects.
Under the terms of the agreement, Petrofac
will undertake the engineering, procurement,
construction and installation (EPCI) of offshore
platforms and elements of the onshore converter
stations, which convert AC to DC power
offshoreand DC to AC onshore.
Each project is expected to take over six years to
complete, and has a lower risk profile compared
with a traditional lump sum EPC contract. The
contracts are made up of a mix of lump sum,
reimbursable and index-linkedpricing.
Ijmuiden Ver Alpha, TenneT,
TheNetherlands
The first contract for the Ijmuiden Ver Alpha
Project was awarded in March 2023, and was
valued at over US$2 billion, split approximately
equally between Petrofac and Hitachi
Energy’sscopes.
Nederwiek 1, TenneT, The Netherlands
The second contract for Nederwiek 1, a Dutch
transmission station, was awarded in December
2023. The project is to be executed as a
standalone project, with Petrofac’s portion of the
second contract valued at around US$1.4 billion.
82
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Backlog at 31 Dec 23 by country
US$2.0bn
UK 50% Thailand 5%
USA 14% India 5%
Ivory Coast 7% Others 13%
Australia 6%
Backlog at 31 Dec 23 by market
US$2.0bn
Asset Operations 54%
Wells & Decommissioning 32%
Asset Development 14%
2023 overview
Asset Solutions had another successful year
for backlog growth in 2023, delivering a strong
order intake of US$1.6 billion, with a closing
backlog of US$2.0 billion (2022:US$1.8billion).
Revenues grew year-on-year by 25% due to
higher levels of activity from a high opening
backlog and order intake in the year. EBIT
reduced by 97% as a result of cost increases
on one of its EPCC contracts pending client
negotiations, a one-off bad debt provision,
reduction in profits from associates following
the sale of the Group’s investments in the two
PetroFirst Infrastructure associates, and the roll
off of higher margin work in 2022.
Operational performance
In Asset Operations, we have a unique operator
pedigree and a differentiated integrated service
offering that drives value for our clients. During
the year, we maintained our core 40% market
share in the UK and a renewal rate of 80%
for operations and maintenance contracts.
Internationally, we continued to leverage our
UK centre of excellence and expanded our
operations with new awards in new and within
existing geographies.
Our Well Engineering team helps clients to
explore and develop resources, maintain and
maximise existing wells, or prepare for end
of life. Additionally, by leveraging our core
capabilities developed in oil and gas, we support
the rapidly growing energy transition market,
including delivering conceptual design, detailed
due diligence, risk reviews and cost estimates
for all well types.
In mature basins, clients have continued to have
an increased focus on mature, late-life and end-
of-life asset management, seeking to extend the
productive life and maximise the value from their
assets. With over 20 years’ decommissioning
experience, Petrofac combines experience,
aflexible commercial model and a strong supply
chain collaboration to deliver predictable and
cost-efficient decommissioning.
Additionally, our ability to provide a one-
stop shop has led to multiple integrated
decommissioning projects which showcase
our Duty Holder services. Pioneered in the
UK North Sea, this unique integrated service
offering includes our engineering and project
management capabilities and the plugging
and abandoning of wells, throughout which
we can take full responsibility from a regulatory
perspective, as the operator of the infrastructure.
In energy transition projects, we entered into
a number of strategic alliances with leading
technology providers, as momentum in our four
focus areas of offshore wind, carbon capture
utilisation and storage (CCUS), hydrogen and
waste-to-value continues to increase. We
executed 35 Pre-FEED and FEED studies in
2023 (2022: 39 Pre-FEED and FEED studies),
and we are well-positioned over the medium
term to secure EPC and other execution phase
work as projects reach final investment decision.
Financial performance
Revenue for the year grew 25% compared
with the previous year at US$1.4 billion (2022:
US$1.2 billion), primarily driven by growth in Asset
Operations. Full year EBIT was US$2 million
(2022: US$60 million), with an EBIT margin of
0.1% (2022: 5.2%). EBIT during the year was
adversely impacted by additional costs recognised
on an EPCC contract, a bad debt provision of
approximately US$11 million for a client going into
administration, and lost trading income following
the sale of the Group’s investments in the two
PetroFirst Infrastructure associates. Excluding
these one-off events, underlying EBIT in the year
was US$13 million, with an EBIT margin of 0.9%
reflecting the completion of historic high-margin
contracts in2022.
Asset Solutions
NICK SHORTEN
Asset Solutions COO
The Asset Solutions division provides
services across the full life cycle of energy
infrastructure. It manages and maintains
client assets, both onshore and offshore,
delivers small to medium-scale EPC
projects and provides concept, feasibility
and front-end engineering design (FEED)
services to both traditional hydrocarbon
and energy transition markets. The
division is also home to market-leading
well engineering, decommissioning and
training capabilities. The majority of
services are executed on a reimbursable
basis, but we are responsive to clients’
preferred commercial models to deliver
our expertise. Asset Solutions has
three service lines: Asset Operations,
Asset Development and Wells
andDecommissioning.
83
PETROFAC LIMITED | Annual report and accounts 2023
New orders
Asset Solutions had a robust order intake in
2023, securing US$1.6 billion of awards and
extensions in the year (2022: US$1.4 billion).
Key awards included:
Integrated services contract, Ivory Coast
Petrofac was awarded a three-year integrated
services contract for a floating production
storage and offloading (FPSO) vessel in
Ivory Coast, Africa. The contract builds
upon Petrofac’s existing relationship with
CNR International in the UKCS, which has
centred around the provision of operation
andmaintenance services.
Integrated services contract,
UnitedKingdom
In June 2023, Petrofac was awarded an
extension to its integrated services contract with
NEO Energy, worth £250 million, to continue to
deliver operations, maintenance, engineering
and construction support.
Late life asset management renewal,
Gulfof Thailand
Petrofac was awarded a five-year extension for
the provision of operations and maintenance
(O&M) services on the FPF-003 floating
production, storage and offloading (FPSO)
vessel, located in the Jasmine field in the Gulf
ofThailand.
Decommissioning scope increase,
Gulf of Mexico
In June 2023, Petrofac added a third Gulf of
Mexico field, and extended the scope of its
existing contract to decommission two fields,
offshore Gulf of Mexico. The scope includes the
safe, efficient and assured decommissioning of
the fields and operation of the fields during the
execution of the decommissioning work.
Decommissioning contract, UK
In October 2023, Petrofac was awarded a
multi-million pound deal with Saipem to support
the decommissioning of a platform in the UK
sector of the North Sea, supporting the UK
energytransition.
Operations and maintenance
extension,UK
In October 2023, Petrofac was awarded a
three-year contract extension in support of
Repsol Sinopec Resources UK’s North Sea
operations worth more than US$100 million.
Theaward, for the provision of operations
and maintenance services, is testament to the
Company’s established track record and existing
long-term relationship with Repsol Sinopec.
Brownfield EPC framework, UK
In December 2023, Petrofac secured an
engineering, procurement, construction and
commissioning (EPCC) Framework Agreement
with TotalEnergies to deliver EPCC solutions
across TotalEnergies UKCS assets.
Energy transition
In energy transition, we continue to secure further
early-stage awards and strategic alliances with
technology providers. We remain well positioned
over the medium-term to secure engineering,
procurement and construction scopes of work,
as projects reach final investment decision.
Key awards included:
Gasification-based green methanol
programme partnership, OCI Global
In April 2023, OCI Global and Petrofac
announced an exclusive partnership for their
gasification-based green methanol programme.
The programme will support the production
of low-carbon feedstock for OCI’s existing
methanol facilities.
OCI will work together with Petrofac, on an
exclusive basis, on the design of a standardised
gasification process and modular design for
the delivery of new waste-fed facilities. Petrofac
will deploy its engineering, procurement and
project management expertise to provide
continued support to OCI for the delivery of
theprogramme.
Segmental overview continued
Carbon storage FEED, Neptune Energy
In December 2023, Petrofac’s consulting team
began work on the front-end engineering
design (FEED) on a project that aims to play a
key role in supporting the European Union in
reaching its decarbonisation goals. The FEED,
awarded to Petrofac by Neptune Energy,
is for its L10 Operation facilities – a carbon
storage infrastructure development that will
connect to the Netherlands’ flagship Carbon
Capture, Transportation and Storage (CCS)
project,Aramis.
The L10 Operation is being developed by
Neptune Energy, alongside its partners EBN,
Tenaz Energy and ExxonMobil, and seeks to
store up to five million tonnes of carbon dioxide
(CO
2
) annually, which will be captured from
industrial emitters in the region.
84
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Integrated
Energy Services
Integrated Energy Services (IES)
is Petrofac’s upstream oil and gas
business. Our interest in the Production
Sharing Contract (PSC) for Block
PM304, Malaysia’s offshore Cendor
field, is the sole asset in the portfolio.
Operationalperformance
Net production for the year was maintained at
1,260 thousand barrels of oil equivalent (kboe)
in 2023 (2022: 1,261 kboe) mainly due to strong
reservoir management and excellent facilities
performance coupled with stabilisation of water
production in East Cendor.
During 2023, IES achieved an emissions
reduction of 15% and an emissions intensity
reduction of 14%. This was due to a
combination of operational optimisations,
flarereduction, reservoir management, logistics
enhancements and employee commuting
patterns. Our Flare Reduction Taskforce,
in partnership with Block PM304 Reservoir
Management and Operations Teams in
Malaysia, achieved a reduction of 14% in
absoluteemissions.
The average realised oil price for Block PM304
decreased by 17% to US$93/boe in 2023
(2022:US$112/boe).
Financial performance
Revenue for the year decreased 12% to US$121
million (2022: US$137 million), reflecting the
lower realised oil price. Business performance
EBITDA decreased 17% to US$90 million
(2022:US$109 million) principally reflecting
the lower revenue from PM304. IES generated
business performance EBITof US$34 million
(2022: US$58 million), driven by a decrease in
realised oil price. Reported EBIT was US$41
million (2022: US$71 million), following a partial
reversal of prior year impairment charges of
US$7 million as detailedbelow.
Impairment of Block PM304
The production sharing contract for Block
PM304 in Malaysia expires in September 2026,
and we are not in continued discussions with
Petronas in respect of an extension. Based
on developments in the current year and the
unlikely scenario of an extension, management
continues to assume that it will not be
secured when assessing the carrying value
of the asset at the year-end. The review of all
relevant assumptions resulted in an impairment
reversal of US$7 million (2022: US$6 million
reversal) recorded in the year. As a result of this
impairment, the net book value carrying amount
of Block PM304 as of 31 December 2023 is
US$73 million (2022:US$86million).
85
PETROFAC LIMITED | Annual report and accounts 2023
Financial review
In a year which delivered excellent backlog
growth to close at US$8.1 billion, the Group’s
financial performance in 2023 reflected the
ongoing challenges in closing commercial
settlements on legacy Engineering &
Construction (E&C) contracts and the restricted
access to guarantees for the new E&C
contracts awarded in 2023. This resulted in a
business performance
2
EBIT loss of US$393
million (2022 restated
3
: US$229 million) and
an increase in net debt to US$583million
(2022:US$349million), with liquidity of
US$201million (2022:US$506million). The
reported EBIT loss was US$418 million (2022
restated
3
: US$236 million).
E&C performance was impacted by the recognition
of additional costs on the Thai Oil Clean Fuels
project, one-off write-downs on legacy contracts
incurred to protect and accelerate cash flows, and
low levels of activity, resulting from the aged legacy
portfolio, giving an adverse operating leverage.
Asset Solutions had another successful year with
strong order intake, but with EBIT performance
adversely impacted by a one-off bad debt
provision relating to a customer entering
administration and additional costs incurred
in anEPCC contract. IES continued to deliver
ahead of expectations with net production
broadly in line with the prior year.
The Group made progress on its near-term
priorities, continued to perform well for its clients
and secured significant new awards which drove
growth in backlog but with minimal impact on
other financial metrics in the year. Good progress
was made during the year in agreeing contractual
settlements for historic collections, and actions
taken by management resulted in positive free
cash flow in the second half of the year, even in
the absence of advance payment receipts, offset
by an increase in the requirement to provide
collateral for guarantees. However, the increased
difficulty in securing these guarantees and the
resulting tightening in liquidity towards the end
of 2023 and into 2024 has created operational
challenges. Management is currently progressing
the critical Financial Restructure to help
strengthen the Group’s balance sheet as well as
improving liquidity and securing guarantees.
AFONSO REIS E SOUSA
Chief Financial Officer
focus
on near-term priorities
86
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
United Kingdom
32%
Americas
7%
Algeria
10%
Oman
5%
Lithuania
9%
Thailand
5%
Malaysia
7%
Australia
5%
Other
20%
External revenue by geographical segment
Financial restructure
As set out on pages 8 and 9, the Company is pursuing a comprehensive financial restructure
(Financial Restructure), to strengthen the Group’s balance sheet, improve liquidity and to secure
guarantees on normal commercial terms.
The Company has received a proposal from an ad hoc group of senior secured noteholders for the
provision of new funding of up to US$200 million as well as further credit support of US$100 million
to facilitate the provision of guarantees on existing contracts. This non-binding proposal is dependent
upon, amongst other things, the Company securing performance guarantees for certain of its
contracts and would require the conversion of a significant proportion of the Group’s existing debt to
equity. The Company is in active discussions with credit providers to provide these guarantees.
Year ended 31 December 2023 Year ended 31 December 2022 (restated)
3
Business
performance
2
US$m
Separately
disclosed
items
US$m
Reported
US$m
Business
performance
2
US$m
Separately
disclosed
items
US$m
Reported
US$m
Revenue 2,496 – 2,496 2,567 – 2,567
EBITDA (310) (30) (340) (150) (12) (162)
EBIT (393) (25) (418) (229) (7) (236)
Net loss
1
(485) (20) (505) (294) (26) (320)
Income statement
Revenue
Group revenue reduced marginally to US$2.5 billion (2022: US$2.6 billion), with the reduction in E&C
being largely offset by growth in Asset Solutions. Revenue in the E&C operating segment decreased
27% reflecting the low opening backlog and the maturity of the E&C legacy contract portfolio. Asset
Solutions had a strong revenue performance in the year, with growth of 25% year-on-year primarily
driven by growth in Asset Operations. Revenue in the IES operating segment decreased 12%
resulting from lower average realised oil prices during the year.
The Group generated revenue from a broad
range of geographic markets in 2023, with UK,
Algeria, Lithuania and Malaysia generating 59%
of Group revenue (2022: top four markets – UK,
Algeria, Thailand and Oman − generated 61% of
Grouprevenue).
Earnings Before Interest and Tax (EBIT)
The Group reported a business performance
2
EBIT loss of US$393 million (2022 restated
3
:
US$229 million). This included US$90 million
of one-off write-downs in E&C contract
settlements to protect cash flows, and a one-off
bad debt provision of US$11 million for a client
going into administration in the Asset Solutions
segment. The reported EBIT was a loss of
US$418 million (2022 restated
3
: US$236 million),
with US$25 million (2022: US$7 million) of
separately disclosed items.
E&C had a business performance
2
EBIT
loss of US$422 million (2022 restated
3
:
US$323 million). Excluding the one-off write-
downs, E&C’s business performance
2
EBIT
loss of US$332 million, reflected adverse
operating leverage due to low levels of activity
and the impact of further unrecovered costs
in the legacy portfolio. On the Thai Oil Clean
Fuels Project, client negotiations are ongoing
in relation to the reimbursement of a portion of
the additional costs. The timing and outcome
of these negotiations is not wholly within the
Company’s control, which resulted in further
margin deterioration in2023.
1. Attributable to Petrofac Limited shareholders.
2. This measurement is shown by Petrofac as a means of measuring underlying business performance, see note 4 of the
consolidated financial statements.
3. The prior year numbers are restated as detailed in note 2.9 to the consolidated financial statements.
US$2.5bn
87
PETROFAC LIMITED | Annual report and accounts 2023
In Asset Solutions, business performance
2
EBIT was below the prior year at US$2 million (2022: US$60 million), with an EBIT margin of 0.1% (2022: 5.2%). Excluding the impact of the one-off doubtful
debt provision, underlying business performance
2
EBIT was US$13 million with an EBIT margin of 0.9%, reflecting the additional costs incurred on an EPCC contract, the completion of historic high margin
contracts in 2022 and pass-through revenue. Business performance
2
EBIT in IES decreased to US$34 million (2022: US$58 million) driven by a decrease in the realised oilprice.
Group business performance
2
EBIT margin was below the previous year at (15.7)% (2022 restated
3
: (8.9)%) reflecting the one-off impact and the reductions in E&C and Asset Solutions described above,
additional losses in E&C and the lower contributions from Asset Solutions and IES.
Year ended 31 December 2023
Engineering &
Construction
US$m
Asset
Solutions
US$m
Integrated
Energy
Services
US$m
Corporate &
others
US$m
Consolidation
adjustments &
eliminations
US$m
Business
performance
2
US$m
Separately
disclosed
items
US$m
Reported
US$m
Total revenue 936 1,446 121 6 (13) 2,496 – 2,496
EBIT (422) 2 34 (7) – (393) (25) (418)
EBIT margin (45.1)% 0.1% 28.1% n/a n/a (15.7)% – (16.7)%
Year ended 31 December 2022 (restated)
3
Engineering &
Construction
US$m
Asset
Solutions
US$m
Integrated
Energy
Services
US$m
Corporate &
others
US$m
Consolidation
adjustments &
eliminations
US$m
Business
performance
2
US$m
Separately
disclosed
items
US$m
Reported
US$m
Total revenue 1,287 1,158 137 6 (21) 2,567 – 2,567
EBIT (323) 60 58 (24) – (229) (7) (236)
EBIT margin (25.1)% 5.2% (42.3)% n/a n/a (8.9)% n/a (9.2)%
Financial review continued
88
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Depreciation and amortisation
Business performance depreciation and amortisation increased marginally to US$83 million (2022:
US$79 million). Reported depreciation and amortisation was US$64 million (2022: US$74 million),
resulting from the partial reversal of the previously recognised impairment in relation to Block PM304.
2023
US$m
2023
US$m
Engineering & Construction 10 12
Asset Solutions 11 10
Integrated Energy Services 56 51
Corporate 6 6
Total (business performance
2
) 83 79
Separately disclosed items (5) (5)
Total (reported) 78 74
Finance income/(expense)
Business performance finance income during the year was US$6 million (2022: US$7 million).
Reported finance income increased during the year to US$11 million (2022: US$7 million) due to
thereversal of some of the previously recorded embedded derivative fair value loss associated
with the revolving credit facility (see note 6 to the consolidated financial statements). Business
performance finance expense increased to US$119 million (2022: US$98 million), due to the
increasein the Group’s borrowing costs, primarily attributable to the increase in the Group’s
averagenet debt levelsand an increase in market interest rates during the year.
2023
US$m
2022
US$m
Finance income
Bank interest 1 1
Interest income from joint operations in respect of leases 5 6
Business performance
2
finance income 6 7
Separately disclosed items 5 –
Total finance income 11 7
2023
US$m
2022
US$m
Finance expense
Group borrowings (105) (85)
Lease liabilities (9) (12)
Unwinding of discount on provisions (5) (1)
Total business performance
2
finance expense (119) (98)
Separately disclosed items – (18)
Reported finance expense (119) (116)
Taxation
Both the business performance
2
and reported income tax credit for the year were US$3 million
(2022restated
3
: business performance expense of US$1 million and reported expense of US$2
million). This primarily reflects tax provision releases in respect of previous years. Tax provision
releases in the year were US$14 million (2022 restated
3
: US$34 million) driven by favourable
outcomes from tax audits and adjustments to estimates concerning amounts expected to be
paidincertain jurisdictions.
Net profit/(loss)
Business performance
2
net loss attributable to Petrofac Limited shareholders for the year
was US$485 million (2022 restated
3
: US$294 million) primarily due to the lower EBIT and
the higher net finance expense in the year. Business performance
2
net margin was (19.4)%
(2022restated
3
:(11.5)%).
The reported net loss was US$505 million (2022 restated
3
: US$320 million) which resulted from
themovements noted above and the lower net separately disclosed items incurred in 2023.
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PETROFAC LIMITED | Annual report and accounts 2023
Separately disclosed items
During the year, the Group incurred US$20 million (2022: US$26 million) of net separately disclosed items.
These predominantly related to:
• US$(7) million non-cash reversal of impairment of assets resulting from a review of the carrying
amount of the investment in Block PM304 in Malaysia
• US$20 million of restructuring and refinancing-related costs in relation to professional services fees
for non-recurring projects within the Corporate reporting segment
• US$8 million losses on disposals. During 2023, the Group sold its investment in two associates
and disposed of its shareholding in a wholly-owned subsidiary, (see note 6 to the consolidated
financialstatements)
• US$5 million of cloud ERP software implementation costs
• US$(5) million of fair value gain associated with the embedded derivative in respect of the Revolving
Credit Facility
• Other net separately disclosed gains of US$(1) million
Further details of these separately disclosed items can be seen in note 6 of the consolidated
financialstatements.
Cash flow
Operating cash flow
Operating activities generated a net cash outflow of US$97 million (2022: US$146 million), principally
reflecting the working capital inflow during the year partially offsetting EBITDA losses and other
operating outflows. Net income taxes paid decreased to US$35 million (2022: US$52 million) due to
lower payments resulting from tax assessments and liabilities.
2023
US$m
2022
(restated)
3
US$m
Business performance
2
EBITDA (310) (150)
Operating profit adjustments 14 (12)
Operating loss before changes in working capital
andotheritems (296) (138)
Net working capital movement 257 159
Separately disclosed items paid (23) (115)
Net income taxes paid (35) (52)
Net cash flows used in operating activities (97) (146)
Working capital inflow/(outflow):
2023
US$m
2022
(restated)
3
US$m
Inventories 6 7
Trade and other receivables (252) (101)
Contract assets 495 273
Restricted cash (112) 26
Net derivative contracts (7) 6
Trade and other payables 59 (95)
Contract liabilities 135 81
Accrued contract expenses (67) (38)
Net working capital movements 257 159
The net working capital inflow of US$257 million (2022 restated
3
: US$159 million) was due to the
conversion of contract assets to receivables and collections partially offset by an increase in restricted
cash due to the provision of collateral for guarantees.
These cash inflows were largely driven by the progress achieved in the E&C operating segment in
reaching contractual settlements. Underlying DSO (days sales outstanding) decreased as the Group
made progress in collecting payments from clients.
Accrued contract expenses outflow increased, largely driven by the delays in securing guarantees
required to collect advance payments on new contracts secured during the year in the E&C business
unit, partly offset by progress made in reaching contractual settlements in the mature E&C project portfolio.
Financial review continued
90
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Free cash flow
The free cash outflow for the year of US$223 million (2022: US$188 million) primarily reflects the
operating outflows and higher interest payments in the year attributable to the increase in the Group’s
average net debt levels, with the prior year including higher divestment proceeds.
Group capital expenditure decreased to US$16 million (2022: US$46 million), with only modest levels
of spend across the Group, as the development programme in Block PM304 reached maturity.
2023
US$m
2022
US$m
Net cash flows generated from operating activities (97) (146)
Capital expenditure (16) (46)
Net cash flows from divestments (1) 98
Receipts from joint operation partners in respect of leases 28 28
Other investing activities, including dividends received from
associates 21 18
Net cash flows generated from investing activities 32 98
Interest paid (101) (86)
Repayment of lease liabilities (57) (54)
Free cash flow (223) (188)
Balance sheet
IES carrying amount
The carrying amount of the IES portfolio
stood at US$73 million at 31 December 2023
(2022: US$86 million), solely comprising the
Group’s interests in its operations in Malaysia
and reflecting the impairment reversal
describedabove.
Leases
Net lease liabilities, calculated as gross lease
liabilities minus 64.7% of leases relating to
Block PM304 in Malaysia, reflecting the amount
receivable from joint operation partners,
decreased 33% to US$78 million at 31
December 2023 (31 December 2022: US$116
million). Net lease liabilities attributable to PM304
amounted to US$38 million (31 December 2022:
US$52 million) and largely relate to the bareboat
charters for the floating equipment used for
block operations.
Total equity
Total equity at 31 December 2023 decreased
to US$(436) million (2022 restated
3
: US$102
million), reflecting the operational losses in the
year. Nodividends were paid in the period
(2022: nil).
Of the US$(436) million of total equity
at 31December 2023, US$(401) million
(2022restated
3
: US$119 million) was attributable
to Petrofac Limited shareholders and US$(35)
million (2022:US$(17) million) was attributable
tonon-controlling interests.
Net debt, liquidity and
financialrestructure
Net debt
Net debt, excluding net finance leases,
increased to US$583 million at 31 December
2023 (2022: US$349 million), predominantly
reflecting the free cash outflow in the year.
Total gross borrowings less associated debt
acquisition costs were US$784 million at
31December 2023 (2022: US$799 million).
This consisted of US$586 million senior secured
notes, US$127 million drawn on the revolving
credit facility and US$71 million of term loans
(net of debt acquisition costs).
31 December
2023
US$m
31 December
2022
US$m
Cash and short-
term deposits 201 450
Interest-bearing
loans and
borrowings (784) (799)
Net debt (583) (349)
Liquidity
Following the extension of the debt facilities in
April 2023, and the subsequent amortisations
payments made during the year, the Group’s
total available borrowing facilities, excluding
bank overdrafts, was US$797 million at
31December 2023 (2022: US$880 million).
The facilities were fully drawn at 31 December
2023 (31 December 2022: US$56 million
undrawn). With the Group’s cash and short-
term deposits of US$201million (2022:
US$450million), the Group had US$201million
of liquidity available at 31 December 2023
(31December 2022: US$506million).
Borrowing facilities
Amount
(US$m)
Maturity
date
4
Senior secured notes 600 Nov-26
Revolving credit facility 127 Oct-24
Term loan 1 35 Oct-24
Term loan 2 35 Oct-24
Total borrowing
facilities 797
Financial restructure
The Financial Restructure is detailed on
pages 8 and 9. As at 31 May, we are in active
discussions with creditors and prospective credit
providers in relation to this critical restructure,
which is designed to deliver a strengthened
balance sheet through the conversion of a
substantial portion of existing debt into equity,
an improvement in liquidity, through the provision
of US$200 million of new debt and more than
US$200 million through the release of cash
collateral and retentions. This restructure is
required to repair the Group’s currently fragile
financial position.
The successful implementation of the Financial
Restructure is critical and is subject to reaching
an inter-conditional agreement with these
key stakeholders, securing a number of
necessary approvals from various stakeholders
including our shareholders and completing
the required judicial process. This is not
expected to be completed before September
2024, at the earliest, albeit with the necessary
inter-conditional agreements being reached
approximately one to two months prior to final
implementation.
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PETROFAC LIMITED | Annual report and accounts 2023
The revolving credit facility and the term loans
are subject to financial covenants relating to
minimum liquidity and minimum EBITDA. The
Group was compliant with the minimum liquidity
covenant throughout the year and the EBITDA
covenant for the first three quarters following
an amendment granted by lenders. The Group
received a waiver in respect of the EBITDA
covenant for the quarter ended 31 December
2023 (see note 26 to the consolidated
financialstatements).
Going concern
The Directors considered the going concern
assessment for the extended period up to 31
December 2025 (the Assessment Period) in
light of the ongoing Financial Restructure, which
is seeking to materially strengthen the Group’s
balance sheet, improve liquidity and secure
guarantees on normal commercial terms to
support current and future contracts.
The Group closely monitors and manages its
funding position and liquidity headroom by
producing detailed cash forecasts and assessing
downside sensitivities considered to be severe
but plausible based on the Group’s principal
risks and uncertainties.
At the date of signing the financial statements,
the Financial Restructure remains in progress
and requires the setting and agreement of
the associated commercial terms with all of
the relevant stakeholders, the securing of
guarantees, the necessary approvals from its
shareholders and other key stakeholders and
completing the judicial process.
Due to the number of steps indicated above
and their inter-conditionality, the success and
timing of the implementation of the Financial
Restructure and subsequent receipt of new
funds and cash collateral and retentions, is
uncertain. The Directors’ assessment of Going
Concern is predicated on the ability to maintain
sufficient liquidity prior to, and the successful
implementation of, the Financial Restructure
and the subsequent receipt of the associated
funds, as detailed above, as well as the ability
to maintain sufficient liquidity throughout the
Assessment Period post-implementation
in the mitigated severe but plausible
downsidescenario.
Whilst there is uncertainty in these outcomes,
based on the current status of the process,
and taking into account the advice from the
Company’s external financial, legal and liquidity
advisors, the Directors have concluded that
there is currently a reasonable prospect that
the Group will be successful in implementing
the Financial Restructure and there is therefore
a realistic alternative to liquidation or cessation
of operations. Assuming the successful
implementation of the Financial Restructure,
the cash forecasts show that the Group will
have sufficient liquidity headroom during the
Assessment Period in the mitigated severe but
plausible downside scenario.
The Directors have concluded that there are a
number of material uncertainties applicable to
the going concern assessment, in accordance
with accounting standards, that cast significant
doubt upon the Group’s ability to continue as a
going concern during the Assessment Period.
These principally relate to the dependency on
the Group successfully managing its short-term
liquidity, implementing the Financial Restructure,
the ability to continue to secure performance
and advance payment guarantees on normal
commercial terms following the Financial
Restructure and the ongoing reliance on a
small number of relatively high value collections
fromclients.
The full going concern assessment including
the importance of the Financial Restructure,
the short-term liquidity, the approach and
assessment and the key risks, basis of
preparation and conclusion, is detailed in note
2.5 to the consolidated financial statements
onpage 152.
Backlog
The Group’s backlog more than doubled to
US$8.1 billion at 31 December 2023 (2022:
US$3.4 billion), reflecting the exceptional
order intake in both E&C and Asset Solutions.
Overall, Group order intake for the year
was US$7.1billion (2022: US$1.9 billion),
representing a book-to-bill of 2.8x.
Order intake in E&C was US$5.5 billion
(2022:US$0.5 billion) representing an
exceptional book-to-bill of 5.9x, comprising
new awards in both our core traditional and
in energy transition projects. In the UAE
and Algeria, Petrofac secured three major
awards with key clients. We re-entered the
UAE with two engineering, procurement and
construction (EPC) awards from ADNOC
worthover US$1.3billion, including a
carboncaptureproject.
In Algeria, we broadened our portfolio into
the petrochemical sector in partnership with
a petrochemicals technical specialist, with an
EPC award of approximately US$1.0billion
to Petrofac. In energy transition, the
Petrofac and Hitachi Energy partnership was
awarded two projects from the six-project
TenneTFrameworkAgreement. The two
contracts with a value of more than $2 billion
toPetrofac form a core part of thebacklog.
Order intake in Asset Solutions was
US$1.6billion (2022: US$1.4 billion), with
a book-to-bill of 1.1x, comprising awards,
renewals and extensions in the year.
Duringthe year, we maintained our core 40%
market share in the UK and a renewal rate of
80% for operations and maintenance contracts.
Internationally, we continued to leverage our
UK centre of excellence and expanded our
operations with new awards in new – and within
existing – geographies.
Backlog
31 December
2023
US$bn
31 December
2022
US$bn
Engineering &
Construction 6.1 1.6
Asset Solutions 2.0 1.8
Group backlog 8.1 3.4
Dividends
The Board recognises the importance of
dividends to shareholders and expects
to reinstate them in due course, once the
Company’s performance has improved.
Financial review continued
92
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Prior year adjustments and
controlsdeficiencies
Two prior year adjustments have been identified
in the year and reflected in the comparative
information in this year’s financial statements.
The largest of these adjustments was in
respectof one of the contracts in the E&C
portfolio, where updated third-party quantum
expert advice in support of our claim for a
variation was not reported by our legal team to
our finance team and E&C management or to
the Group’s auditor at the correct time. There
was insufficient follow-up on the matter by legal
and local finance teams in the post balance
sheet event period, and therefore, appropriate
evaluation of this update did not occur ahead of
the issuance of the 2022 financial statements.
This issue was identified by the Group’s
assurance and compliance teams, in response
to enquiries from the Group’s auditor, and
highlighted areas of improvement in relation to
the adequacy of information flows within the
business, and in particular information flows as
part of the year end finalisation process.
The other adjustment was in respect of tax
provision releases in certain jurisdictions and
errors in translating foreign currency balances
totalling US$14 million which were identified as
relating to the previous year.
Upon the conclusion of this investigation noted
above (and additional associated investigations,
see Audit Committee report on pages 115 to
124), the Board sought additional assurance in
relation to the identified control deficiencies and
to satisfy itself that there were no other similar
occurrences within the broader contract portfolio.
Accordingly, the Group undertook a series of
incremental assurance activities, supplemented
by support from external advisors (see the
principal risks and uncertainties disclosures on
pages 72 to 77 and the Audit Committee report
on pages 115 to 124). These assurance activities
did not identify any otheroccurrences.
Full details of the prior year adjustments can
be found in note 2.9 to the consolidated
financialstatements.
1. Attributable to Petrofac Limited shareholders.
2. This measurement is shown by Petrofac as a means of
measuring underlying business performance, see note 4
of the consolidated financial statements.
3. The prior year numbers are restated as detailed in note 2.9
to the consolidated financial statements.
AFONSO REIS E SOUSA
Chief Financial Officer
31 May 2024
93
PETROFAC LIMITED | Annual report and accounts 2023
Viability statement
Introduction
In accordance with the requirements of the 2018
UK Corporate Governance Code (the Code),
the Directors confirm that they have performed
an assessment of the Group’s prospects and
its ability to continue in operation and meet its
liabilities as they fall due over the period of their
assessment. In doing so, they have considered
the Group’s current position and the principal
risks and uncertainties that would threaten the
viability of the business.
Context
At the time of their assessment, a number
of key considerations for the Directors are
related to the prospects of success of the
Financial Restructure, the background for
which is set out on pages 8 and 9, and the
Group’s ability to manage its liquidity prior, and
subsequent, to the Financial Restructure. As
further described in note 2.5 to the consolidated
financial statements, the Group is in a fragile
financial condition and is subject to a range
of material matters that are not in the Board’s
control. The Financial Restructure is currently
the only option to secure the future operations
of the Group, and these matters may evolve
further in the immediate or near term, with the
realistic alternative to the Financial Restructure
beinginsolvency.
Notwithstanding the Group’s current financial
condition, the financial statements for 2023
are prepared on a going concern basis, with
material uncertainties identified with respect to
the Group successfully managing its short-term
liquidity, implementing the Financial Restructure,
the ability to continue to secure performance
and advance payment guarantees on normal
commercial terms following the Financial
Restructure and the ongoing reliance on a
small number of relatively high value collections
fromclients.
The going concern assessment, in accordance
with accounting standards, considered whether
or not there is a reasonable prospect of the
Group being successful in implementing the
Financial Restructure and whether there is a
realistic alternative to liquidation or cessation of
operations. For the purposes of this assessment,
in accordance with the Code, the Directors
considered whether there is a reasonable
expectation that the Company will be able to
continue in operation and meet its liabilities as
they fall due over the period of their assessment.
Based on the current status of discussions with
stakeholders required to commit to the Financial
Restructure, the Directors are not currently able
to form a view that the implementation of the
Financial Restructure is more likely than not to
take place, and therefore whether the Company
will be able to continue in operation and meet
its liabilities as they fall due over the Period, in
accordance with the requirements of paragraph
31 of the UK Corporate Governance code.
The Group’s prospects
Details of the Group’s risk governance and management framework and a description of its principal
risks and uncertainties are included in the Strategic report on pages 72 to 77.
In addition to the inherent risk of delivering large and complex projects safely, on time and on budget,
the key medium-to-long term factors affecting the Group’s prospects together with the Group’s
current position and outlook are set out below:
Factors affecting the Group’s prospects Group’s current position and outlook
Energy market outlook: the
long-term outlook for energy
prices affects the investment
decisions of our clients and
consequently the timing and
quantum of new awards,
principally in our E&C division.
Oil price: in the short term, oil
price affects cash generated
from oil and gas production in
our IES division.
Economic and market
environment: the appetite of
clients to award contracts and
any restrictions or opportunities
on access to certain markets
reflects the macro-economic
environment, geo-political
conditions and other
macroevents.
Addressable market: the Group’s addressable market, which
excludes Saudi Arabia, Iraq and Russia, is estimated to grow to
more than US$137 billion per annum in the medium-term, with all
plausible scenarios indicating that absolute energy demand is
expected to remain robust.
2023 saw significant growth in capital expenditure from our
clients in some of the Group’s core regions, which translated into
US$7.2 billion of order intake for the Group.
Continued growth is expected, with additional markets in our
core MENA region expected to increase their levels of capital
expenditure, driven largely by spending from national oil
companies, where Petrofac has a differentiated position with its
local delivery model.
In addition, significant short- to medium-term opportunities are
expected in the offshore wind, decommissioning and sub-
Saharan Africa markets, where the Group also has differentiated
offerings, to add to the successes achieved in these markets in
2023 and 2024, year to date.
Near term visibility: at 31 December 2023, the Group had
backlog of US$8.1 billion, with secured revenue in 2024 of
approximately US$2.1 billion (70%). The current tendering pipeline
comprises approximately US$60 billion of opportunities
scheduled for award in the next 18 months, in our addressable
markets, which includes an additional three of the remaining four
platforms under the TenneT Framework Agreement.
Medium term ambition: in the medium term, the Group is
targeting revenue of US$4 billion – US$5 billion, sector leading
EBIT margins and a net cash position, which is supported by its
business plan.
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PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
Factors affecting the Group’s prospects Group’s current position and outlook
Energy transition: the nature
and speed of the transition to
new energies, and the Group’s
ability to address these new
market opportunities in the
medium to long-term.
Energy transition: the Group is well positioned in these
markets, with a track record of over a decade in offshore wind
and having secured a six-platform offshore wind transition station
Framework Agreement in partnership with Hitachi Energy for
TenneT. It also secured a carbon capture, utilisation and storage
(CCUS) project with ADNOC and is rapidly expanding credentials
in hydrogen production, waste-to-value and emissions reduction.
The short- to medium-term opportunity is expected to principally
materialise through further EPC opportunities in the offshore wind
market, decommissioning work related to the transition away
from fossil fuels and FEED and pre-FEED studies in the other
energy transition markets.
Cost competitiveness:
theability to maintain a
sustainable, cost competitive
position to win contracts and
deliver positive economic
returns through
operationalexcellence.
Cost management: the Group focuses on continuous
innovation to maintain its cost competitiveness. In 2023, the
Group enhanced its operating model to strengthen the support
functions and enhance assurance with the aim of providing the
predictable outcomes required for the Group to consistently
deliver high standards of execution and sector leading margins.
Selectivity: in addition, with an emphasis on staying selective in
the opportunities we pursue, the Group aims to build on our core
strengths, with a narrow focus on the type of work we do best,
for the clients we know best, in the type of geographies where we
can execute best.
Factors affecting the Group’s prospects Group’s current position and outlook
Availability of funding and
guarantees: the capital
markets’ and banking appetite
to finance the global energy
industry and the Group,
including the provision of
guarantees on normal
commercial terms.
Balance sheet strength: at 31 December 2023, the Group had
cash and cash equivalents of US$201 million, net debt of US$583
million, liquidity of US$201 million and was in compliance with its
financial covenants (taking into account the waiver secured in
early 2024 for the minimum EBITDA covenant as at Q4 2023).
As a result of the challenges in securing performance guarantees
without significant cash collateral, the Group’s liquidity is not
currently sufficient to meet its payment obligations, including
thepayment of the US$29 million interest coupon on its senior
secured notes which was not paid on the due date of 15May2024,
and its contractual amortisation payments on the revolving credit
facility and bilateral bank loans of US$84 million, where to date,
the Group’s lending banks have been providing deferrals for
these for no longer than on a weekly rolling basis. The Group is
carefully managing its operational cash flows to maintainliquidity.
At the time of signing these financial statements, the Group is
seeking to implement a Financial Restructure, with the aim of
strengthening the balance sheet by reducing its debt burden and
improving its liquidity, both of which are expected to help
secureguarantees.
With discussions ongoing with the stakeholders, whose
commitment is required to successfully implement the Financial
Restructure, there is no certainty that the balance sheet will be
strengthened or liquidity improve and there is a risk that the
Group could enter into insolvency proceedings. Furthermore,
even if the Financial Restructure is successfully implemented,
there remains an uncertainty with respect to the Group’s financial
position being sufficient to secure guarantees on normal
commercial terms.
The Group’s prospects are subject to inherent forecasting risks relating to the Group’s principal risks
and uncertainties, which include inter alia low order intake, loss of financial capacity, macro-economic
uncertainty, prevailing oil price environment, impact of energy transition and the ability of the Group to
deliver its strategic initiatives.
95
PETROFAC LIMITED | Annual report and accounts 2023
Assessment
The Directors have determined that the period
to 31 December 2026 (the Period) is the
appropriate duration for its viability assessment
period. This Period has been selected as it
provides the Board sufficient visibility into
the Group’s clients’ capital and operational
expenditure plans, it covers the period over
which existing backlog is executed, and
it is consistent with the Group’s business
plan duration. These elements comprise the
foundation for modelling the Group’s financial
performance, including sensitivities, which
informs the Directors on whether there is
a reasonable expectation ofviability over
thePeriod.
The key assumptions (the assumptions) within
the Group’s business plan for the Period include:
• Short-term liquidity: the Group is able
to maintain sufficient liquidity prior to
implementation of the Financial Restructure,
which relies upon the Group having continued
support of its stakeholders in refraining from
taking enforcement action on the payment
obligations due during the period, which
includes US$29 million of overdue interest
coupon on the senior secured notes and
US$84 million of deferred contractual
amortisation payments on its bank lending
and operational payments.
• Implementation of the Financial
Restructure: successful implementation
of the Financial Restructure will include a
restructure of its balance sheet to reduce
indebtedness, an improvement in liquidity and
securing performance guarantees for some of
the Group’s existing contracts.
• Access to guarantees: successful
implementation of the Financial Restructure
will allow the Group to secure new
performance and advance payment
guarantees on normal commercial terms on
an ongoing basis.
• One-off collections: collection of a small
number of relatively high value one-off
collections of E&C working capital, which
arenot entirely within the Company’s control.
• Oil price: $84 per barrel in 2024 and 2025,
after hedging, reducing to $81 per barrel
in2026.
• Accessible market: continued access to a
diversified pipeline of opportunities throughout
the Period, excluding Saudi Arabia, Iraq
andRussia.
• New order intake: a book-to-bill of 1x or
greater in each year of the plan in both E&C
and Asset Solutions business units.
• Margins: EBIT margins in E&C remain at
lower levels in the near-term as a result of
low order intake in periods prior to 2023, an
underperforming legacy contract portfolio,
limited contribution from new awards and a
reduced operating leverage. A recovery in the
medium-term is expected, driven by the return
of awards in the Group’s core markets, the
contracts secured in 2023 and the contracts
under the TenneT offshore wind framework
agreement. Asset Solutions is expected to
increase its margins driven by revenue growth
and geographical expansion.
The impact of cost increases on the legacy
E&C portfolio of contracts has been reflected
inthe Group’s financial performance to
31December 2023 and in the business plan
margin forecasts. With only two of the legacy
contracts expected to be still in execution
beyond 2024, the Directors have concluded
that the risk of cost increases during the Period
is lower than in previous periods.
• Other adverse events and conditions:
the Group is exposed to inherent risks,
for example, poor operational execution,
unfavourable commercial settlements and/
or adverse outcomes in disclosed contingent
liabilities (refer to note 30), which could –
depending on the nature, amount and timing
of such events and conditions – threaten
its viability. Notwithstanding the material
uncertainties referenced above, based on
available liquidity headroom, the occurrence
of such events and conditions are assessed
not to fully erode liquidity headroom, after
available mitigations.
Viability statement continued
96
PETROFAC LIMITED | Annual report and accounts 2023
OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
In order to assess the resilience of the Group to threats to its viability, the Group’s business plan
forecasts were subjected to multi-variable stress test sensitivity analysis together with an assessment
of potential mitigating actions. This analysis included variables that considered the crystallisation of
principal risks and uncertainties arising from the following:
Principal risks and uncertainties Variables
• Adverse geo-political and
macro-economic changes in
key geographies
• Low order intake
A material decline in new order intake, notably a c.50% reduction
in value of new awards in E&C (other than the contracts
expected under the TenneT Framework Agreement) and c.20%
in Asset Solutions, spread across the Period, which could be
driven by factors such as, but not limited to, a low energy price
environment, economic uncertainty, accelerated energy transition
and other restrictions such as sanctions.
• Failure to deliver strategic
initiatives
• Poor project execution
EBIT margin deterioration of c.1% for E&C, which could be driven
by cost overruns and adverse commercial or legal settlements.
Delays in material cash collections.
• Loss of financial capacity The Group retains the ability to secure performance guarantees
insupport of new contract awards on normal commercial terms.
Advanced payment guarantees are not available, with the
exception of a small number required to maintain liquidity in
the Going Concern assessment period, over which there is a
disclosed material uncertainty.
• Breaches of laws, regulations
and ethical standards
No financial impact that threatens viability would crystalise from
contingent liabilities during the Period (refer to note 30).
The variables above were modelled in
combination to assess the impact on the
Group’s liquidity headroom. There are material
uncertainties with respect to the Group’s
ability to maintain positive liquidity throughout
the Period, linked to managing its short-term
liquidity, implementing the Financial Restructure,
the ability to secure performance and advance
payment guarantees on normal commercial
terms following the Financial Restructure and the
timing of receipt of a small number of relatively
high value collections, as described in note 2.5.
The Directors have also evaluated mitigating
actions that management could realistically take
to avoid or reduce the impact or likelihood of the
principal risks and uncertainties materialising.
Management has a track record of managing
its payment obligations and, where necessary,
implementing cost saving measures, taking actions
to maintain sufficient liquidity in the absence of
delays in material collections, budgeted new
awards and working capital unwind.
Consequently, the Directors’ view is that
management could continue to deploy such
measures in response to the crystallisation
of principal risks and uncertainties, however,
it is not certain that these mitigations could
sufficiently mitigate the crystallisation of all
identified risks or that these could be deployed
in a sustainable manner to ensure the continued
viability of the business in an extended
stressedenvironment.
Conclusion
The viability assessment has been undertaken
in the context of the Group currently being
in a fragile financial position and seeking
to implement a comprehensive Financial
Restructure which aims to provide a platform
for the Group to continue operating through
theassessment period.
The financial statements are prepared on a
going concern basis, as a result of the Directors’
assessment that there is, at the time of writing,
a realistic prospect of the Financial Restructure
being successfully implemented. However, there
are a number of material uncertainties in the
assessment: the ability to maintain liquidity prior,
and subsequent, to the Financial Restructure,
including ongoing access to guarantees on
normal commercial terms, and the successful
implementation of the Financial Restructure itself.
The Group actively monitors and responds
tothe risks identified in the viability assessment.
Assuming the Group can maintain liquidity
prior to the implementation of the Financial
Restructure, and it is successfully implemented,
taking into account the Group’s current
position, prospects, principal risks and
uncertainties and assumptions listed above,
particularly the ongoing access to guarantees
on normal commercial terms, the Directors
have concluded that, in those circumstances,
they would have a reasonable expectation that
the Group will be able to continue in operation
and meet its liabilities as they fall due over the
assessmentperiod.
However, as a consequence of the inherent
uncertainties noted above in relation to the
Financial Restructure, the Directors are unable to
conclude at this time that there is a reasonable
expectation that the Group will be able to
continue in operation and meet its liabilities
asthey fall due over the assessment period
to31December2026.
97
PETROFAC LIMITED | Annual report and accounts 2023
Governance at a glance
corporate
governance
Good governance is good business.
This is recognised and demonstrated
across the business, through our
projects and initiatives, aimed at
improving the future of the Company,
our employees, our clients, our
shareholders, and the environment.
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
98 PETROFAC LIMITED | Annual report and accounts 2023
GOVERNANCE FINANCIAL STATEMENTS
Financial matters
28%
Governance
12%
Leadership and people development
5%
Project approvals
6%
Risk management and internal control
6%
Strategic matters
41%
Sustainability
2%
Board information dashboard
How the Board spent its time
during the year – 2023
0 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
New energies/renewables
Digital
Operational/strategic
HSE
Leadership
Regulatory and governance
International experience
Finance
Engineering
Oil and gas experience
Board skill set
Shareholders (ownership)
by territory
UK 64%
North America 9%
Rest of Europe 24%
Rest of the World 3%
Shareholders - geographic analysis
Meetings held with shareholders
by country
UK 65%
North America 16%
Rest of Europe 15%
Rest of the World 4%
22%
Female
representation
8
Different
nationalities
50%
Of Directors falling within the
Parker Review’s classification
+170
years
Combined Board experience
99 PETROFAC LIMITED | Annual report and accounts 2023
S
•
The UK Corporate Governance Code
As a Jersey incorporated company listed in the
UK, Petrofac is subject to the principles and
provisions of the UK Corporate Governance Code
(UK Code). The UK Code underpins the corporate
governance framework for premium listed
companies and sets out principles and provisions
of good governance with compliance with the UK
Code resting with the Board. A copy of the UK
Code is available at www.frc.org.uk.
Petrofac is required to explain how the Company
has complied with the UK Code and applied the
principles and provisions set out therein. This
Governance report details how the Company
has applied the principles and complied with the
provisions of the UK Code. For the year ended 31
December 2023, the Board has been compliant in
all but one aspect of the UK Code.
Provision 19 of the UK Code states that the chair
of a company should not remain in post beyond
nine years from the date of first appointment,
although it does allow for an extension of the
chair’s tenure for a limited time to support effective
succession planning and development of a
diverseboard.
While he has served less than nine years as
Chair, René Médori’s tenure as a Board member
reached nine years in 2021 and, as a result, he
is no longer considered to meet the definition of
independent in the UK Code.
The Company confirmed in its 2022 Annual
Report that Mr Médori’s tenure would be extended
to provide continuity on the Board as a result
of the challenges being faced by the Group
and following the recent changes in Group
ChiefExecutive.
Chair’s introduction
RENÉ MÉDORI
Chair
Looking ahead
As a Board, we will continue to ensure that
we make the right decisions to materially
strengthen the financial position of the Group,
focusing on the implementation of the financial
structure which in turn will support the long-term
sustainable success of our business to create
long-term value for shareholders.
I would like to thank all our stakeholders for their
continued support over recent years.
RENÉ MÉDORI
Chair
31 May 2024
Dear Shareholder
On behalf of the Board, I am pleased to present
the Group’s Corporate Governance report
for2023.
The key focus for the Group throughout 2023
and into 2024 was to continue the work to
strengthen our balance sheet, improve overall
liquidity and secure guarantees to support the
implementation of our US$8 billion backlog
of business. We initiated a formal review of
strategic and financial options, resulting in
the planned financial restructure (Financial
Restructure), detailed in pages 8 to 9. Aidan
de Brunner was appointed as a Non-executive
Director to lead the review and a Special
Committee of the Board (page 110) established
to manage the process.
The Board’s priority during this challenging
period was to provide leadership and guidance
and accordingly the Directors met, and continue
to meet, regularly often at short notice, to deliver
on our fiduciary duties.
The Board understands the benefits of
annual performance evaluations, both for the
Directors on an individual basis, as well as for
the Board as a whole. In accordance with the
UK Corporate Governance Code, the Board
undertakes an externally facilitated annual
evaluation, once every three years, the last
being in 2022, therefore for 2023, the Directors
conducted a self-evaluation of their individual
performance and a collective evaluation of the
performance of the Board.
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE FINANCIAL STATEMENTS
100 PETROFAC LIMITED | Annual report and accounts 2023
In April 2023, the new Group Chief Executive, Tareq Kawash,
wasappointed.
On 4 December 2023, the Company announced its financial and
strategic review aimed at strengthening the balance sheet, securing
guarantees and improving liquidity. Given the need for firm Board
leadership and consistency of experienced oversight during these
major business changes, the Nominations Committee reaffirmed its
recommendation that Mr Médori remain in post through 2024.
Further details are set out on pages 111 to 114.
In accordance with Listing Rules LR 9.8.6(R) and LR 14.3.33R (1),
listed companies are required to disclose in their annual financial
report whether they have met specific board diversity targets on a
comply or explain basis.
Further details are set in the report of the Nominations Committee
onpages 111 to 114.
During 2023, the Company complied with all relevant requirements
of the Disclosure and Transparency Rules, the UK Listing Rules and
narrative reporting requirements.
The following table sets out where shareholders can find further
information on how the Company has applied the principles of the
UK Code within this Annual Report.
1. Board leadership and Company purpose
The Board sets the tone of the Company with regard to the
corporate governance framework and the application of corporate
values and behaviours. The Board also maintains oversight
to ensure resources are in place for the Company to meet its
objectives and that there is an established risk framework for the
management of effective controls.
a. Effective Board
Pages 102-109
b. Purpose, values and culture Pages 2-3, 20,
105-106
c. Governance framework and controls Pages 106, 120
d. Stakeholder engagement Pages 26-29, 107
e. Workforce engagement Pages 28, 59-61
2. Division of responsibilities
There is a clear definition of Board responsibilities, with Directors
collectively responsible for the development of strategy and the
long-term success of the Company. We believe all Directors work
together in an atmosphere of openness, trust, and mutual respect.
To ensure there is a clear division of responsibilities, while retaining
control of key decisions, the Board has in place a Schedule
of Matters Reserved that sets out items for its consideration
andapproval.
f. Board roles and responsibilities
Pages 102-108
g. Independence Pages 102-103
h. External appointments and
Board attendance
Pages 105-107
i. Key activities of the Board,
information and support Pages 105-107
3. Composition, succession and evaluation
The Company has a formal, rigorous, and transparent selection
procedure for the appointment of Directors. The Nominations
Committee has the responsibility of identifying and nominating all
candidates, with emphasis given to ensuring Board composition
remains balanced with the multi-disciplinary skills and experience
needed to support Petrofac’s future plans.
j. Appointments to the Board
Page 111
k. Board skills, experience and knowledge Page 108
l. Annual Board evaluation Page 109
4. Audit, risk and internal control
The Board maintains a sound risk management and internal controls
framework to ensure the Group’s long-term strategic objectives
can be achieved. Transparent policies and procedures have been
established to ensure the independence and effectiveness of the
Group audit function, with well-established committees in place to
assist it in the undertaking of its delegatedduties.
m. Internal and external audit functions,
financial reporting and narrative statements
Pages 118-121
n. Fair, balanced and
understandable assessment Page 121
o. Internal control framework and
risk management
Pages 70-77, 120
5. Remuneration
The Remuneration Committee ensures that there is a formal and
transparent process for determining and reporting on Executive
Director and senior management remuneration. Remuneration
policies have been designed to support the Group’s strategy, in
alignment with the Company’s purpose, values and behaviours and
to promote the long-term success of the organisation.
p. Alignment of remuneration with purpose,
strategy and values
Page 128
q. Remuneration policy Page 128
r. Performance outcomes and
strategic targets
Pages 130-133
101 PETROFAC LIMITED | Annual report and accounts 2023
Board of Directors
as at 31 May 2024
René Médori
Chair
Committees
N
Appointed: January 2012
Chair: May 2018
Independent: No, independent on appointment
Key strengths and experience
Extensive international financial experience,
with knowledge of balance sheet
strengthening opportunities and financing
arrangements. Well-established knowledge
of governance and regulatory matters and
a good understanding of operational and
strategic management. Stepped down as
Finance Director of Anglo-American plc in
April 2017 and retired from the company
in January 2018, after 12 years. Was a
non-executive director of De Beers, Anglo
American Platinum Limited and SSE plc until
December 2017 and of Cobham plc until
January 2020.
External appointments
Non-executive chair of Puma Energy.
Non-executive director of Vinci SA and
Newmont Corp.
Tareq Kawash
Group Chief Executive
Committees
S
Appointed: April 2023
Independent: Not applicable
Key strengths and experience
Over 30 years’ experience in the engineering
and construction industry, completing both
domestic and international assignments
for mega onshore and offshore oil and gas
projects. Has a wealth of operational and
commercial experience, with extensive
knowledge of the Middle East, having lived
and worked in the region for 18 years.
Was most recently Senior Vice President of
McDermott’s onshore and offshore business
lines. Prior to McDermott’s combination with
CB&I in 2018, he was CB&I’s Group Vice
President, Engineering and Construction,
International. Before joining CB&I in 2000,
he worked with KBR for two years and
Consolidated Contractors Company for
sevenyears.
External appointments
None.
Afonso Reis e Sousa
Chief Financial Officer
Committees
S
Appointed: September 2021
Independent: Not applicable
Key strengths and experience
Extensive experience in corporate and project
finance, specialising in energy-related and
infrastructure financing. Joined the Company
in 2012 as Group Head of Structured Finance
and accumulated a portfolio of increasing
responsibilities including Group Treasurer,
Head of Tax, and Group Head of Enterprise
Risk. Has more than 25years’ experience in
finance, including a background in investment
banking, having begun his career with
Deutsche Morgan Grenfell.
External appointments
None.
Matthias Bichsel
Senior Independent Director
Committees
A
C
N
R
Appointed: May 2015
Senior Independent Director: May 2018
Independent: Yes
Key strengths and experience
More than 40 years’ experience in the oil
and gas industry. Extensive commercial and
strategic capabilities. Deep understanding
of operational, project and technology
management. Broad knowledge of
sustainable development issues. Until 2014,
held several senior managerial roles over
his 34-year career with Royal Dutch Shell,
latterly as a member of the Group’s executive
committee and director of Capital Projects
and Technology.
External appointments
Non-executive director of Canadian Utilities
Limited (Canada) and Voliro (Switzerland).
Committee membership key
A
Audit Committee
N
Nominations Committee
R
Remuneration Committee
C
Compliance and Ethics Committee
S
Special Committee
C
Chair of Committee
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE FINANCIAL STATEMENTS
102 PETROFAC LIMITED | Annual report and accounts 2023
Sara Akbar
Non-executive Director
Committees
A
N
R
Appointed: January 2018
Independent: Yes
Ayman Asfari
Non-executive Director
Committees
N
S
Appointed: January 2002
Independent: No
David Davies
Non-executive Director
Committees
A
C
Appointed: May 2018
Independent: Yes
Francesca Di Carlo
Non-executive Director
Committees
C
N
R
Appointed: May 2019
Independent: Yes
Aidan de Brunner
Non-executive Director
Committees
C
S
Appointed: Dec 2023
Independent: Yes
Key strengths and experience
More than 40 years’ experience in
the oil and gas industry with a unique
insight into the Middle Eastern region.
Wide-ranging international experience
and significant operational and project
management capabilities. She was
Chief Executive Officer of Kuwait
Energy KSC until 2017, which she
founded in 2005. Served in various
positions in the oil and gas industry in
Kuwait and internationally from 1981
to 1999. Holds a BSc in Chemical
Engineering. Former Member of the
Kuwait Supreme Council for Planning
and Development.
External appointments
Chair and CEO of Oil Serve and Chair
of the Advisory Board to the American
University of Kuwait, and a member of
the ICC Merchants of Peace Fund.
Key strengths and experience
Prominent record with strong
operational leadership skills and
international focus. Extensive
entrepreneurial and business
development skills, and an in-depth
knowledge of the oil and gas industry.
Established Petrofac International
in 1991 and, following a corporate
reorganisation in 2002, became
Group Chief Executive, before leading
the successful initial public listing
of the Company in 2005. Has more
than 40 years’ experience in the
energy industry. Formerly worked as
MD of a major civil and mechanical
construction business in Oman.
Stepped down as Group Chief
Executive on 31 December 2020.
External appointments
Executive Chair of Venterra Group
plc. Chair of the Asfari Foundation.
Member of the board of trustees of
the American University of Beirut
and of the Carnegie Endowment for
International Peace. Fellow of the
Royal Academy of Engineering and
member of the Chatham House Panel
of Senior Advisors.
Key strengths and experience
Extensive international and financial
experience, including capital and debt
raising as well as managing companies
exposed to substantial and rapid
change. Served on the boards of listed
companies in seven different countries.
More than 36 years’ experience as a
financial professional with a successful
career as Chief Financial Officer and
Deputy Chairman of the executive
board at OMV Aktiengesellschaft.
Served as Group Finance Director for
both Morgan Crucible Company plc
and London International Group plc
and was a non-executive director of
Ophir Energy Plc until May 2019 and
of Uniper SE until April2020.
External appointments
Non-executive director of
Wienerberger AG and an Independent
Member of the Supervisory Board
of the Gas Transmission Systems
Operator of Ukraine LLC (GTSOU).
Key strengths and experience
Extensive background in various senior
positions, specialising in corporate
finance operations, strategy, audit,
human resources, and procurement.
She was until September 2023 the
Group Executive Vice President of
Procurement of the Enel Group, having
previously held the roles of Director of
the People and Organisation division,
Director of Group Audit, and Head of
Corporate Strategy. At the Telecom
Italia Group, she held various roles
including Head of Investor Relations,
Head of Financial Planning and Head
of Corporate Development and M&A.
Former Chairperson of Stream and
Telespazio, as well as a former director
of Sky Italy.
External appointments
Chair of Cero Generation Limited.
Key strengths and experience
A senior professional with board,
management, investment and
advisory experience gained over 20
years across a range of companies,
including The Trafford Centre Limited,
McLaren Group Limited and London
Southend Airport Limited, amongst
others. He received his Bachelor of
Science in Mechanical Engineering
from Bristol University, his Master of
Science in International Development
from the School of Oriental and African
Studies and qualified in 2000 as a UK
Accredited Chartered Accountant.
External appointments
Holds directorships in: LumiraDxUK
Ltd, Anfora GP Limited, Teide Limited
(Singapore), Fagus Holdco PLC,
Liberty France Industries BV, Concerts
for Carers Ltd, We Are Sweet Ltd,
Burkina Health Foundation Limited.
103 PETROFAC LIMITED | Annual report and accounts 2023
Tareq Kawash and AfonsoReiseSousa
are also members of the Executive
Committee. Theirbiographies are set
outon page102.
Executive Committee
Jim Andrews
Group Head of Health,
Safety, Environment
and Quality
John Pearson
Chief Operating Officer,
Energy Transition Projects
Sandra Redding
Group General Counsel
Jonathan Kennefick
Group Head of Business
Assurance
Sophie Reid
Group Director of
Communications
Elie Lahoud
Chief Operating Officer,
Engineering &
Construction
Des Thurlby
Group Director of
Human Resources
Responsibility
Has overall accountability for
quality, health, safety, security,
sustainability, and environment.
Responsibility
As Chief Operating Officer,
ETP, has overall accountability
for growing and delivering our
energy transition business plan.
Responsibility
Has overall responsibility for
the legal, compliance, and
company secretariat functions,
ensuring business is conducted
in accordance with applicable
laws and regulations.
Responsibility
Has responsibility for
businessassurance.
Responsibility
Has overall responsibility
for advising on internal and
external communications,
including marketing and brand.
Responsibility
As Chief Operating Officer
of the E&C business, has
overall accountability for
strategy and overall delivery
ofbusinesstargets.
Responsibility
Has overall responsibility
for advising on all people
aspects of the business.
This includes succession
planning, talent management,
leadership development,
compensation, performance,
diversity and inclusion, and
employeeengagement.
Marc Bonandrini
Chief Commercial Officer
Responsibility
Has responsibility for securing
high-quality backlog in key
growth markets as well
as leading the business
development and proposals
team across the Petrofac Group.
Roberto Bertocco
Group Director of
Technical Functions
Responsibility
Has responsibility for
the technical function of
engineering, supply chain,
construction and completions.
Nick Shorten
Chief Operating Officer,
Asset Solutions
Responsibility
As Chief Operating Officer,
Asset Solutions, has overall
accountability for delivery
against our business plan.
Key expertise
Oil and gas
6
Engineering
7
Financial
5
International
10
Regulatory and governance
7
Leadership
10
HSE
8
Operational/strategic
management
10
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE FINANCIAL STATEMENTS
104 PETROFAC LIMITED | Annual report and accounts 2023
Corporate governance report
Board leadership and
Company purpose
Board governance structure
As a Jersey-registered entity, Petrofac Limited is
bound by requirements set out in the Companies
(Jersey) Law 1991. Our Directors are also informed
by UK practice and wish to act in good faith to
promote the long-term success of the Group.
The Board seeks to ensure there is an effective
governance framework in place across the Group.
The Board recognises that the Group’s long-
term success depends on a commitment to
good governance standards, with governance
an element that should be ingrained in our
behaviours, in the way we make decisions
and run our business, rather than simply a
compliance metric. In determining the Group’s
strategic direction, and the sustainability of the
business model, the Board is conscious of its
responsibilities to all stakeholders and seeks
to ensure that the necessary corporate and
management structures are in place to ensure
our strategy is implemented effectively.
Matters reserved
The Board has a formal schedule of matters
reserved for its decision making and approval.
These matters include responsibility for the
overall management and performance of
the Group and the approval of its long-term
objectives, strategy, budgets, material contracts,
capital commitments, risk appetite, the long-
term viability statements and key policies.
Board activities and key focus
The main priorities of the Board are to provide
leadership and guidance in support of the
Group’s strategic priorities, with consideration
especially focused in late 2023 and 2024 on
the Group’s financial performance and financial
and strategic review, for which the Special
Committee was introduced (page 110). The
Board also focuses on good governance,
compliance, and risk management procedures
and processes to ensure they are fully
embedded across the Group and to ensure
succession plans are in place throughout
the organisation. The views and differing
perspectives of the Group’s stakeholders
are also taken into account as part of
Boarddiscussions.
During the year, the Board and its Committees
spent time considering a number of wide-
ranging topics. These included:
• Development of the Group’s strategic plan
• Deep dives on strategic initiatives
• Liquidity management
• Budgets and Group financial planning
• Financial and strategic review including the
Financial Restructure
• Business performance
• Updates from key functions including Legal
and Compliance, Health & Safety, Quality and
Sustainability, Risk Management, and controls
• Financial Statements, including financial
reporting matters
• Diversity, talent and succession planning
• Approving new project and contracts
• Shareholder feedback
• Regulatory and governance matters,
including the proposed changes to the UK
GovernanceCode
• Engagement with key stakeholders
and the impact of Board decisions on
suchstakeholders
• Group culture and behaviours and the results
of the employee engagement survey
Our Non-executive Directors are able to seek
clarification on key points from management
when required.
Members of both the operational and functional
management, one and two tiers below Director
level, are also routinely invited to present the
Board on matters under consideration. This
allows specific matters to be brought to the
attention of the Board and allows the Board to
deepen their understanding at both local and
functional levels, while gaining an awareness
of specific nuances that may not always be
obvious in written reports. This enhances the
Board’s knowledge of the business and also
enables Directors to consider key individuals
who have been identified through the succession
planning process.
The key activities of the Board are set out in the
following charts.
Meeting attendance
Each year the Board has a full programme of
scheduled meetings, which are supplemented
with ad hoc meetings to review items of business
that need to be addressed before the next
scheduled meeting. During 2023, the Board
held six scheduled meetings and 17 ad hoc
meetings which were used to discuss progress on
restructuring and refinancing. Details of Director
attendance is set out below.
Directors are encouraged to engage actively and
effectively during meetings, with scrutiny and
constructive debate encouraged.
2023 Board calendar attendance
Directors
Board
meetings
(scheduled)
Board
meetings
(ad hoc)
Nomination
Committee
Audit
Committee
Remuneration
Committee
Compliance
& Ethics
Committee
Special
Committee
René Médori 6(6) 17(17) 3(3) n/a n/a n/a –
Sara Akbar 6(6) 16(17) 3(3) 6(6) 6(6) n/a –
Ayman Asfari 6(6) 17(17) 3(3) n/a n/a n/a 5
Matthias Bichsel 6(6) 17(17) 3(3) 6(6) 6(6) 4(4) –
David Davies 6(6) 15(17) 3(3) 6(6) n/a 4(4) –
Francesca Di Carlo 6(6) 15(17) 3(3) n/a 6(6) 4(4) -
Tareq Kawash
1
4(4) 17(17) 3(3) n/a n/a n/a 5
Afonso Reis e Sousa 6(6) 17(17) 3(3) n/a n/a n/a 5
Aidan de Brunner2 – 2(2) n/a n/a n/a n/a 5
Sami Iskander3 2(2) 1(1) – – – – n/a
1. Mr Kawash was appointed to the Board with effect from 1 April 2023.
2. Mr de Brunner was appointed to the Board on 4 December 2023.
3. Mr Iskander stepped down from the Board on 31 March 2023.
105
PETROFAC LIMITED | Annual report and accounts 2023
Corporate governance report continued
Board leadership and Company purpose continued
Advises the Board on all
governance, legislation, and
regulatory requirements, as
well as best practice corporate
governance developments. Has
responsibility for implementing
the processes designed to
ensure compliance with Board
procedures. Facilitates the
Board evaluation, induction and
development processes. Available
to individual Directors in respects
of Board procedures to provide
general support and advice.
Has primary responsibility for all
aspects of the Group’s financial
affairs. Ensures the Group has
effective and a fully compliant
financial control environment in
place. Develops and implements
the Group’s finance strategy and
funding. Manages the Group’s
financial risk, with responsibility
for mitigating key elements
of the Group’s risk profile.
Maintains relationships with key
external stakeholders, including
shareholders, lenders, banks, and
credit rating agencies.
Is responsible for the day-to-
day management of the Group.
Implements agreed strategy and
objectives, sets goals and priorities.
Develops proposals to present to
the Board on all areas reserved
for its judgement and ensures
the Board is fully informed of all
key matters. Supported by the
leadership team, has responsibility
for driving execution of the
Group’s strategic aims. Maintains
relationships with key external
stakeholders, including investors,
clients, and governments.
Works closely with the Chair,
acting as a sounding board and
confidant. Provides support and
acts as an intermediary for other
independent Directors. Meets
annually with other Directors to
appraise the Chair’s performance,
and on such other occasions
as is deemed appropriate. Is
available to meet stakeholders to
answer questions that cannot be
addressed by the Chair or Group
Chief Executive.
Support executive management
while providing constructive
challenge and rigour. Bring sound
judgement and objectivity to the
Board’s decision-making and
review the integrity of the risk
management framework and
processes, financial information
and controls, and share the skills,
experience and knowledge from
other industries and environments.
Have prime roles in the Board
composition and succession
planning processes.
Leads the Board and ensures
effective communication flows
between Directors, promoting an
inclusive forum to facilitate effective
contribution given to succession
planning and composition. Is
responsible for ensuring effective
Board governance, overseeing
the Board evaluation process.
Ensures effective communication
with stakeholders, enabling their
interests to be represented at
Board meetings.
Governance framework
We believe our corporate governance framework underpins good governance practices and enables the Board and the Executive Committee to provide effective strategic leadership and stewardship of the
Petrofac Group.
The Board
Provides leadership and direction to ensure long-term success by setting a sustainable strategy and overseeing its implementation. Provides rigorous challenge to manage and ensure appropriate
processes are in place to monitor and manage enterprise risk and internal controls. Is responsible for the financial performance and overall corporate governance of the Petrofac Group, delegating
certain matters to its principal committee, which report to the Board at every meeting.
Informs
Executive management
Responsible for day-to-day operational management, the communication and implementation of strategic decisions, and administration matters. Identifies and reviews matters for recommendation
to the Board and its Committees. Supported by management committees, including the Executive Committee (which also represents the Group Risk Committee), Third Party Risk Committee,
Disclosure Committee and Guarantee Committee.
Informs Reports
Reports
Chair Senior Independent Director Non-Executive Directors Group Chief Executive Chief Financial Officer Secretary of the Board
Audit Committee
Chaired by: David Davies
Reviews and monitors the integrity of the
Group’s financial statements, reporting
processes, financial and regulatory
compliance, the systems of internal control
and risk management, and the external
and internal audit processes.
Nominations Committee
Chaired by: René Médori
Reviews the structure, size and
composition of the Board and its
committees. Takes primary responsibility
for succession planning and Director
succession. Identifies and nominates
suitable candidates.
Compliance and Ethics Committee
Chaired by: Francesca Di Carlo
Has oversight responsibilities for all areas
relating to compliance and ethics. Provides
assurance that the Group’s compliance
and ethics policies remain adequate and
effective. Promotes the importance of
compliance and ethics.
Remuneration Committee
Chaired by: Matthias Bichsel
Sets the remuneration policy for Executive
Directors and determines individual
compensation levels for Executive
Directors, the Chair, and members of senior
management. Oversees the remuneration
framework for the Group.
Special Committee
Chaired by: Aidan de Brunner
The Committee is tasked with examining
and implementing a range of strategic
and financial options withthe objective of
materially strengthening the Company’s
balance sheet, securing guarantees, and
improving liquidity.
COMMITTEE REPORT ON |
Pages 127-140
COMMITTEE REPORT ON |
Page 110
COMMITTEE REPORT ON |
Pages125-126
COMMITTEE REPORT ON |
Pages111-114
COMMITTEE REPORT ON |
Pages115-124
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
106
PETROFAC LIMITED | Annual report and accounts 2023
GOVERNANCE FINANCIAL STATEMENTS
Stakeholder engagement
The Board places significant importance on
establishing and maintaining dialogue with its
stakeholders. In 2023, as the Board embarked
upon the strategic and financial review, it sought
to increase the regularity of its communication,
and, as outlined on pages 26 to 28,
management increased engagement with key
stakeholder groups. The delay of the Group’s full
year financial results and temporary restriction
on share dealing, was of course disappointing
news to our stakeholders, who have continued
to exercise patience following several turbulent
years. As we move forward with our planned
financial restructuring, the Board is committed
to continuing engagement in order to better
understand what matters to each stakeholder
group and ensure Directors are kept informed of
changes in the operating environment, as well
as the broader market, which in turn can be
factored into future strategic discussions.
Employee engagement is valued highly by
the Board. Directors are active participants
in the Petrofac Workforce Forum and are
also kept informed on the outcomes of all
employee engagement surveys. This continued
engagement and the sharing of views throughout
the year provides insight on the realities being
faced by employees across theGroup.
Open and constructive engagement with
major shareholders and other investors is also
considered vital, especially during the ongoing
financial and strategic review (pages 8 and 9).
These discussions support the Board to assess
the potential impact of key decisions on the
Group’s wider stakeholder groups.
Section 172 arrangements
As a Jersey-incorporated company, Petrofac
is not required to comply with Section 172 of
the UK Companies Act 2006, which states that
company boards have a duty to promote the
success of their company for the benefit of their
members as a whole, whilst having regard for the
interests of all stakeholders, including employees,
shareholders, suppliers and customers, the
community and the environment. However,
Petrofac is informed by UK practice and follows
the UK Code which endorses thisrequirement.
In any event, we will always act in good faith to
promote the long-term success of the Group for
the benefit of all stakeholders and, when making
any decisions, each Director is encouraged to
act in the way they consider to best promote
the Company’s success for the benefit of its
members as a whole. An overview of how and
why we engage with key stakeholders and how
we have considered their requirements relating
to principal decisions taken during the year to
ensure effective and continued engagement is
set out on pages 26 to 28.
Share capital
The Company’s ordinary shares are quoted on the
London Stock Exchange, and at the date of this
report, the issued share capital (and total voting
rights) consisted of 525,373,758 ordinary shares.
Details relating to the rights and obligations
attached to the Company’s ordinary shares are
set out in the Company’s Articles ofAssociation.
The Company may purchase its own shares
providing the shareholder resolution authorising
the purchase specifies the maximum number
of shares, the maximum and minimum prices
which may be paid, and a date, not later than
18 months after the passing of the resolution,
on which the authority to purchase is to expire.
TheCompany will seek to renew its existing
authority for this, which will expire at the
conclusion of the 2024 AGM.
Annual General Meeting
Full details of this year’s AGM are set out in the
Notice of Meeting. All resolutions will be conducted
on a poll, with the results announced to the
market as soon as practicable after the meeting.
Response to shareholder voting less
than80%
While all resolutions submitted to the 2023 AGM
were successfully passed with the requisite
majority of votes, four resolutions received less
than 80% of votes cast in favour. These included
the resolution to approve the reappointment of
Ernst & Young LLP as auditors, the resolution to
approve the Directors’ authority to allot shares,
and the two resolutions to empower the Directors
to disapply pre-emption rights.
In accordance with provision 4 of the UK Code,
engagement was undertaken following the
meeting to ascertain the rationale behind these
voting outcomes. It was established that the
votes against these resolutions were primarily
the result of one dissenting shareholder with a
significant holding. Further dialogue took place
with this shareholder to better understand
their specific concerns and to understand and
discuss their views.
In response to these dissenting votes, the
Company confirms that in relation to the
reappointment of EY, a competitive audit tender
will be undertaken at the end of their current
term in 2024. With respect to the resolutions
to allot shares and the disapplication of pre-
emption rights, the Board notes that these
resolutions are considered routine practice
for UK listed companies and are within the
Investment Association’s Share Capital
Management Guidelines and the Pre-emption
Group’s Statement of Principles. The Board
continues to consider that the level of Directors’
authority under these resolutions is appropriate
to maintain flexibility and are in the best interests
of the Company. The views of all shareholders
are important to the Company and the Board
remains committed to maintaining ongoing
engagement with shareholders.
At last year’s AGM, all resolutions were passed,
with votes in support ranging from 72.63%
to 99.97%. Shareholders unable to attend
the AGM are reminded that they are able to
submit questions in advance of the meeting at
agmquestions@petrofac.com.
Investor Relations Programme
Our Investor Relations team acts as the
principal focal point for contact, with an annual
programme of meetings and presentations with
existing prospective shareholders and other
investors, as well as research analysts.
The Board believes that constructive engagement
with major shareholders and other investors
is critical, as it enables the Directors to better
understand their views, while establishing and
maintaining good relationships.
Directors attend meetings with major
shareholders and other investors throughout the
year, to facilitate direct lines of communication
with management and the Board. Governance-
specific meetings are also held for the Chair
and Senior Independent Director, to allow them
the opportunity to gain insights on governance
matters from a shareholder perspective, and
to hear directly from key investors on matters
including succession planning and remuneration.
During 2023, we increased dialogue with
shareholders, other investors and analysts,
focused on both key operational matters and our
ongoing strategic and financial review. Additional
meetings were also held with our corporate
brokers to better understand investor sentiment.
Analyst research notes are regularly circulated
to Directors, with brokers’ reports submitted to
Board meetings.
During 2023, over 200 meetings were held, with
significant focus given to liquidity, refinancing
and operational performance.
107
PETROFAC LIMITED | Annual report and accounts 2023
Corporate governance report continued
Board leadership and
Company purpose continued
Deeds of indemnity
In accordance with our Articles of Association,
and to the maximum extent permitted by
Companies (Jersey) Law 1991, all Directors and
Officers of Petrofac Limited are provided with
deeds of indemnity in respect of liabilities that
may be incurred as a result of their office. The
Group also has appropriate insurance coverage
in respect of legal action that may be brought
against its Directors and Officers. Neither the
Company’s indemnities nor insurance policies
provide any cover where a Director or Officer is
found to have acted fraudulently or dishonestly.
Disclosures required under Listing Rule
9.8.4 R
The information required to be disclosed in
accordance with Listing Rule 9.8.4R of the
Financial Conduct Authority’s Listing Rules can
be located on the following pages of this Annual
Report and Accounts:
Listing Rule Detail
Page
Reference
9.8.4R (1-2) (5-14) Not applicable –
9.8.4R (4) Long-term incentive
scheme
131-132
139-140
Major shareholders
In accordance with DTR 5, information
provided to the Company is published on a
Regulatory Information Service at the time of
receipt. TheCompany has received notification
of material interests in voting rights over the
Company’s issued ordinary share capital.
This is set out in the table below:
Name
% of issued
share capital
as at
29December
2023
% of issued
share capital
as at 16May
2024
Nature of
holding
A Asfari
andfamily 17.0 4% 16.93%
Direct and
indirect
AzValor Asset
Management 16.88% 16.90% Direct
Hargreaves
Lansdown Asset
Mgt 9.14% 9.04% Indirect
Interactive
Investor Services 7.3 8% 7. 2 3% Indirect
Petrofac
Employee
Benefit Trust 3.69% 4.45%
Direct and
indirect
Perpetual
_
4.28% Indirect
Halifax Share
Dealing 4.71% 4.10% Indirect
UCAP Bahamas 1.64% 3.35% Indirect
EFG Bank AG 3.33% 3.24% Indirect
Division of responsibilities
Board roles
The roles and responsibilities of our Directors
are set out on page 106. All Directors are
encouraged to be open and forthright in their
approach as we believe this helps to forge
strong working relationships, allowing them to
make their best possible contribution. Our Non-
executive Directors are also encouraged to share
their experience, and each is well-positioned
to support management, whilst providing
constructive challenge.
Regular meetings between the Chair and Group
Chief Executive are held throughout the year,
allowing general matters to be discussed and
enabling them to reach a mutual understanding
of each other’s views. The Chair and SID also
maintain regular contact between scheduled
Board meetings, with time also set aside at
each meeting for the Chair to meet with the
Non-executive Directors without the presence
of management.
The relationships between these roles are
important, as these individuals represent the
views of both management and Directors,
respectively. The combination of these meetings
ensures that the Chair is fully informed of
all views, which assists in setting agendas
and ensures all Directors can contribute
effectively through their individual and
collectiveexperiences.
Dealing with potential conflicts of interest
Should a potential conflict of interest arise
during a term of appointment, processes
andprocedures are in place for Directors
to identify and declare any such conflict,
whethermatter-specific or situational.
The Company’s Articles of Association permit
the Board to authorise such conflicts, which can
be limited in scope. Notifications are required
to be made by the Director concerned prior to
or at a Board meeting, and all Directors have a
duty to update the whole Board of any changes
in personal circumstances. During 2023, there
were no conflicts of interest reported and all
conflict management procedures were adhered
to and managed effectively.
Board composition
At the date of this report, the Board has nine
Directors, comprising the Chair (who was
independent on appointment), five independent
Non-executive Directors, one non-independent
Non-executive Director and two Executive
Directors. Their full biographies are detailed on
pages 102 and 103. All Board appointments are
subject to a formal and rigorous procedure led
by the Nominations Committee. Details of the
work undertaken by this Committee during 2023
is set out on pages 111 to 114.
Composition, succession,
and evaluation
The appointment and replacement of Directors
is governed by the Company’s Articles of
Association, the UK Code, the Companies
(Jersey) Law 1991 and related legislation. The
Directors may from time to time appoint one or
more Directors to the Board and any person
may be appointed to be a Director. Under the
Articles, any such Director shall hold office only
until the next AGM where they will stand for
annual election.
Directors’ skills and experience
Each of our Directors has a varied career history,
and considerable effort has been taken to
ensure that the Board retains the right balance
of skills, capabilities, knowledge diversity, and
industry expertise to ensure we are able to run
the business effectively and deliver sustainable
growth. The Board skills matrix on page 108
details key skills and experience identified as
necessary for oversight of the Group and the
effective execution of our strategy.
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
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PETROFAC LIMITED | Annual report and accounts 2023
GOVERNANCE FINANCIAL STATEMENTS
Board evaluation
The Board understands the benefits of annual
performance evaluations, both for Directors
on an individual basis, as well as for the Board
as a whole. It continually strives to improve its
effectiveness and believes these evaluations
can provide a valuable opportunity to highlight
recognised strengths and identify any weaknesses,
thereby driving continuous improvement.
Our annual Board evaluation provides the
Board and its Committees with an opportunity
to reflect on how it operates and consider the
quality and effectiveness of its decision-making,
the range and level of discussion, and for each
member to consider their own contribution and
performance. The UK Code also requires the
Board to undertake a formal and rigorous annual
evaluation of its performance and that of its
committees, with a provision requiring that this
be externally facilitated every three years. The
Board’s external evaluation, in accordance with
our three-year cycle, took place in 2022 and the
outcomes and actions arising from that review
are set out below.
2023 Board evaluation – review process
In accordance with the UK Code and our three-
year cycle, this year’s review of the Board’s
effectiveness was facilitated internally by the
Chair and the Secretary to the Board.
Building on the work completed following the
external evaluation, detailed questionnaires were
created for the Board, with all Directors and
regular meeting attendees requested to respond
in December 2023.
The questionnaires covered a broad range
of issues and enabled participants to provide
comments on all aspects of performance,
including matters such as: Board and
Committee composition; meeting conduct;
strategy and culture; risk management and
internal controls; measuring and monitoring
performance; content and scope of topics
covered at meetings; the nature and dynamics
of Director contributions during meetings; and
stakeholder engagement.
These topics aimed to address issues raised
in previous evaluations, where participants
were asked to score each statement and
provide written comments, including areas for
improvement. The responses were collated
and provided, on an anonymous basis, to the
Chair. This enabled him to discuss the outputs
with Directors and to assess performance and
contribution, identifying development areas
for individuals and the Board as a whole. The
Senior Independent Director also led the Non-
executive Directors in a review of the Chairman’s
performance, with feedback provided directly.
The results of this review were presented in
a detailed report to the Board in early 2024,
with key areas of focus identified, including
the Financial Restructure and resulting Board
structure and composition.
Following completion of the evaluation process,
the Board remains satisfied that it continues to
operate effectively and believes the Directors
are performing well as would be expected within
their roles.
The Board performance evaluation cycle
2022
External evaluation
2023
Internal evaluation
2024
Internal evaluation
Facilitated by Independent Audit, an
advisory firm who works with many
FTSE companies in numerous areas
of governance including board
evaluation and who have no other
connection with the Company. Final
report presented to the Board in
February/March 2023, with actions
reviewed throughout 2023.
Facilitated by the Chair and the
Secretary to the Board, by way of
confidential self-evaluation
questionnaires. Results collated and
presented to the Board in March
2024. Action plan to be agreed and
reviewed throughout 2024.
Facilitated by the Chair and the
Secretary to the Board. Further
details will be provided in the next
Annual Report.
Progress against the actions arising from
the 2022 external effectiveness review
The 2022 external evaluation recognised that in
the immediate term, the Board’s focus would be
on dealing with urgent business challenges and
this has been the case as evidenced by the work
undertaken to evaluate options identified through
the financial and strategic review and implement
the Financial Restructure.
Board composition
There have been a number of changes to Board
composition during the year. In April 2023,
Tareq Kawash was appointed Group Chief
Executive, replacing Sami Iskander who stepped
down at the end of March. In December we
welcomed Aidan de Brunner as an independent
Non-executive Director to the Board, to drive
engagement with finance providers, investors
and other stakeholders. We continue to
review the Board’s collective knowledge, skills
and experience to highlight areas for further
development and to enhance our effectiveness.
Management engagement
Executive Committee meetings are held between
Board meetings as a vehicle to communicate
and connect the work of the Board and
executive management. Input is gathered on key
agenda items for the next meeting.
Meeting formats
Executive summaries and consistent formatting
of presentations are used, with standardised
committee and executive session reporting.
Focus is given to generative discussions in
theboardroom.
Employee engagement
The Board monitors employee engagement
in a number of ways: through Board and
committee management reporting; our
workforce engagement forums; employee survey
results; and monitoring of progress made on
our diversity and inclusion strategy and targets.
Through these engagement surveys, the Board
and the Executive Committee analyse the results
and develop action plans for improvements.
109
PETROFAC LIMITED | Annual report and accounts 2023
Special Committee report
The Special Committee
On 4 December 2023, the Board established a
Special Committee of the Board. The Committee
is tasked with examining and recommending
for implemention a range of strategic and
financial options with the objective of materially
strengthening the Group’s balance sheet,
securing guarantees, and improving liquidity (the
Financial Restructure).
Committee responsibilities
The primary responsibilities of the
Committeeare:
• Review all Financial Restructure work-streams,
ensuring the key stages in the Financial
Restructure plan are running in accordance
with the overall Financial Restructure
timetable and are authorised to take all
necessary actions to ensure the successful
implementation of the timetable.
• Review the preliminary business plan,
including all drafts, with the objective of
finalising the business plan for approval by
theBoard.
• Review and monitor the liquidity performance,
including key risks and opportunities which
may impact the liquidity profile of the Group
and agree any remedial actions in conjunction
with senior management.
• Review the most recent cash flow forecasts
and any significant cash commitments,
including cash flow timings in conjunction with
major contractual obligations to ensure the
appropriate levels of liquidity are available.
• Review the status of client contracts which
may have a significant impact on the liquidity
performance of the Group.
• Review any feedback from negotiations with
bondholders, shareholders, lenders, and other
key stakeholders.
• Review of all circulars and prospectuses
required as part of the Financial Restructure
timetable, ensuring such documentation is
recommended to and approved by the Board.
• Review all legal, tax or regulatory advice from
the Group General Counsel and from the
external advisor panel.
• Review and approve the Financial Restructure
budget and agree any further expenditure
deemed necessary to support the objectives
of theFinancial Restructure.
• Ensure that all strategic planning and decision
making undertaken throughout the Financial
Restructure lifecycle is in accordance with the
Directors’ duties in distressed situations.
Committee membership and governance
The Committee membership consists of Aidan
de Brunner, an Independent Non-executive
Director, Ayman Asfari, a Non-executive Director,
Tareq Kawash, Group Chief Executive and
Afonso Reis e Sousa, Chief Financial Officer,
whose expertise and experience is set out on
pages 102 to 103. The Committee meets twice
a week with senior management and external
advisors, ahead of providing regular progress
updates to the full Board or one-to-one sessions
with individual Board members on topics which
may require a deeper dive.
The status of the Financial Restructure
The context and status of the Financial
Restructure can be found on pages 8 and 9.
Activities of the Committee
The activities undertaken by the Committee since its establishment are:
Liquidity
management
At each meeting, the Committee, together with the senior management and
support from external advisors, has monitored the current liquidity profile of
the Group alongside a medium-range liquidity forecast. The Committee has
also discussed the management of significant liquidity events and how it
drives a priority payment process for the management of payables.
Shareholder and
new equity investor
engagement
Committee members have undertaken numerous international meetings with
several major shareholders and potential new equity investors, to seek their
support for refinancing options. At these meetings, Committee members have
outlined the Group’s business plan and solutions designed to strengthen the
Group’s balance sheet.
Creditor
engagement
Committee members have had numerous conversations with existing
and potential new lenders, aimed at extending current loan facilities,
providing financial guarantees, and improving liquidity. The Committee has
also had regular discussions with the bondholders of the Company, and
theirrepresentatives.
Risk assessment The Committee has regularly reviewed and challenged the Financial
Restructure risk assessment which ranks risk factors including, inter alia,
liquidity and key stakeholder support.
Potential sale of
non-core assets
The Committee has initiated and assessed potential sales processes for
non-core assets, to help generate additional liquidity.
Engagement with
the Board
The Committee has provided regular updates to the Board on the progress
of the Financial Restructure, outlining liquidity management matters, progress
with stakeholder discussions, the status of potential disposals of non-core
assets, consideration of Directors’ duties and supplierissues.
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
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PETROFAC LIMITED | Annual report and accounts 2023
GOVERNANCE FINANCIAL STATEMENTS
10
Nominations Committee report
RENÉ MÉDORI
Chair
Membership:
Chair: René Médori
Committee members:
Sara Akbar, Ayman Asfari,
Matthias Bichsel, David Davies,
Francesca Di Carlo
Role and responsibilities:
• Review the composition, size and structure
of the Board and its Committees, taking
into consideration the skills, knowledge,
experience, diversity of gender, social and
ethnic backgrounds, and cognitive and
personal strengths of Directors
• Identify and recommend for Board approval
suitable candidates to be appointed to the
Board, fully evaluating the balance of
existing skills, knowledge and experience
required to support the strategic objectives
of the Group
• Consider the effectiveness and rigour of
thesuccession planning processes for
theGroup and maintain oversight of the
development of a diverse pipeline for
succession to both Board and senior
management roles
How the Committee spent
its time during the year:
Dear Shareholder
This report provides an overview of the work of
the Nominations Committee and its activities
during the year.
The Committee takes the lead on all Board and
Committee appointments, which includes the
process for identifying and nominating suitable
candidates, and so ensuring Petrofac has the
right balance of skills, experience, and diversity
ofthought to help achieve its strategicobjectives.
Director changes
As reported in the 2022 Annual Report, following
a formal recruitment process, Tareq Kawash was
appointed as Group Chief Executive with effect
from 1 April 2023, following the departure of Sami
Iskander, who stepped down from the Board
on 31 March 2023. Tareq’s prior experience,
knowledge, impressive EPC track record,
business development expertise and personal
strengths were all taken into consideration during
the recruitment process, and it was agreed by the
Committee that he would be a strong addition to
the Board as the Company embarks on the next
phase of its return to growth.
On 4 December 2023, the Board approved
the appointment of Aidan de Brunner as a
Non-executive Director. Aidan brings over 20
years of board, management, investment, and
financial advisory experience gained across a
variety of global businesses. His full expertise
and experience can be found in his biography
onpage 103.
Aidan has committed for a limited period to
support the Board through engaging with
financial providers, investors, and other key
stakeholders in an active review of strategic
and financial options to deliver on the Group’s
potential following its most successful period
for new awards in many years (see Financial
Restructure on pages 8 and 9).
Aidan chairs the Special Committee of the
Board, which is tasked with examining a
range of strategic and financial options with
the objective of materially strengthening the
Group’s balance sheet, securing guarantees,
andimprovingliquidity.
Governance/other 27%
Board composition 31%
Diversity and inclusion 11%
Talent development 31%
111 PETROFAC LIMITED | Annual report and accounts 2023
Director composition and re-election
Each of our Directors has a varied career
history,and considerable effort has been
taken to ensure that the Board retains the
right balance of skills, capabilities, knowledge,
diversity and industry expertise to ensure we are
able to run the business effectively and deliver
sustainable growth. A process to identify new
Non-executive Directors who could join the
Board during 2024 has commenced to allow
foreffective succession for those Directors who
are reachingor have reached their tenure limits.
The Committee monitors the external
commitments of our Non-executive
Directorswho, from appointment, commit
to allocating sufficient time to discharge their
responsibilities effectively. The Committee
also considers potential conflicts of interest,
externaltime commitments, and residency
status. In line with the findings of our internally
facilitated Board effectiveness review, and
supported by their biographies, the Board
believes that the re-election at the 2024
AGM ofall Directors is in the best interests
oftheCompany.
Board effectiveness
The Board believes that continuous training
and development supports good Board
effectiveness. The Company is committed to
offering tailored training to provide Directors
with the necessary resources to refresh, update
and enhance theirskills, knowledge, and
capabilities. With the ever-evolving regulatory
landscape in which the Group operates, it is
critical that the Board remains aware of recent
and upcoming developments inthe wider legal
andregulatoryenvironment.
To this end, the Secretary to the Board regularly
updates the Board on the governance, legislative
and regulatory matters that may impact the
Group and, where relevant, briefings from external
advisors on a variety of strategic and significant
topics are provided. Our Board evaluation
process this year was internally facilitated and
details on the actions arising from this review are
set out on page 109.
Induction programme
On appointment to the Board, all new Directors
undertake a detailed, tailored, comprehensive
induction programme. This is intended to
provide a broad introduction to the Group and
allows the Company to account for individuals’
differing requirements and to concentrate on
key focus areas, thus ensuring each Director
is fully prepared for their new role, taking their
background and experience into consideration.
Tareq Kawash’s induction programme
commenced in early 2023 and, having considered
his key strengths, the focus areas for his induction
were determined and agreed to better understand
the Group. An overview of this programme is set
out on page 114.
Succession
Succession planning for senior management
remains a key focus area for the Committee.
Significant interest is taken in the development of
the Group’s future leaders and, on a regular basis,
the Committee considers those employees who
have been identified as high-potential talent from
across the Group.
In January 2023, the Board met with a
selection of such employees to gain a deeper
understanding of their experiences and the
challenges beingfaced.
At three separate committee meetings during
the year, the Committee met to discuss detailed
succession plans for the junior, middle and senior
management populations in the company world-
wide. These meetngs discussed: performance
and potential ratings; areas of succession
weakness, plans to improve our diversity (gender
and local nationals) etc. This process is integral
to the Group’s strategic plans, and effective
succession planning and the development of a
diverse talent pipeline have been key priorities for
the Committee over the last few years
A key focus has been to develop employee skills
and capabilities, with the progression of emerging
talent reviewed on a regular basis, not only to
check that appropriate processes are in place
to identify and monitor future potential leaders,
but also to allow the Committee to discuss such
talent on an individual basis.
My own succession was discussed during 2022
and in early 2023, as my tenure reached the
maximum threshold set out in Provision 19 of
theUK Corporate Governance Code.
Following the change in Group Chief Executive, the
Committee proposed that I should remain as Chair
to provide continuity on the Board, as it was felt
that it would be inappropriate to consider a change
of Chair at the current time, with the requirements
to maintain a stable and experienced Board
considered paramount while the Group continues
to implement its strategic and financial review.
The formal process to find a suitable successor
will be headed by Matthias Bichsel as Senior
Independent Director and this will commence
during 2025.
Employee Engagement
The Committee reviewed the outcome of
our annual employee engagement survey
and were pleased to see both a record
“employee satisfaction” score (88%) and a
record participation rate (77%). Nevertheless,
the Committee recognised areas of the
survey where the scores were below average
and theyinstructed management to put
appropriateaction plans inplace.
Nominations Committee report continued
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
112 PETROFAC LIMITED | Annual report and accounts 2023
GOVERNANCE FINANCIAL STATEMENTS
We established the Petrofac Workforce Forum
in 2019, whereby 12 employee representatives
from around the world were directly elected by
the workforce for a three-year term. Following
completion of their term, further elections were
held in early 2022. The Committee met with
the Workforce Forum twice in 2023, in addition
to management meetings held with local
representatives. We continue to view the Forum
as a valuable source of insight on employee
experiences and concerns. We look forward to
further engagement in 2024.
Diversity and inclusion
Diversity and inclusion continue to be focal points
for the Committee and it is acknowledged that
diversity is not just about improving the levels
of female representation throughout the Group
and addressing the gender imbalance, but in
developing a diverse workforce and an inclusive
working environment, irrespective of gender, race,
colour, religion, sexual orientation or marital status
to create a workplace that celebrates the diversity
of all employees andstakeholders.
The Committee considers diversity and inclusion
to be significant factors in the Company’s
success, believing that an inclusive and diverse
workforce promotes productivity and wellbeing,
and underpins our ability to attract and retain
employees that is reflective and representative
of our core geographies and of the communities
in which we operate. Throughout the year, the
Committee continued to provide oversight to
ensure effective strategies are in place that will
develop and strengthen our talent pipelines and
promote a culture that upholds the Group’s
principles of inclusion, diversity and equality.
We have been pleased to see progress made on
a number of fronts in recent years. In 2019, our
Hampton Alexander score (now FTSE Women’s
Leader index) which measures the % of women
on our Executive Committee or those who are
direct reports to our Executive Committee stood
at 6.3%. This has increased dramatically since
2019 and in 2023 we achieved our highest score
to date at 30.5%. This meant we achieved our
target of 30% of senior leaders being women two
years ahead of our 2025 target.
Similarly, the number of women in our global
workforce has grown from 10% in 2019 to
16.7% in 2023. We have also set a number of
targets around increasing the number of women
in middle management positions to provide a
diverse pipeline of future talent.
We have also sought to increase the number of
local nationals in senior management positions as
we seek to represent the communities in which
we operate. The number of local nationals in
these positions has trebled in the last four years.
While significant improvements are being seen,
it is recognised that work remains to be done
across the organisation. Notwithstanding that
engineering and construction continue to be
predominately male-dominated professions, we
are determined that further progress can be made
over the coming years. We appreciate there are
long-term challenges to overcome, but we are
pleased with the improvements that have been
seen in respect to diversity within the Group’s
talent pipeline in recent years.
The Board has had a Diversity & Inclusion
policy in place since 2016 (which was updated
in 2022).The policy aims to set measurable
objectives which drive continuous improvement
on all elements of diversity. The selection of
candidates to join the Board will continue to be
made based on merit and on the individual’s
ability to contribute to the effectiveness of the
Board, with all appointments and succession
plans intended to promote diversity of gender,
social and ethnic backgrounds, and cognitive
andpersonalstrengths.
A copy of our Board diversity policy can be
found at petrofac.com/media/download-centre/
publications. Further information on our approach
to diversity and inclusion and the many initiatives
introduced to promote and drive the diversity
agenda and develop our diversity strategy
throughout 2023 are set out on pages 37 and 60.
The Committee acknowledges the changes
to the FCA Listing Rules (LR 9.8.6R(9)), which
relate to enhanced disclosures in gender and
ethnic diversity at board level. These changes
recommend that boards and leadership teams
have a minimum of 40% women by the end of
2025, and further, that at least one of the roles of
chair, chief executive, senior independent director
or chief financial officer is held by a woman. In
addition, there is a requirement to have at least
one individual on the board from a minority
ethnicbackground.
As at 31 December 2023, the Company had
not met these gender diversity targets, but had
achieved the target relating to having at least
one individual on the Board from a minority
ethnicbackground.
The Committee has confirmed it will consider
these gender and ethnic requirements as part of
its succession planning processes, especially in
relation to vacancies that will arise in the senior
Board positions over the coming years.
RENE MEDORI
Chair
31 May 2024
113
PETROFAC LIMITED | Annual report and accounts 2023
Nominations Committee report continued
Governance highlight
Group Chief Executive
induction programme
Tareq Kawash’s induction programme
started in early 2023 following his
appointment as Group Chief Executive.
An overview of this programme is set
outbelow:
Strengths
• Over 30 years’ experience in the
engineering and construction industry
• Extensive experience of living and
workingin the Middle East
• Broad commercial experience
• Strong experience of business
development, operational and
projectmanagement
Focus areas
• Increase knowledge of Petrofac
• Meet with senior management teams
across the Group
• Increase understanding of the role
andduties of a Jersey director of a
UK-listedcompany
Induction programme
• Individual meetings with
Non-executive Directors
• Individual meetings with Executive
Committee members and their
directreports
• Deep dives on all current projects
• Visiting all key operational offices, including
Sharjah, Aberdeen, Woking, Muscat,
Chennai and Mumbai
• Client visits in the UAE, Oman, Thailand,
Algeria and Lithuania throughout 2023
• Meetings with key advisors, including
corporate lawyers, brokers, PR consultants
and remuneration consultants
• Attendance at the Company’s
Workforce Forum meetings in May
andDecember2023
FIND OUT MORE AT /
petrofac.com
In accordance with LR9.8.6(10) of the FCA’s Listing Rules, the following tables detail the diversity profile
of the Board and the Executive Committee as at 31 May 2024:
Gender Identity or Sex
Number of
Board members
Percentage of
the Board
Number of
senior positions
on the Board
(CEO, CFO, SID
and Chair)
Number in
executive
management
Percentage of
executive
management
Men 7 78% 4 10 83%
Women 2 22% 0 2 17%
Other categories – – – – –
Not specified/prefer not to say – – – – –
Ethnic background
Number of
Board members
Percentage of
the Board
Number of
senior positions
on the Board
(CEO, CFO, SID
and Chair)
Number in
executive
management
Percentage of
executive
management
White British or other white
(including minority-white groups) 5 56% 2 9 75%
Mixed/Multiple ethnic groups 1 11% 1 – –
Asian/Asian British – – – 1 8%
Black/African/Caribbean/
BlackBritish – – – – –
Other ethnic group, includingArab 3 33% 1 2 17%
Not specified/prefer not to say – – – – –
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
114
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GOVERNANCE FINANCIAL STATEMENTS
Audit Committee report
DAVID DAVIES
Chair
Membership:
Chair: David Davies
Committee members:
Matthias Bichsel, Sara Akbar
How the Committee spent
its time during the year:
Financial statements and reporting 46%
External auditor 14%
Risk management, internal control
and going concern 25%
Governance matters 11%
Other 4%
The responsibilities of the Committee are to:
• Monitor the Group’s financial reporting processes and
the integrity of the Group’s financial statements,
including the review of significant financial reporting
judgements and estimates, and narrative disclosures
• Monitor the Group’s risk management system, review
the principal risks and the management of those risks
• Provide advice to the Board on whether the Annual
report and accounts, taken as a whole, is fair,
balanced and understandable and on the
appropriateness of the Group’s assessment of going
concern and the long-term viabilitystatement
• Review and monitor the external auditor’s independence
and objectivity and the effectiveness of the external audit
• Review and monitor the Group’s internal controls
framework, risk management processes and the
effectiveness of the Group’s Internal Audit function,
including key financial, operational and
compliancecontrols
• Monitor risk exposures and future risk strategy,
includingthe strategy for capital and liquidity
management, IT risks(including data privacy
andcyberrisks) and climate-relatedrisks
Objective
The objective of the Committee is
the provision of effective governance
over the appropriateness of financial
reporting of the Group, including the
adequacy of related disclosures, the
performance of both the Internal Audit
function and the external auditor and
oversight of the Group’s systems of
internal control, business risks and
related complianceactivities.
Dear Shareholder
I am pleased to present this year’s Audit
Committee report, which provides an overview
of how the Committee operates, an insight into
the Committee’s activities during the year and
its role in ensuring the integrity of the financial
statements and the effectiveness of its risk
management, controls and related processes.
The Committee met six times during 2023 and
the attendance by members at meetings can
be seen on page 105. Each meeting agenda
included not only standing items but also a
range of topics across the Committee’s areas
ofresponsibility.
• At the March meeting we considered the
assessment of the effectiveness of the
Company’s risk management and internal
control systems. This was principally to support
the statement in the 2022 financial statements
that “the Board is satisfied that sound
risk management and systems of internal
control have been in place across the Group
throughout 2022…” but also to prepare for the
proposed audit and governancereforms.
115
PETROFAC LIMITED | Annual report and accounts 2023
The Committee also considered the control
environment, regulatory compliance and
assurance activities including the effectiveness
of the Risk Management function.
• In May and November the Committee
received updates from management in relation
to insurance, principal risks and internal
audit matters and challenged the Group’s
internal controls framework, risk management
processes and key financial, operational and
compliance controls.
After the year end, the Committee met a further
four times to consider the matters that were
relevant to the conclusion of the year end audit
and the approval of the 2023 financial statements.
This included routine elements related to the
completion of the financial statements and the
associated audit (such as key judgements and
estimates, uncertain tax exposures and reviews
of impairment testing), in addition to discussing
the Internal Audit report and the annual Treasury
Risk Management Policy review. Furthermore,
there was significant consideration and review
of the ongoing Financial Restructure (pages 8
and 9) and its impact on the Director’s going
concern assessment, as well as the implications
of the control deficiencies identified during the
year (as detailed below) and the results and
conclusions of the additional assurance activities
undertaken in response to these deficiencies. After
carefully considering all supporting evidence, the
Committee was satisfied on the appropriateness
of the going concern and viability statements, and
the effectiveness of the Group’s overall control
environment (including the additional assurance
activities) and the Risk Management function.
Disappointingly, there are two prior year
adjustments reflected in the financial statements.
In respect of the most significant adjustment,
work undertaken in the year by the Company’s
assurance and compliance teams, in response
to enquiries from the Group’s auditor, highlighted
necessary improvements in relation to the
adequacy of information flows within the
business, and in particular information flows
as part of the year end finalisation process.
The deficiency in the Group’s internal controls
identified from this work was similar in nature
to that highlighted in last year’s report. An error
occurred during Q1 2023 whereby updated
third-party quantum expert advice in support
of our claim for a variation on one of our E&C
contracts was not reported by our legal teams
to our finance team and E&C management or
to the auditor, at the appropriate time. There
was insufficient follow-up on the matter by the
legal and E&C finance teams in the post balance
sheet event period, and therefore, appropriate
evaluation of this update did not occur ahead of
the issuance of the 2022 financial statements.
Following the findings, the Group’s Investigations
Team (GIT) concluded that, in the absence of
conclusive evidence of intention to mislead, the
error occurred as a result of inadequacies of
matter management and judgement, stemming
from a lack of clarity and awareness of year
end processes. The GIT also identified control
improvements which have been implemented,
including with respect to closer involvement
of the Group Legal teams supporting the
AVO assessment process and in the PBSE
year endprocess. Enhanced training will be
providedto key functional teams on these
processes and the effect of the enhancements.
• At the April and August meetings we
considered the anticipated financial reporting
matters impacting the year-end and half-year
reports. Our work included reviews of goodwill
impairment testing, taxation judgements and
uncertain tax exposures, key judgements
and estimates, the treatment of separately
disclosed items and the Company’s work
on going concern and the long-term viability
statement. At the April meeting, we also
considered the impact of the deficiency
in controls in respect of the Thai Oil Clean
Fuels contract and the additional assurance
activities undertaken to satisfy ourselves that
there were no other similar occurrences. We
additionally considered the Annual Report
and accompanying announcements, prior
to the Group’s results release. At our August
meeting, wealso reviewed the half-year
results announcement.
• We also performed deep dive reviews in
respect of the interim and full year financial
statements which challenged the going
concern and viability statements and their
underlying assumptions and evidence. Using
extensive financial modelling we focused
on the impact of operational challenges,
the liquidity position of the Group, the
headroom against committed facilities
and compliance with financial covenants.
The Committee questioned management
and sought assurance on the adequacy
of the contract contingencies included in
forecast costs to complete any current
projects. Taking into consideration the
detailed analysisundertaken, the Committee
was satisfied that the going concern and
viabilitystatements remained appropriate.
The resulting prior year adjustment of a reduction
in revenue of US$24 million has been reflected in
the comparative income statement in this year’s
consolidated financial statements.
The other prior year adjustment was in respect
of tax provision releases in certain jurisdictions
and errors in translating foreign currency
balances totalling US$14 million which were
identified as relating to the previous year.
Additionally, two incidents were identified by
the Company in Q1 2024 during the PBSE
period. First, members of a commercial team
were found to have inappropriately edited
and shared externally a legally privileged
document produced by third party advisors.
This manipulated document was then also
provided to the Company’s auditors during the
2023 audit. The amendments had no impact on
the financial statements, but the manipulation
was a clear breach of the Group’s documented
processes and controls, as well as the Code of
Conduct that applies to all employees.
Second, individuals in one business unit were
found to have inappropriately suppressed
the recording of cost growth on an EPCC
contract, as well as not following the appropriate
processes and procedures for the release of
contract contingencies on other contracts
they managed. These incidents were identified
through the Group’s controls framework
and the financial statements presented were
updatedappropriately.
Audit Committee report continued
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
116
PETROFAC LIMITED | Annual report and accounts 2023
GOVERNANCE FINANCIAL STATEMENTS
The Board and management responded to these
incidents by immediately instructing the Group
Investigations Team, supported by external
advisors, to investigate and act swiftly upon
the findings. The investigation also covered a
number of contracts not directly relevant to the
individuals concerned, to provide comfort that
such practice was not widespread; no evidence
was found to suggest this. The Board and
management are committed to identifying the
root cause of such ethics breaches, informed
by the findings of the investigations, and will
oversee a programme of work to address
the cultural, behavioural or organisational
design issues that may have contributed to
the incidents. Executive management has
communicated with the wider organisation about
the incidents to reinforce core expectations in
relation to culture and conduct.
In conjunction with these investigations, the
Board sought additional independent assurance
in relation to these control deficiencies and
instructed external advisors to perform additional
procedures. They undertook a review which
focused on a sample of EPC contracts that
were underway during the year, and reviewed
revenue and cost information, electronic
communications, and undertook fact finding
interviews with key individuals within the
business related to those contracts.
The advisors did not identify any further instances of
document manipulation, but did identify a number
of areas of improvement which will be addressed
with the Board’s full support in the coming months.
In respect of the errors and control breaches
identified, the additional assurance activities
undertaken included confirmations from all
project directors, key support functions and
divisional management that any information
identified or received post year end was
appropriately reflected in the financial statements.
Additionally, this included testing the integrity of
a material sample of third-party documentation
relied upon by the Board and management to
conclude the preparation and approval of the
financial statements, including all examples
in the samedivision. Finally, emails and cost
reports from a number of additional contracts
were reviewed to ensure no other such incidents
could be identified.
In light of the findings noted above, the Committee
carefully considered the assessment of the overall
effectiveness of the Company’s risk management
and internal control systems. Whilst the incidents
noted reflect control deficiencies, the findings
of the associated investigations (supported
by independent external advisors) concluded
that the incident in respect of inappropriate
information flow was as a result of individual poor
judgement rather than any systemic process
failure. Furthermore, none of these investigations
identified any other such occurrences of any of
these control deficiencies in the broader contract
portfolio. Therefore, as a result of the comfort
gained from both the work completed by the GIT
supported by the independent external advisors
and the additional assurance activities, the
Committee concluded that our risk management
framework and processes, supplemented by the
additional investigations and assurance activities,
operated overall as expected to identify and
assess possible responses to the principal risks
and uncertainties faced by the Group.
Another key focus during the second half of
2023 and 2024 to date has been the ongoing
Financial Restructure, which is detailed in full on
pages 8 and 9. This is critical to strengthen the
Group’s balance sheet, improve liquidity and help
secure both performance and advance payment
guarantees, and to enable the Group to continue
as a going concern. All of these are essential to
help deliver the Group’s secured awards in 2023,
in addition to future new contracts.
The Director’s assessment of the Group’s risk
management and internal control processes
are detailed elsewhere in this report (page 120)
whilst their assessment of the going concern
and viability is covered on pages 123 and 124.
This concluded that the Directors believed that
there are reasonable prospects that the Group
will maintain liquidity in the period up to the
implementation of the Financial Restructure,
will successfully implement the Financial
Restructure and have access to guarantees
on normal commercial terms following the
Financial Restructure, and that therefore, the
going concern basis of preparation remained
appropriate, albeit with a number material
uncertainties clearly disclosed.
However, due to the uncertainties remaining in
the successful implementation of the Financial
Restructure and the inter-conditionality therein,
the Directors note that despite completing all
of their year-end audit procedures, the auditors
have concluded that they are unable to obtain
sufficient appropriate audit evidence to support
the assumptions that a successful restructuring
is achievable in the necessary timeframe and
have therefore disclaimed the audit opinion on
these financialstatements. Additionally, as a
consequence of this disclaimer in respect of
going concern, in line with ICAEW guidance, the
auditors are also required to state a limitation of
scope in respect of the Company’s accounting
records in this regard.
A key role of the Committee is to provide positive
assurance to the Board that it is satisfied that
the Annual report and accounts, when taken as
a whole, are fair, balanced and understandable
and provide shareholders with the sufficient and
appropriate information to enable them to assess
the Group’s position, performance, business
model and strategy. Disclosures have been
enhanced this year in respect of the ongoing
Financial Restructure and the resulting going
concern assessment, to make it clear for all
stakeholders as to the various elements of the
restructure, the associated inter-dependencies
and the criticality of completing it. Our review
process, which confirms the Committee is content
to provide this assurance, is set out on page 120.
Looking ahead, in addition to fulfilling its
normal programme of activities during the
year, the Committee will be closely monitoring
the progress of the Financial Restructure and
the macroeconomic and other conditions
affecting the Group’s strategy and pipeline. The
Committee will continue to maintain its focus on
significant judgements and estimates impacting
financial reporting whilst work will also continue
to ensure the Group is fully compliant with
any new regulations as and when they come
intoforce.
Our external auditor Ernst & Young (EY) continues
to provide robust challenge to management
and its independent view to the Committee on
specific financial reporting judgements and the
controlenvironment.
I would like to thank my fellow Committee members,
other Directors and the management team, and
the internal and external auditors for their continued
support, for the open discussions held, and for
the contributions provided in the support of the
Committee’s work throughout theyear.
DAVID DAVIES
Chair of the Audit Committee
31 May 2024
117
PETROFAC LIMITED | Annual report and accounts 2023
Role and governance
of the Committee
The objective of the Committee is the provision
of effective governance over the appropriateness
of financial reporting of the Group, including the
adequacy of related disclosures, the performance
of both the Internal Audit function and the external
auditor and oversight of the Group’s systems of
internal control, risk management and related
compliance activities.
Committee meetings normally take place the
day before Board meetings. The Committee
Chair reports to the Board on the activity of the
Committee and matters of particular relevance.
The Board has access to the Committee’s papers
and receives copies of the Committee minutes.
The Chair also meets regularly with the external
lead audit partner during the year, outside of the
formal Committee process.
The Committee’s Terms of Reference are available
on the Petrofac website, petrofac.com.
At the date of this report, and throughout 2023,
the Committee comprised independent Non-
executive Directors who are all considered
appropriately qualified and experienced to fulfil
their duties having held senior roles across several
sectors. David Davies has significant, recent and
relevant financial experience, whilst Matthias
Bichsel and Sara Akbar have competence and
extensive expertise relevant to the Group’s
sector. Members have also gained further
knowledge and experience of the sector as a
result of their Board membership and through
various in-person and virtual site visits since their
respectiveappointments.
Furthermore, all members of the Committee
have extensive general management and
commercialexpertise.
Read more about the skills and experience of
Committee members on pages 102 to 103.
Frequency of Audit
Committeemeetings
The Committee met six times during 2023, and
four times so far during 2024. For the Directors’
attendance in 2023, see the table on page
105. Invitations to attend meetings are normally
extended to the Group’s external auditor, the Chair,
the Group Chief Executive, the Chief Financial
Officer, other members of the Board, the Group
General Counsel, the Director of Group Finance,
the Head of Audit and the Chief Compliance
Officer. The Committee also meets with the
external auditor and the Head of Audit without
managementpresent.
External audit
Ernst & Young LLP (EY) continued as the Group’s
global external auditor throughout 2023.
The Committee has primary responsibility for
overseeing the relationship with EY. This includes
the effectiveness of the external auditor on an
ongoing basis, making the recommendation on
the appointment, reappointment, and removal of
the external auditor, assessing its independence
on an ongoing basis, and approving the statutory
audit fee, the scope of the statutory audit and the
appointment of the lead audit engagementpartner.
EY presented to the Committee its detailed audit
plan for the 2023 financial year, which outlined
its audit scope, planning materiality and its
assessment of key audit risks. The identification of
key audit risks is critical in the overall effectiveness
of the external audit process.
Independence and objectivity
The Committee remains satisfied, through
its own observations and enquiries, as well
as the interactions with the Executive team
and senior management throughout the year,
with the independence and objectivity of the
external auditor and the effectiveness of the
auditprocess.
In making this assessment, the Committee
gave due consideration to: (i) views and
recommendations from management and the
Head of Audit; (ii) the execution of the audit
plan; and (iii) the Committee’s own experiences,
including interactions with the external auditor,
throughout the year. Key criteria of the evaluation
included: professionalism in areas including
competence, integrity and objectivity; constructive
challenge of management and key judgements;
efficiency, covering aspects such as service level
and innovation in the audit process; thought
leadership and value added; and compliance
with relevant legislative, regulatory and
professionalrequirements.
Effectiveness of the external
audit process
The Committee reviewed the quality of the
external audit process during the year and
considered the performance of EY. This
comprised the Committee’s own assessment
and those of senior Group personnel. Based on
these reviews, the Committee concluded that
there had been appropriate focus and challenge
by EY on the primary areas of the audit and that
EY had applied robust challenge and scepticism
throughout theaudit.
During 2023, the audit scope included
management’s judgements and estimates
concerning fixed-price engineering, procurement
and construction contracts; the identification and
rectification of deficiencies in internal controls;
robustness of management’s going concern and
viability statement assessments and disclosures
(especially in light of the ongoing Financial
Restructure); impairment assessments and fair
value remeasurements; HMRC’s challenge to
the historical application of national insurance
contributions; uncertain tax treatments and
presentation of the separately disclosed items.
During 2023 and 2024 to date, significant work
was undertaken to review the investigations
related to the compliance matters noted on pages
116 to 117, as well as the additional assurance
activities completed thereafter.
EY non-audit and audit fees
To preserve the independence and objectivity
of the external auditor, the Group has a non-
audit services policy that restricts the nature of
non-audit services that can be provided by the
external auditor. This policy was last reviewed
and amended in 2020 to reflect the FRC’s latest
Ethical Standards and the more restrictive list of
services that are now permitted for an equivalent
UK company with a premium listing. The policy
provides clear definitions of the services that our
external auditor may and may not undertake.
Asummary of this policy is set out below,
whileacopy of the full policy can be found at
petrofac.com.
Audit Committee report continued
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
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PETROFAC LIMITED | Annual report and accounts 2023
GOVERNANCE FINANCIAL STATEMENTS
To ensure compliance with the policy, the
Committee reviews the Group’s cumulative
non-audit expenditure each year and gives prior
approval to the appointment of EY before any
work is carried out should the nature or size of
the proposed work require it. The Committee is
satisfied that EY’s objectivity and independence
was not impaired during the year by any non-audit
service agreements and confirms there were no
breaches to the policy during 2023. In addition,
EY has confirmed that it was compliant with
FRC Revised Standard 2019 in relation to the
auditengagement.
Service provided
Fees
in 2023
(US$m)
Fees
in 2022
(US$m)
Group audit fee 5 4
Audit of subsidiaries’
accounts 2 1
Other including
non-audit services – –
Total 7 5
In 2023 EY received total fees of US$7 million
(2022:US$6million) consisting of US$7 million
of audit fees (2022:US$4 million), and US$0.1
million for non-audit and audit-related services
(2022: US$0.1 million). The total of EY’s non-audit
and audit-related service fees in the year equated
to 2% of the audit fees for 2023 and 2% of the
average audit fees for the last threeyears.
Fees paid to EY are set out in note 5 to the
financial statements. There was no significant non-
audit work undertaken during the year.
All engagements during 2023 were pre-approved
by the Chief Financial Officer or by the Chair of
the Committee and did not include any activities
defined as prohibited services by the Group’s non-
audit services policy. In addition, and in parallel,
EY performed similar safeguarding procedures to
ensure that the proposed non-audit engagements
could beaccepted.
Non-audit services policy summary
• There is a general prohibition on the provision of
non-audit services by the Group external auditor
(and its network) which will apply to Petrofac
Limited and its subsidiaries. A narrow list of
permitted non-audit services will continue to
beallowed
• Certain non-audit services are subject to an
absolute prohibition
• Permitted non-audit services (other than those
required by national legislation) provided to
Petrofac Limited and its subsidiaries are subject
to a 70% cap (the Cap)
• The Cap is defined as permitted non-audit fees
(other than those required by national legislation)
expected to be incurred in the current financial
year not exceeding 70% of the average Group
statutory audit fees for the previous three
financial years
• If the Cap is expected to be breached, the
Audit Committee must be informed in advance
to ensure that enhanced procedures are
performed to obtain assurance on the Group
external auditor’s independence and objectivity
(as defined by reference to the FRC’s Revised
Ethical Standard 2019)
• All permitted non-audit services are subject
to the prior approval of the Committee in
advance of work commencing, subject to
limitedexceptions
• The CFO’s approval is required prior to engaging
the Group auditor on any pre-approved
permitted non-audit services
• Committee pre-approval for permitted non-
audit services is given where the estimated
engagement fee in any one financial year is
below US$50,000
• All services with estimated fee levels above
the US$50,000 threshold must be sent to the
Committee for approval prior to commencement
of the engagement even if defined as permitted
non-audit services
• The CFO will ensure that a full list of permitted
non-audit service engagement, associated
fees and continued compliance with the Cap is
presented to the Committee every six months
unless the Cap is expected to bebreached
• The Audit Committee will seek assurance at
least once a year from the Group auditor on its
policy and safeguards to maintain independence
and objectivity
EY audit tenure
Petrofac last conducted a competitive tender
process in 2016 and, following completion of that
exercise, the Committee recommended that EY
be retained as the Company’s external auditor.
In making this recommendation, the Committee
concluded that the decision was in the best
interests of the Company and itsshareholders.
The next competitive audit tender process will
take place in 2024. As a Jersey-incorporated
company outside the FTSE 350, Petrofac is not
subject to the requirements of The Statutory Audit
Services for Large Companies Market Investigation
(Mandatory Use of Competitive Tender
Processes and Audit Committee Responsibilities)
Order 2014 (the Order). Nevertheless, the
Committee recognises the importance of auditor
independence, and we will therefore apply
voluntarily the provisions in those regulations
requiring the rotation of audit firm after 20 years.
Internal audit, risk management
and internal control
Internal Audit
The Internal Audit function supports the
Committeeby reviewing the effectiveness of
the global risk management framework and
management of individual risks. It plays an
integral role in the governance structure and
provides regular reports to the Committee on
theeffectiveness of governance, systems,
processes and controls across the Group.
Its activity is primarily driven by an agreed risk-
based programme that reflects the key risks
the Group faces, the governance frameworks,
organisational structures and operations. One
of the Committee’s key roles is to challenge the
audit programme, and specifically to determine
whether the key risk areas are being audited
with appropriate frequency and depth. Following
approval by the Committee, the programme
remains under review and subject to change
throughout the year to ensure any changes to
the risk profile or key drivers are appropriately
considered. The Committee reviews and approves
all changes to the programme and receives
updates at each meeting on the outcome of the
work performed.
The 2023 risk-based audit programme and
additional assurance activities were reviewed
and approved in November 2022 and further
developed during the year to reflect changes
in risk profile, business objectives and external
environment. The Committee also approved
the Internal Audit Charter which defines the
accountabilities for conducting risk-based audit
activities, ensuring transparency and a clear line
of separation to preserve the independence of
Internal Audit from the business.
The Head of Audit reports directly to the
Committee and administratively to the CFO,
witha remit to provide independent and
objectiveassurance.
The Internal Audit function also has a role in
assessing the cultural climate in Petrofac via a
number of mechanisms including policy and
compliance processes, and formal and informal
channels for employees to raise concerns. The
latter includes the whistleblowing programme,
Speak Up, which encourages employees,
contractors and suppliers to come forward
with experiences and/or observations of those
breaching the Code of Conduct. The Board is
apprised of any material whistleblowing incidents.
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PETROFAC LIMITED | Annual report and accounts 2023
Risk management
The Board is responsible for maintaining a risk
management and internal control system and
for managing the principal risks faced by the
Group. The Board has implemented the FRC’s
‘Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting’.
The resulting procedures, which are subject
toregular monitoring and review, include
delegation to the Committee which has the
necessary skills, knowledge, experience and
authority to effectively meet its obligations.
Further information on the processes for
identifying, evaluating and managing the
Company’s principal risks can be found on
pages 72 to 77.
The Committee receives regular updates on risk
management from the Group Risk and Audit
teams. The Group’s principal risk report captures
and assesses the principal and emerging risks
facing the Group, outlines how these risks are
managed and monitors exposures. This document
is updated quarterly and is considered at both
Committee and Board level throughout the year.
Additional reports are also submitted by the
external auditor to assist the Committee, and
ultimately the Board, in their annual assessment of
the effectiveness of the Group’s risk management
and system of internal controls. In reviewing each
of the submitted reports, the Committee considers
how effectively risks have been identified; how
they have been mitigated and managed; whether
actions are being taken promptly to remedy
any failings or weaknesses; and whether the
causes of any failings or weaknesses have
indicated poor decision-making, a need for
more extensive monitoring, or a reassessment
ofprocesseffectiveness.
Reports to the Committee cover any significant
matters arising from the programme and
management’s response to significant audit
findings and notable control weaknesses, including
planned improvements and agreed actions. Where
any significant areas of concern are identified
during an audit, an implementation plan is agreed
with management for any required corrective
actions to be addressed on a timely basis, with
follow-up audits arranged. Action closures are
reported to, and monitored by, theCommittee.
The Committee also regularly holds private
sessions separately with the Head of Audit without
members of management present. The Head of
Audit has direct access to the Committee Chair
and meets with the Group’s external auditor
whenever required.
The Committee keeps the Board informed of its
activities and recommendations, with the Audit
Committee Chair providing an update to the Board
after every meeting. The Committee discusses
with the Board where it is not satisfied with or
believes that action or improvement is required
concerning any aspect of financial reporting, risk
managementand internal control, compliance or
audit-related activities.
During 2023, 20 Internal Audit assignments
were carried out and included functional audits
on operational aspects of E&C, Group, Asset
Solutions and HR; business and project level
controls; and IT spend management. The results
of which were included in Internal Audit’s annual
assessment of the system of internalcontrols.
The 2024 audit programme and any additional
assurance activities to be undertaken by Internal
Audit have been reviewed by the Committee
andapproved.
These help to provide the Committee, and
ultimately the Board, with a balanced assessment
of the Group’s principal risks and the effectiveness
of the systems of internal controls. Based on this
assessment, including the work completed by
the GIT supported by the independent external
advisors and the additional year-end assurance
activities, and notwithstanding the concerns that
arose during the year that are noted above, our risk
management framework and processes operated
overall as expected during the year to identify and
assess possible responses to the principal risks
and uncertainties faced by the Group.
Throughout the year, the Group’s principal risks
have been regularly reviewed by management to
provide assurance on the robustness, integrity
and effectiveness of the systems in place,
including those that could threaten its business
model, operations, future performance, solvency
and liquidity. Further details of the Group’s risk
management systems and controls, including an
overview of the risk governance and management
frameworks and key changes to the principal risks
during 2023, are presented on pages 72 to 77.
Internal controls
Petrofac seeks to ensure that a sound system of
internal controls, based on the Group’s policies,
standards and procedures, remains in place for
all material associates and joint arrangement
entities. In the event any failings or weaknesses
are identified in the course of a review of internal
control systems, management puts in place robust
actions to address these on a timely basis, with
action closures reported to and monitored by the
Committee. As with all companies, an internal
control system can provide only reasonable and
not absolute assurance against material financial
misstatement or fraud, as it is designed to manage
rather than eliminate the risk of failure to achieve
business objectives.
Following identification of the internal control
deficiencies during the year, as detailed on pages
93, 116 to 117 and 120, additional assurance
activities were undertaken to ensure there were no
other similar instances within the broader contract
portfolio. These assurance activities did not identify
any further such occurrences.
Other matters
Treasury
The key focus during the second half of 2023
and 2024 to date has been the ongoing
Financial Restructure, which is detailed in full
on pages 8 and 9. This is critical to strengthen
the Group’s balance sheet, improve liquidity and
help secure both performance and advance
payment guarantees, all of which are essential to
help deliver the Group’s secured awards in 2023.
Prior to the financial and strategic review which
resulted in the Financial Restructure, during
2023 the Committee discussed with the Group
Treasurer the funding needs of the Group and
related financing activities. This included the
potential impact of adverse changes in market
conditions on financing plans over the short to
medium term and, more broadly, how funding
and financing risk is being managed. As part
of its remit, the Committee supports the Board
in monitoring performance against the Group’s
funding plan, as well as reviewing the Group’s
compliance with the Treasury Risk Management
Policy, a copy of which is available at petrofac.
com. During the year, the Committee continued
to closely monitor the Group’s funding and
liquidity, particularly in light of the ongoing
challenging market conditions facing the Group
and the resulting effect on financing andliquidity.
Audit Committee report continued
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
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PETROFAC LIMITED | Annual report and accounts 2023
GOVERNANCE FINANCIAL STATEMENTS
This stress-testing also provides additional
certainty that our cover remains as wide as
commonly available across the insurance
market, whilst continuing to represent a cost-
effective risk transfer solution, considering
various factors, including policy limits,
deductiblelevels and policyconditions.
Ahead of the 2024 Group insurance renewal,
a structured and targeted marketing exercise
concerning the main Group policies was
undertaken. After several years of a highly
challenging insurance marketplace in which
insurers have grappled with unprofitable loss
ratios by applying blanket rate increases, 2023
witnessed a more settled insurance landscape
with most classes of insurance being renewed
on the expiring terms. However, continued higher
inflation impacted renewal of the Group’s insurance
programme in April 2024 and total premium spend
has decreased 2% when compared to 2023.
Fair, balanced and understandable
The Committee assessed whether the Annual
report when taken as a whole is fair, balanced
and understandable and provides the information
necessary for shareholders to assess the Group’s
position, performance, business model and
strategy. This assessment is supported by the
Disclosure Committee, membership of which
includes the Group General Counsel and Head of
Company Secretariat, and is chaired by the Chief
FinancialOfficer.
Throughout 2023, the Committee monitored
the integrity of the Group’s reporting process
and financial management, considered the
results of management’s assessment of going
concern andviability, reviewed in detail the work
of the external auditor, and ensured it and any
significant financial judgements and estimates
made by management provide the information
necessary for stakeholders to assess the
Group’s performance and position.
Assurance
At the year end, and as required by the UK
Code, formal assurance is provided to the Board
that effective governance, risk management
and internal control processes are in place
and remain relevant, to ensure that the Group
will continue to be viable for at least the
next three years. This assurance covers all
material controls, including strategic, financial,
operational and compliance controls. Internal
Audit supports the Committee in reviewing the
effectiveness of the global risk management
framework and management of individual risks.
Further details on the overall control processes
are set out on pages 70 to 71.
The Director’s assessment of the Group’s risk
management and internal control processes
are detailed elsewhere in this report (page 120)
whilst their assessment of the going concern and
viability is covered on pages 123 and 124. This
concluded that the Directors believed that there
are reasonable prospects for the successful
conclusion of the Financial Restructure and that
therefore, the going concern basis of preparation
remained appropriate, albeit with certain material
uncertainties clearly disclosed.
Due to the material uncertainties that exist
in respect of the going concern assessment
and the risks regarding the implementation
of the Financial Restructure, the Directors are
unable toconclude that there is a reasonable
expectation that the Group will be able to
continue in operation and meet its liabilities
asthey fall due over the viability assessment
period to 31December 2026.
However, assuming the Financial Restructure
is successfully implemented, and taking
into account the Group’s current position,
prospects, principal risks and uncertainties
and assumptions listed above, the Directors
have concluded that, in those circumstances,
it would have a reasonable expectation that
the Group will be able to continue in operation
and meet its liabilities as they fall due over the
assessmentperiod.
Additionally, due to the uncertainties remaining
in the successful implementation of the Financial
Restructure and the inter-conditionality therein,
the Directors note that despite completing all
of their year-end audit procedures, the auditors
have concluded that they are unable to obtain
sufficient appropriate audit evidence to support
the assumptions that a successful restructuring
is achievable in the necessary timeframe and
have therefore disclaimed the audit opinion on
these financialstatements.
Insurance programme
Petrofac utilises the insurance market as a
risk transfer mechanism, to cover the types
of insurable risks normally associated with an
energy services provider, operating in similar
challenging territories across the world. The
cover procured is structured under a Group-
wide insurance programme, designed to
avoid potential coverage gaps and duplication
across the Group, whilst also ensuring
that the Group benefits from economies of
scale. Theeffectiveness of the various global
insurancepolicies is continually challenged
against business activities, to ensure that
theinsurance cover will respond to our
ever-changing risk exposures.
This year, the Committee also
carefullyconsidered the impact of the ongoing
Financial Restructure on its assessment,
specifically reviewing the disclosures covering
the current status of the restructure, its linkage
to the going concern and viability assessments
and the criticality of its implementation. It also
specifically considered the control deficiencies
noted previously and their impact on the
description and assessment of the Group’s
overall control framework.
In reaching its conclusion, the Committee
assessed the results of the processes
undertaken by management to provide
assurance that the Group’s financial statements
were fairly presented. Theseprocesses were led
by an internal team, consisting of members of
the Group Finance, Company Secretariat, Group
Communications and Investor Relations teams,
who each collaborativelyprepare sections of
the Annual report. This team also performed
procedures to provideassurance to the
Committee that the Annual report was balanced,
complete and accurate.This ensured that there
was a clear and integrated link between the
three main sections ofthe Annualreport – the
strategic report; the governance report; and the
financial statements.
This work enabled the Committee to provide
positive assurance to the Board to assist it in
making thestatement required by theCode.
The Board subsequently approved the
Committee’s recommendation that a fair,
balanced and understandable statement
reflecting this conclusion could be provided.
Thisstatement is set out on page 141 The
Group’s external auditor’s report can be
foundon pages 143 to 145.
121
PETROFAC LIMITED | Annual report and accounts 2023
Principal matters considered during the year by the
AuditCommittee
The Committee met six times during the year (in addition to four times during 2024 to date), with meetings
coinciding with key points in the financialreporting cycle.
The principal matters reviewed and considered were as follows:
Financial
statements and
reporting
(including going
concern)
• Received reports from the Executive team and senior management on
accounting (including the principal accounting matters and details of the prior
year adjustment included in the financial statements and the additional
assurance activities undertaken in response to the investigation that resulted in
those adjustments), commercial, financial, revenue recognition, risk and risk
mitigation, strategic and litigation matters (see also ‘Other’ below)
• Reviewed and recommended the press releases to be put to the Board
forapproval relating to the full-year and half-year results and financialstatements
• Approved the Group’s viability and going concern statements (including
reviewing scenario testing of business plans and forecasts including cash flow
forecasting and liquidity monitoring). This included a critical assessment of the
ongoing Financial Restructure (pages 8 to 9 and 123 to 124) and the auditors
associated conclusions (pages 143 to 145)
• Reviewed and recommended the Annual report and accounts to be put to the
Board for approval that, as a whole, they complied with the Code principle to be
‘fair, balanced and understandable’
External auditor
• Reviewed the Group’s external auditor’s 2023 audit strategy and planningreport
• Reviewed the external auditor’s reports on the Group’s full-year
financialstatements
• Discussed, reviewed and approved the external auditor’s assessment of its
objectivity and independence, including a review of any non-audit services
provided plus associated fees
• Reviewed management representation letters relating to the full-year audit
• Approved the external auditor’s statutory audit fees
Risk management
and internal
controls
(including Internal
Audit)
• Considered, discussed and challenged the Internal Audit reports
• Reviewed and approved the internal audit plan for the year which encompassed
governance, compliance, finance, IT, plus function, business and project
levelcontrols
• Considered the Group’s principal risks which included periodic review of the
status of each, associated controls and mitigation/management strategies
• Reviewed the Treasury Risk Management Policy and compliance thereof
Governance
• Reviewed the Committee’s Terms of Reference and recommended they be
approved by the Board
• Received updates from the Group external auditor on the changes to be
introduced in the audit and governance landscape
• Received reviews and guidance on the relevant FRC publications during the year
Other
• Received and considered the report following the annual Control Self-
Assessment process and an assessment on the effectiveness of the Company’s
risk management and internal control systems
• Instructed, received and considered additional assurance activities, including the
use of independent external advisors, to ensure that the control deficiencies
identified during the year were individual incidents, and that there were not other
such occurrences elsewhere in the Group’s contract portfolio
• Received and challenged judgements made by the Executive team and senior
management on forecast cash flows and potential impact of certain scenarios
including the adequacy of provisions required on loss-making contracts and the
appropriateness of the related disclosures
• Reviewed and recommended for Board approval the annual tax update
• Reviewed and recommended for Board approval the 2023 Group insurance
programme renewal
• Reviewed ethical standards and noted the performance of the updated ‘Gifts,
Entertainment and Hospitality’ policy and associated tool
Committee planned activities for 2024
In addition to standing items the Committee will also:
• Progress and implication of the ongoing Financial Restructure, especially in respect of the going concern
basis of preparation and viability assessment
• Continue to challenge and debate the relevance of management’s judgements on significant
accountingissues
• Maintain a robust overview of the going concern and viability statements
• Complete the audit tender planning process
• Monitor and implement any audit reform recommendations
Audit Committee report continued
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE FINANCIAL STATEMENTS
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PETROFAC LIMITED | Annual report and accounts 2023
Significant judgements
The areas considered and actions taken by the Committee in relation to the Group’s 2023 consolidated
financial statements are outlined below. The Committee has challenged and required management to
exercise the highest level of judgement or estimation throughout the year and sought assurance from the
internal and external auditors. The Committee was satisfied with the accounting and disclosures in the
financial statements.
Revenue and recognition on fixed-price EPC contracts
Significance
Due to the complexity and scale of many of the Group’s contracts, revenue recognition
continues to be an area of focus. The quantification and timing of revenue and profit
recognition from fixed-price EPC contracts is a material driver of the Group’s financial
performance and position, which is subject to significant management judgement and
estimation. There is an inherent risk of bias or error in judgements and estimates
concerning, for instance: variable consideration e.g. variation orders, liquidated
damages; contract contingencies; and estimates to complete cost forecasts.
Role of the
Committee
The Committee reviewed and challenged the reasonableness of evidence to support
judgements and estimates regarding revenue and profit recognition, including
non-recognition in certain instances, through regular discussions with executive
management. This included a review of the additional assurance measures which were
undertaken in response to the identified control deficiencies and prior year adjustment.
The Committee focused on variable consideration; contract contingencies; and
estimates to complete cost forecasts, particularly in light of the ongoing deterioration in
market conditions caused by the lasting impact of the pandemic, the change in cost
forecasts on a number of the E&C contract portfolio including the Thai Oil Clean Fuels
joint venture contract, the mature contract portfolio, and the low order intake suffered
prior to this year. The Group’s external auditor also challenged management on the key
drivers of revenue and profit recognition on fixed-price EPC contracts and reported
their findings to theCommittee.
As a key area of audit focus, the Committee also received reports from the Group’s
external auditor on key contract judgements.
Conclusion
The Committee concluded after thorough deliberation that the quantification and timing
of revenue and profit recognition on fixed-price EPC contracts, as well as associated
reporting, was in accordance with the relevant International Financial Reporting
Standards and the Group’s accounting policies.
More information
Financial Review on pages 86 to 93 and note 4 to the consolidated
financialstatements.
Going concern and viability
Significance
Management and the Board are required to assess whether the financial statements
should be prepared on a going concern basis.
Role of the
Committee
The Committee spent considerable time throughout the year discussing going
concern and viability. At the end of the year a lengthy assessment of the going
concern assessment period to 31 December 2025 (the Assessment Period) and the
subsequent viability period was performed, including an assessment of the
reasonable prospects of the ongoing Financial Restructure being successfully
implemented. This also included the more traditional elements of reviewing and
challenging the Group’s forecast cash flows, liquidity and borrowing requirements
after assessing the assumptions in respect of new order intake over the Assessment
Period; evaluating downside scenarios based on the Group’s principalrisks and
uncertainties; and appraising the mitigation strategies availableto management.
The Committee considered the appropriateness of the going concern assessment,
especially in light of the fragile financial condition of the Group and the critical nature
and inter-dependencies of the ongoing Financial Restructure and related judgements
regarding the material uncertainties, reviewing the downside scenarios and the
potential mitigations as disclosed in note 2.5 of the consolidated financial statements.
They concluded that these disclosures were fair, balanced andunderstandable.
Conclusion
The Committee reviewed the Group’s going concern assessment based on forecast
cash flows, liquidity headroom and covenant compliance over the Assessment Period.
Additionally they assessed the reasonable prospects of the Financial Restructure being
implemented. The forecasts were based on the Board-approved business plans and
forecasts and modelled a range of severe but plausible downside scenarios to reflect
uncertainties inherent in forecasting future operational and financial performance, the
committed facilities available, and the mitigations within direct control of the Group.
Asusual, the Committee considered the risks identified and appraised the severity and
plausibility of these in setting the downside sensitivities, but also, this year, considered
the specific challenges of the Group’s current fragile financial position and the steps still
required to implement the Financial Restructure, including the key commercial terms
and various inter-conditional agreements from a number of stakeholders.
The Committee recognised that the Group’s liquidity position in the mitigated
severe but plausible downside scenario is reliant on the successful completion
ofthe Financial Restructure within the Group’s remaining liquidity timeframe,
thesecuring of guarantees on normal commercial terms subsequent to the
completion of the restructure and on a small number of collections from clients,
allof which are not entirely within the direct control of the Group. Therefore, each
ofthese four matters represent a material uncertainty. The Committee reviewed
thedisclosures presented in note 2.5 of the consolidated financial statements
together with the viability statement, on pages 94 to 96 to ensure that sufficiently
granular detail wasprovided to explain the basis of preparation of the financial
statements and theBoard’s assessment and conclusion.
123
PETROFAC LIMITED | Annual report and accounts 2023
Conclusion
continued
The Committee acknowledged that this assessment represented a significant
judgement and concluded, after rigorously evaluating all of the relevant and
timelyavailable information, that they there are reasonable prospects that the
Group will maintain liquidity in the period up to the implementation of the
FinancialRestructure, will successfully implement the Financial Restructure
andhave accessto guarantees on normal commercial terms following the
FinancialRestructure, and therefore retaining sufficient liquidity even in a
severebutplausibledownside scenario and that the continued use of the
goingconcernbasisof preparing the Group’s financial statements therefore
remainedappropriate.
The Committee also considered the viability of the business and concluded
thatdue to the material uncertainties that exist and the risks regarding the
implementation of the Financial Restructure, the Directors are unable to
concludethat there is a reasonable expectation that the Group will be able
tocontinue in operation and meet its liabilities asthey fall due over the viability
assessment period to 31 December 2026. However, assuming the Financial
Restructure is successfully implemented, and taking into accountthe Group’s
current position, prospects, principal risks and uncertainties and assumptions
listed previously, the Directors have concluded that, in those circumstances,
itwould have a reasonable expectation that the Group will be able to continue
inoperation and meet its liabilities as they fall due over the assessment period.
More information
Notes 2.5 and 2.7 to the consolidated financial statements
Taxation
Significance
The global nature of the Group’s operations and the increasingly complex nature of
local tax rules increases the risk of an income tax expense misstatement. Management
is required to make several judgements and estimates around: uncertain tax treatments
given the commercial structure of individual contracts; and the valuation and
recoverability of any deferred tax assets.
Role of the
Committee
The Group’s tax judgements and estimates were reviewed by the Committee to ensure
that the recognition of income tax expense, uncertain tax treatments, and any deferred
tax assets were based on reasonable and appropriate assumptions. Whilst the level of
recognised uncertain tax positions has reduced during the year, the Group has
operations in multiple jurisdictions of varying degrees of maturity which means the risk
of tax treatments being challenged remains elevated. Reports outlining principal tax
matters were reviewed and discussed with management and the Group’s external
auditor, which also reported to the Committee on its procedures and findings in relation
to the Group’s tax affairs.
Conclusion
The Committee was satisfied that taxation-related judgements and estimates were
reasonable and appropriate and that the Group’s tax affairs were being managed,
accounted and reported in accordance with the relevant legislation, International
Financial Reporting Standards and the Group’s accounting policies.
More information
Financial Review on pages 86 to 93 and note 8 to the consolidated financialstatements
Provision recognition or contingent liability disclosure of HMRC’s challenge
to the historical application of NI contributions to workers in the UKCS
Significance
Several key judgements on conditions of significant uncertainty were required in
relation to determining whether recognition or disclosure of this matter was required.
This included, but was not limited to, assessing the applicability of tax legislation cited
by HMRC to the facts of the enquiry; assessing any developments in the enquiry during
the year; and critically evaluating advice from independent legal and tax specialists.
Role of the
Committee
The Committee evaluated management’s assessment of developments during 2023 in
conjunction with the ongoing tribunal process. In particular, the Committee focused on
ensuring that management had critically appraised advice provided by independent
legal and tax specialists as well as ensuring that there was an awareness and
prevention of inherent bias implicit in management’sposition.
Conclusion
As this remains an ongoing enquiry through 2023 the risk of an adverse finding against
the Group is unchanged since last year and is therefore appropriate to be disclosed as
a contingent liability note in the financial statements.
More information
Note 30 to the consolidated financial statements
Significant judgements continued
Going concern and viability continued
Audit Committee report continued
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
124
PETROFAC LIMITED | Annual report and accounts 2023
GOVERNANCE FINANCIAL STATEMENTS
Compliance and Ethics Committee report
FRANCESCA DI CARLO
Chair
Membership:
Chair: Francesca Di Carlo
Committee members:
Matthias Bichse, David Davies
How the Committee spent
its time during the year:
Group investigations/Speak Up 33%
Compliance strategy 33%
Compliance programme review 24%
Governance/Other 10%
Dear Shareholder
I am pleased to present the report of the
Compliance and Ethics Committee for the year
ended 31 December 2023.
On behalf of the Board, the Compliance and
Ethics Committee oversees a framework of
policies and procedures to ensure the Group’s
commitment to doing the right thing.
The responsibilities of the Committee are to:
• To assist and advise the Board on the development,
implementation and oversight of strategy, policy, and all
mattersinrespectof compliance and ethics to ensure the
Group’scommitment to doing the right thing
• To monitor the adequacy and effectiveness of controls in place
andanymitigation activities
• To oversee the development, implementation and effectiveness of
theGroupCompliance Charter, the Company’s Code of Conduct and
other policies, procedures and standards in relation to compliance
andethics
• To receive reports and review findings of significant internal and external
compliance-related investigations and audits and exercise oversight,
where possible, over any such investigation impacting theGroup
• To oversee, review and approve the adequacy and security of the
Group’s arrangements for its employees and third parties to raise
concerns, in confidence, about possible wrongdoing
• To evaluate the compliance and ethical aspects of Group culture and
make recommendations to the Board on steps to be taken to ensure a
culture of integrity and honesty in the Group’s business dealings
• To support the Company in any engagement with regulatory bodies,
industry groups, advisors and other stakeholders, as necessary and
where permitted by law, regarding ethical issues and compliancematters
This report is intended to provide shareholders
with an insight into key areas considered,
together with how the Committee has
discharged its responsibilities and provided
assurance to the Board on the Group’s
Compliance and Ethics programme.
Committee governance
All the Committee members are independent
Non-executive Directors. Their expertise
and experience is set out in their respective
biographies on pages 102 to 103. The Company
Chair, other Board members, the Group
General Counsel, Chief Compliance Officer,
the Head of Investigations, the Head of Audit
and external advisors are invited to attend all or
part of a Committee meeting when considered
appropriate or necessary. The Committee met
four times during the year and reports to the
Board on the proceedings.
Regular updates from the Group Compliance
function are received which include details of any
significant reports, investigations conducted, and
progress against any required follow-up actions
with direct engagement with management
taking place as required. During the year, the
Committee reviewed its Terms of Reference,
which can be found on the Company’s website
at: www.petrofac.com.
The Committee undertook an internal
effectiveness review as part of the wider internal
Board evaluation. Further details can be found
on page 109.
125
PETROFAC LIMITED | Annual report and accounts 2023
Key actions from 2023
• Governance: oversees the review and
revision of all compliance-related policies,
procedures and standards.
• Awareness, communication and training
programmes: an updated Anti-Bribery
and Corruption (ABC) training programme
was agreed and implemented; the Speak
Up campaign, developed with the Group
Communications team, was launched; a
mandatory Annual Code of Conduct refresher
was introduced to replace the Annual
Declaration; training sessions were held
around the Group on various topics including
conflict of interest, due diligence, ABC, and
trade compliance.
• Internal controls: As disclosed in the
Audit Committee report, investigations
completed by the Group Investigations team
identified deficiencies in the Group’s internal
controls, one of which has resulted in a
prior year adjustment. Further details of the
deficiencies identified, the outcomes of these
investigations, and the review of the Group’s
internal controls are set out on pages 116 to
117 and 120.
Additionally, the Company appointed external
advisors to undertake a thorough assurance
review to check that the steps taken as
part of the Group’s exit from its Russian
operations in 2022 and 2023 complied with
sanctions imposed from the end of February
2022 onwards, following Russia’s invasion
of Ukraine, had been effective. Despite
the compliance measures put in place by
management, instances of administrative
non-compliance were identified and have been
assessed to give rise to a UK enforcement risk.
These have been notified to the relevant
authorities and appropriate financial
provisionsrecorded.
Received the initial findings from a survey
on the process and associated software for
logging gifts, entertainments andhospitality.
• Speak Up programme: Received the Speak
Up statistics and analysis for 2023. Some
Speak Up cases were subject to a more
detailed review. Approved the campaign to
promote and engender a ‘Speak Up’ culture
without fear of retaliation.
• Certification: Approved the application to seek
ISO 37001 certification (anti-bribery management
system) for specific locations around the Group.
Priorities for 2024
• Continuing to monitor and assess the
Compliance and Ethics programme performance
• Digitalising compliance risk management
processes (e.g. gifts, entertainment
andhospitality)
• Progress the application for
ISO37001certification
• Streamlining third-party risk
managementstrategies
Compliance and Ethics programme
The Committee is aware of the continuing
need to ensure that compliance processes are
continuously developed and are proportionate
to the identified risks associated with our
operations. In addition to risks specific to
our sector, there are standard business risks
which require us to be mindful of current
geopolitical situations such as sanction lists,
embargoes, import and export controls, and
risksassociatedwith third-party management.
The Group has a range of operation controls
(commercial, including procurement, due
diligence, and risk assessment) that are designed
to identify and manage risks internally and
with third parties. This ongoing commitment to
continual improvement provides enhanced insight
and greater assurance into the effectiveness of
the compliance programme which has been
designed to mitigate these risks.
Resourcing the Group Compliance function
remains a challenge, due to continuing
demanding market conditions and a much
tighter labour market across the industry. Further
enhancements will be made to the investigative
capability during 2024.
In addition to launching a new, annual Code of
Conduct training course, other improvements
to the Compliance and Ethics programme have
included further focus on improving Speak Up
reporting and analysis. The Speak Up helpline
fosters a speak-up culture, in which employees
feel empowered to talk about any issue.
Petrofac actively encourages speaking up in the
event of a question or concern and provides a
variety of channels through which employees
and stakeholders may do so, including the
Speak Up helpline. The Group’s no retaliation
policy encourages the reporting of possible
ethical breaches and offers protection for
individualemployees.
The development and launch of the new gifts,
entertainment and hospitality tool aligns people
and process around the Group and allows gifts,
invitations and conflicts of interest to be more
closely monitored and improves compliance with
relevant policies.
Our trade compliance team works closely
with operations around the world to ensure
compliance with applicable local and
international sanctions and embargoes.
The Awareness, Training, and Communication
programmes ensure relevant and timely training
for our employees on the risks associated with
their location, designation, engagement with
third parties, clients, and government bodies.
In light of the ongoing political situation, the
Group Compliance team continued to monitor
the continually evolving sanctions regime against
Russia throughout the year, providing updates to
the Committee. This involved the arrangements
related to the safe completion and handover of
our Sakhalin Energy project. Petrofac has also
divested its control of and economic interest in
the Sakhalin Technical Training Centre.
Good progress has been achieved throughout
2023 and the continued implementation of good
principles and behaviours will further embed
the highest ethical standards throughout the
organisation. The Committee recognises the need
to continue to reinforce the compliance message,
and ensure all employees acknowledge that how
we do business is just asimportant as what we do.
FRANCESCA DI CARLO
Chair of the Compliance and Ethics Committee
31 May 2024
Compliance and Ethics Committee report continued
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
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PETROFAC LIMITED | Annual report and accounts 2023
GOVERNANCE FINANCIAL STATEMENTS
Directors’ remuneration report
MATTHIAS BICHSEL
Chair
Membership:
Chair: Matthias Bichsel
Committee members:
Sara Akbar, Francesca Di Carlo
How the Committee spent
its time during the year:
Dear Shareholder
On behalf of the Board, I am pleased to present
the Directors’ remuneration report for the
year ended 31 December 2023. As a Jersey-
incorporated company, Petrofac is not subject to
the remuneration reporting regulations that apply
to UK– incorporated companies. Nevertheless,
the Committee recognises the importance of
effective corporate governance, and we will
therefore continue to operate in line with the
UKremuneration reporting regulations.
Accordingly, we will be asking shareholders at
our 2024 AGM, to vote on this report, which
summarises the remuneration outcomes for
2023 and explains how we intend to apply
our remuneration policy during 2024. Our
remuneration policy and accompanying notes,
which were approved at the 2023 AGM, can
befound at www.petrofac.com.
2023 remuneration arrangements 48%
Governance and review
of externalenvironment 30%
Review of employee share plans and
performanceconditions, including
newshare plans reviews 14%
Wider workforce remuneration
considerations 8%
Role and responsibilities
of the Committee:
• Determine, implement and review, on behalf of the Board, the
framework and policy for the remuneration of the Chair, the
Executive Directors and other members of the Executive team.
Review the ongoingappropriateness and relevance of the
remuneration policy
• Ensure that the objectives of the remuneration policies and practices are
transparent, support the Company’s strategy and promote long-term
sustainable success, while addressing the principles set out in theUK Code
relating to clarity, simplicity, risk, predictability, proportionality and alignment
toculture
• Review and oversee wider workforce remuneration and related policies and ensure
that incentive schemes and rewards drive behaviours that are consistent with our
purpose, values, and strategy, and take these into account when setting the policy
for Executive Director remuneration
• Approve the design of, and determine targets for, any performance-related pay
schemes and review the total annual payments made under suchschemes
• Ensure that outcomes are only earned for achieving stretching, but fair, performance
targets and that remuneration schemes and policies enable the use of Committee
discretion and independent judgement to override
• Maintain contact, and promote effective engagement, with principal stakeholders,
asrequired, on matters relating to executive remuneration
127
PETROFAC LIMITED | Annual report and accounts 2023
The remuneration outcomes
for 2023
Notwithstanding the challenging market and
business environment, the Group made steady
progress against key strategic objectives
during the year that are critical to growth and
our delivery of sustainable future profits, which
allowed for a moderate total Group bonus pool
of US$22 million.
However, in view of our disappointing cash
position, the Committee decided to exercise
downward discretion on the Free Cash Flow
element of the bonus framework for Executive
Directors and the members of the Executive
Committee. This resulted in the bonus for the
Executive Directors being reduced by between
US$60,000 to US$100,000.
The Performance Share Plan (PSP) awarded
in 2021 vested at 33.3% of the maximum.
This is the result of a solid performance over
the last three years on a number of long-term
targets. Further details are set out on page 131.
The Committee considered that this 33.3%
vesting for our long-term incentive plan was
commensurate with Petrofac’s results over that
period and was satisfied that no discretionary
adjustment was necessary.
Executive Director changes
Tareq Kawash was appointed Group Chief
Executive with effect from 1 April 2023 on similar
terms to Sami Iskander. Details of Mr Kawash’s
package can be found on page 139.
Both our Group Chief Executive and Chief
Financial Officer received a 5% increase in salary
effective April 2024. This is below the average
increase of Petrofac’s UK workforce.
In view of the uncertainty around the Company’s
share price development and the need for
a financial restructuring, the Committee
decided it was appropriate for the payment of
the Executive Directors’ 2023 annual bonus
to be paid in cash, with 25% deferred until
the successful completion of the Financial
Restructure. The Committee also decided to
defer the grant of new PSP awards until later
in2024.
Full details of the remuneration of the Executive
Directors can be found on pages 139 and 140.
Details of any new PSP awards will be reported
in next year’s Directors’ RemunerationReport.
Remuneration policy
Our Remuneration policy was approved at the
2023 AGM with a vote in favour of 99.59%.
No changes to our Remuneration Policy are
proposed for this year.
Pay outcomes for the Chair and
Non-executive Directors
The Chair and Non-executive Director fees had
been reduced by 10% with effect from 1 April
2020, in line with the wider Petrofac workforce
arrangement. With effect from 1 April 2022,
the fees were reinstated to pre-2020 levels.
Following a review, it was decided to increase
the fees in July 2023 to reflect the increased
workload and time commitments expected of
the Directors. Details of the fees can be found
on page139.
Conclusion
Over the last few years, the Committee has
had to respond quickly and decisively to the
challenges faced. We have had to make some
difficult decisions, but at all times, we have
sought to act in the best interests of Petrofac
and all our stakeholders.
I hope you find the report clear and informative,
and that the Committee has your support for
the Annual Report on Remuneration at the
forthcoming AGM.
MATTHIAS BICHSEL
Chair of the Remuneration Committee
31 May 2024
2023 Group performance
Whilst the Group is reporting a disappointing
set of financial results for 2023 and is actively
working on implementing the Financial
Restructure (pages 8 and 9), we did see
significant progress in a number of key areas.
Inparticular, the material new project wins in our
E&C business contributed to the Group order
backlog increasing to over US$8billion. Our
Asset Solutions business continued to expand
while our IES business delivered robust financial
results due to increased production and strong
oil prices.
The Group reported revenue of US$2,496 million
and a full-year business performance net loss
of US$485 million. Despite these challenges,
we continued to deliver on our projects and
services, whilst doing everything within our
control to protect the health and wellbeing of
ourpeople.
During 2023 the management team introduced
additional rigour and leadership oversight to
enhance business performance and in this
regard, it is particularly encouraging to note the
move into new geographies and the successes
in energy transition, enabling us to further
diversify our portfolio of projects and services.
However, whilst we have made progress on our
strategy, work is ongoing as part of the Financial
Restructure to strengthen the balance sheet,
secure guarantees and improve liquidity.
Against this backdrop, the Committee remains
determined to provide a package of pay and
benefits that attracts, retains and incentivises
our management and staff to grow and
transform Petrofac, while also ensuring that all
stakeholders, including investors and clients,
benefit from a successful delivery.
Directors’ remuneration report continued
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
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PETROFAC LIMITED | Annual report and accounts 2023
GOVERNANCE FINANCIAL STATEMENTS
Looking backwards
The information presented from this section, until the relevant note on page 135, represents the audited section of this report.
Single total figure of remuneration
The following table sets out the total remuneration for Executive Directors for the year ended 31 December 2023, with prior year figures also shown.
Base salary
(a)
US$000
Taxable benefits
(b)
US$000
Cash in lieu of pension
and other benefits
(c)
US$000
Annual bonus
(d)
US$000
Long-term incentives
and buy-outs
(e)
US$000
Total remuneration
US$000
Total fixed pay
(f)
US$000
Total variable pay
(g)
US$000
2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022
Executive Directors
1
Tareq Kawash
2
895 – 109 – 39 – 837 – 622 – 2,502 – 1,043 – 1,459 –
Afonso Reis e Sousa 516 480 2 1 32 30 416 249 40 1 1,006 761 550 511 456 250
Former Director
Sami Iskander
3
206 829 7 26 15 58 – 502 199 – 427 1,415 228 913 199 502
Notes to the table
1. The Executive Directors are paid in sterling. All amounts have been translated to US dollars based on the prevailing rate at the date of payment or award.
2. Tareq Kawash joined the Company on 1 January 2023 and was appointed as Group Chief Executive on 1 April 2023. The 2023 figures reflect all payments made to Mr Kawash in 2023. As set out in the 2022 report, Mr Kawash was granted an award of £500,000 under the Deferred
Bonus Plan to compensate him for awards forfeited on leaving his previous employer. Further details are set out on page 132.
3. Sami Iskander ceased to be an Executive Director from 31 March 2023. The 2023 figures reflect the period from 1 January 2023 to this date.
Further notes to the table – methodology
a. Salary and fees – the cash paid in respect of 2023.
b. Benefits – the taxable value of all benefits paid in respect of 2023, including private health insurance and appropriate life assurance. Both Tareq Kawash and Sami Iskander received a car allowance of £20,000 per annum during the period. The Company also reimbursed the cost of
school fees incurred by Mr Kawash amounting to £38,000; the value shown includes the associated tax and employee National Insurance contributions borne by the Company.
c. Cash in lieu of pension and other benefits – our Executive Directors receive a cash allowance in place of pension contributions and do not receive specific pension contributions from the Company.
d. Annual cash bonus in respect of performance during 2023 with 25% deferred until the successful completion of the Financial Restructure.
e. Long-term incentives 33.3% of the 2021 awards under the Performance Share Plan will vest for Afonso Reis e Sousa on 25 May 2024. A value of US$39,798 is due to vest for Mr Reis e Sousa, pro-rated for time, based on the vesting period from his appointment as an Executive
Director. This value represents an estimate of the market value of the shares that are due to vest, based on a three-month average share price of 42.68 pence (1 October to 31 December 2023). Of the value due to vest, £(67,063) of the figure is attributed to a share price depreciation
of 89.42 pence per share, based on an actual award price of 132.1 pence. The 2022 value for Mr Reis e Sousa (relating to awards which vested in April 2023) has been revised from last year’s report from US$943 to US$599, based on the actual share price of 62.21 pence at the
date of vesting on 27April 2023.
A value of US$198,657 is due to vest for Sami Iskander, pro-rated for time, based on his leaving date of 31 March 2023. This value represents an estimate of the market value of the shares that are due to vest, based on a three-month average share price of 42.68 pence
(1 October to 31 December 2023). Of the value due to vest, £(278,978) of the figure is attributed to a share price depreciation of 74.52 pence per share, based on an actual award price of 117.2 pence.
f. Total fixed pay is the total of (a) base salary, (b) taxable benefits and (c) cash in lieu of pension and other benefits.
g. Total variable pay is the total of (d) annual bonus and (e) long-term incentives.
Annual Report on Remuneration
129
PETROFAC LIMITED | Annual report and accounts 2023
Annual bonus
The financial elements of our annual bonus comprise 60% of the overall weighting, while the
remainder of the annual bonus (40%) is subject to metrics typically covering strategic areas such
as: health and safety, customer and service quality; growth; people; sustainability (ESG); energy
transition; and strategic initiatives.
Performance targets
1
Measure Weighting
Threshold
US$m
Target
US$m
Maximum
US$m
Actual 2023
outcome
US$m
Pay-out
as % of
maximum
Group EBIT
2
20% (214.5) (190.5) (166.5) (392.7) 0%
Group order intake 20% 3,800 5,400 7, 20 0 7,10 5 97.4%
Group free cash flow
3
20% (223.5) (181.5) (139.5) (223.0) 0%
*
downward
discretion
As a % of maximum 32.5%
As a % of salary earned
(out of 120% for financial elements)
38.9%
1. The performance targets reflect appropriate adjustments for factors beyond management’s control. The Group free cash flow targets
also reflect a management adjustment to reduce the payout under this metric to reflect overall company performance.
2. Measured as Group business performance earnings before interest and tax (see note A4 in Appendix A of the consolidated
financialstatements).
3. The Group free cash flow measure for the purposes of the annual bonus performance target is a management reporting metric
calculated as free cash flow generated from operating activities and investing activities, less interest paid, repayment of finance lease
principal and amounts received from non-controlling interests (see note A9 in Appendix A of the consolidated financial statements).
The Group had a successful year in growing the order intake, almost hitting the maximum of
the target. However, the Group missed the minimum threshold for payout against the EBIT
performance metric. Whilst the Group very narrowly met the threshold on the free cash flow target,
the Remuneration Committee decided that this element would not render a pay out for Executive
Directors and the members of the Executive Committee. The Committee decided to apply this
downward discretion as they concluded that the outcome against the formulaic approach did not
reflect the expectations of shareholders. In 2022, the financial elements against the Bonus target
framework were all below threshold.
Overall, whilst the 2023 financial results were disappointing, they did represent steady progress
over the previous year, especially the excellent order intake performance, and the Remuneration
Committee felt that, on balance, notwithstanding the downward discretion applied to Executive
Directors and members of the Executive Committee, it was appropriate to pay a bonus for 2023.
Tareq Kawash
Tareq Kawash joined Petrofac in January 2023 and was appointed Group Chief Executive in
April2023.
The Committee reviewed the performance of Mr Kawash during 2023 and noted the difficult
headwinds that the business faced during this period. The Committee was impressed with the
professional and seamless handover with his predecessor. It was noted, in particular, that Mr Kawash
had built strong relationships with clients and was instrumental in achieving the highest order intake
in many years (in both the E&C and Asset Solutions divisions). Mr Kawash also worked tirelessly to
obtain cash owed from clients and was successful in closing out legacy projects. It was noted that in
the second half of 2023, the Company generated a positive cash flow.
In addition, Mr Kawash engaged successfully with investors, banks and bondholders as part of the
Company’s restructuring efforts. He was able to create a positive impression with all stakeholders,
including employees where he has focused on restoring employee morale.
After reviewing his performance and, in particular taking into consideration the exceptionally
challenging achievements set out above, the Committee agreed to award the bonus outcome
reported on page 129.
Afonso Reis e Sousa
Afonso Reis e Sousa was appointed Chief Financial Officer and an Executive Director with effect from
1September 2021.
The Committee reviewed Mr Reis e Sousa’s 2023 performance and concluded that he delivered
on his tasks and targets in a challenging year and acknowledged that he had shown a high level of
commitment, while engaging with a range of stakeholders in trying to secure a robust refinancing of
the business.
In view of this performance, the Committee agreed to award the bonus outcome as reported on page129.
In view of the uncertainty around the Company’s share price development and the need for a financial
restructuring, the Committee decided it was appropriate for the payment of the Executive Directors’
2023 annual bonus to be paid in cash, with 25% deferred until the successful completion of the
Financial Restructure.
Loss of office
Following the decision taken for Mr Iskander to step down from his role as Group Chief Executive,
heworked his notice period from November 2022. The balance of this notice period of £433,141
waspaid to him on his termination date of 31 March 2023. In addition, he received additional
payments covering loss of benefits during the balance of this notice period, specifically: health and
lifeinsurance of £20,000; car allowance of £12,877; and cash in lieu of pension contributions of
£30,320. Hereceived holiday pay of £31,050.
Annual Report on Remuneration continued
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
130
PETROFAC LIMITED | Annual report and accounts 2023
GOVERNANCE FINANCIAL STATEMENTS
Share plan interests awarded in 2021
Performance Share Plan
The performance conditions for the 2021 PSP award are set out below. As a result of the assessment
against the strategic metrics, 33.3% of this award is due to vest on 23 April 2024 for Mr Iskander and
on 25 May 2024 for Mr Reis e Sousa.
TSR element (50% of award):
The comparator group and vesting schedule are set out in the following tables:
Comparator group:
Aker Solutions Saipem Technip FMC
Fluor Corporation SNC Lavalin Tecnicas Reunidas
Hunting Subsea7 Worley Parsons
KBR, Inc Samsung Engineering Co., Ltd Wood Group (John)
Maire Tecnimont
Vesting schedule:
Three-year performance against the comparator group Vesting as a % of maximum
Less than median performance 0%
Median performance
1
25%
Upper quartile performance
1
100%
Vesting 0% (Below median performance)
1. Straight-line vesting operates between these points.
Strategic element (50% of award):
Performance measure Weighting Threshold On-target Maximum Out-turn
Vesting
(as a % of maximum) Vesting % (actual)
Conserving cash Cash conversion 2021-23 6.25% 75% 90% 105% Max
1
100% 6.25%
Maintain competitiveness Overhead ratio 2021-23 6.25% 16% 14.5% 13% 17.5% 0% 0%
Rebuild backlog Book-to-bill 2021-23 6.25% 1 1.2 1.4 1.39 96.5% 6.03%
Deliver operational excellence Operational performance (on schedule, on budget) 6.25% 5% 15% 25% 0%
2
0% 0%
Promote sustainability Energy transition revenue 2021-23 6.25% $550m $850m $1,15 0 m $2,800m 100% 6.25%
Diversity (FTSE Women Leaders) 6.25% 25% 29% 33% 30.5% 76.6% 4.79%
Reduction in greenhouse gas emissions 6.25% (9%) (14.5%) (20%) (16.4%) 75.4% 4.72%
Employee engagement 6.25% 82 84.5 87 86 85.0% 5.31%
Strategic element vesting 66.7% of maximum
Overall award vesting 33.3% of maximum
1. Over the three performance period, the Company realised a cashflow position more favourable than the EBIT loss generated in the period. This results in a maximum payout for this metric.
2. A qualitative assessment by the Group Chief Executive of the PPI operational performance of the Company results in a ‘below threshold’ out-turn.
131
PETROFAC LIMITED | Annual report and accounts 2023
Share plan interests awarded during the financial year
Deferred Bonus Plan
The 2022 bonus was paid to Executive Directors half in cash and half in deferred shares under the
Deferred Bonus Plan, vesting in equal tranches over one, two and three years from the date of award.
As reported in the 2022 Annual Report and Accounts, as part of his joining arrangements, Tareq
Kawash was granted an exceptional award under the Deferred Bonus Plan. Details of the actual
number of shares granted are set out on page 135. The following table provides details of the awards
made under the DBP during 2023:
Type of award Face value
Tareq Kawash
Deferred Bonus Shares
£500,000
Afonso Reis e Sousa £100,000
Sami Iskander £201,825
Awards were made to Tareq Kawash, Afonso Reis e Sousa and Sami Iskander on 3 May 2023,
alongwith other members of senior management, based on a share price of 69.95 pence. The face
values shown in the table above have been calculated on this basis. This share price represents the
three-day average share price up to the respective date of award.
Performance Share Plan
As detailed in our remuneration policy, PSP awards are granted over ordinary shares, representing an
opportunity to receive Petrofac shares if performance conditions are met over the relevant three-year
period. The number of shares under award is determined by reference to a percentage of base salary.
Details of the actual number of shares granted are set out on page 135. The following table provides
details of the awards made under the PSP. Performance for these awards is measured over the three
financial years from 1 January 2023 to 31 December 2025.
Type of award Face value
Face value
(% of salary)
Threshold
vesting
(% of face value)
Maximum vesting
(% of face value)
End of
performance
period
Tareq Kawash Performance
Shares
£2,024,999 300%
25% 100% 31 Dec 25
Afonso Reis e Sousa £839,999 200%
Awards were made to Tareq Kawash and Afonso Reis e Sousa on 3 May 2023, along with other
members of senior management, based on a share price of 69.95 pence. The face values shown
have been calculated on this basis. This share price represents the three-day average share price
up to the respective date of award. While the Committee recognises that the share price had fallen
over the preceding year, it was satisfied that the level of awards remained appropriate given that they
remain subject to a cap, such that the maximum value that can be delivered in the year of vesting is
limited to three times the face value of the award at the time of grant.
TSR element (50% of award):
The comparator group and vesting schedule for 2023 are set out in the following tables:
Comparator group:
Aker Solutions Saipem Technip FMC
Fluor Corporation SNC Lavalin Tecnicas Reunidas
Hunting Subsea7 Worley Parsons
KBR, Inc Samsung Engineering Co., Ltd Wood Group (John)
Maire Tecnimont
Vesting schedule:
Three-year performance against the comparator group
Vesting as a %
of maximum
Less than median performance 0%
Median performance
1
25%
Upper quartile performance
1
100%
1. Straight-line vesting operates between these points.
Strategic element (50% of award):
The remaining 50% of the 2023 award is based on six key strategic measures. We believe these
measures align our incentives with the delivery of critical long-term strategic goals. Each measure
is subject to stretching targets over the three-year period. At this stage, the Committee considers
the precise targets for the 2023 award to be commercially sensitive. However, we intend to provide
detailed disclosure of targets and performance against those targets following the end of the
performance period. The key strategic priorities and associated measures for the 2023 award are
asfollows:
Key strategic priorities Performance measures 2023 to 2025 Weighting
Grow the revenue Order intake 10%
Deleverage the balance sheet Free cash flow 10%
Deliver sector-leading margins Group EBIT margin 10%
Grow Energy transition Group revenue from Energy transition 10%
Promote diversity FTSE Women Leaders 5%
Protect the environment Greenhouse gas emissions intensity 5%
Annual Report on Remuneration continued
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GOVERNANCE FINANCIAL STATEMENTS
Single total figure of remuneration for the Chair and Non-executive Directors
The following table sets out the total remuneration for the Chair and Non-executive Directors for the year ended 31 December 2023, with prior year figures also shown. All figures are presented in US dollars.
At 1 January 2023, the Non-executive Directors received a basic fee of £75,000 per annum, of which £5,000 per quarter was used to purchase Petrofac Limited shares. The basic Non-executive Director fee increased
from £75,000 to £80,000 from 1 July 2023. Additional fees of £15,000 per annum are paid for acting as either the Chair of a Board Committee (excluding the Nominations Committee) or as the Senior Independent
Director. The fees for acting as the Chair of a Board Committee (excluding the Nominations Committee) increased from £15,000 to £20,000 from 1 July 2023 and the fee for acting as the Senior Independent Director
increased from £15,000 to £30,000 from 1 July 2023. At 1 January 2023, the Chair received a fee of £320,000 per annum, of which £20,000 per quarter was used to purchase Petrofac Limited shares. This fee
increased from £320,000 to £350,000 from 1 July 2023. The increases to the fees paid to the Chair and the Non-executive Directors was the first such increase since 2018.
Aidan de Brunner was appointed to the Board as a Non-executive Director on 4 December 2024 to drive engagement with finance providers, investors and other stakeholders in an active review of strategic and
financial options. Mr de Brunner acts as the Chair of the Special Committee.
Committee membership and other responsibilities
Fees
US$’000
Audit Committee
Compliance and
Ethics Committee
Nominations
Committee
Remuneration
Committee
Special
Committee Other 2023 2022
Non-executive Directors
1
René Médori Chair Chair of the Board 420 375
Matthias Bichsel Member Member Member Chair Senior Independent Director 147 124
Sara Akbar Member Member Member 97 88
Ayman Asfari Member Member 97 88
David Davies Chair Member Member 119 106
Francesca Di Carlo
2
Chair Member Member 119 98
Aidan de Brunner
3
Chair 10 –
Notes to the table
1. Non-executive Directors are paid in either Sterling, Euros or US dollars. All amounts above have been converted to US dollars based on the prevailing rate at the date of payment.
2. Francesca Di Carlo was appointed Chair of the Compliance and Ethics Committee on 27 May 2022.
3. Aidan de Brunner was appointed as a Director on 4 December 2023. The 2023 figure reflects the period from the respective date of appointment to 31 December 2023.
Mr de Brunner additionally receives a fee of £41,667 per month for undertaking specialist services for the Company in relation to the Financial Restructure.
133
PETROFAC LIMITED | Annual report and accounts 2023
Statement of Directors’ shareholdings and share interests
Directors’ shareholdings held during the year and as at 31 December 2023 and share ownership guidelines
The number of shares held by Directors during the year and as at 31 December 2023 or as at the date of departure are set out in the table below, along with the progress against their respective
shareholding requirements:
Director
% of salary held under
shareholding guidelines
Shares owned outright at
31December 2023
or as at the date ofdeparture
Interests in share incentive
schemes, awarded subject to
performance conditions at
31December 2023
Shares owned outright at
31December 2022
Tareq Kawash
1,4
2% 94,584 2,894,924 –
Afonso Reis e Sousa
2,4
3% 58,630 2,212,101 43,683
Matthias Bichsel – 94,728 – 68,219
René Médori – 522,572 – 416,528
Sara Akbar – 94,728 – 68,219
Ayman Asfari – 85,003,973 – 84,972,155
David Davies – 116,076 – 89,567
Francesca Di Carlo – 87, 3 04 – 60,795
Aidan de Brunner – – – –
Former Director
Sami Iskander
3
8% 4 37, 3 91 1, 517,6 44 4 37, 3 91
1. Tareq Kawash is expected to build up a shareholding of three times salary. He was appointed as Group Chief Executive on 1 April 2023 and is yet to fulfil this shareholding guideline.
2. Afonso Reis e Sousa is expected to build up a shareholding of two times salary. He was appointed as an Executive Director on 1 September 2021 and is yet to fulfil this shareholding guideline.
3. Sami Iskander ceased to be an Executive Director from 31 March 2023. He is, however, expected to retain 100% of the shareholder guideline for two years following departure. As the shareholder guideline was not met prior to his departure from the Board, he is required to retain all
vested shares until at least 31 March 2025.
4. For the purposes of determining Executive Director shareholdings, the individual’s salary as at 31 December 2023 or at the date of leaving, and the share price as at 31 December 2023 of 37.40 pence per share have been used.
Annual Report on Remuneration continued
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
134
PETROFAC LIMITED | Annual report and accounts 2023
GOVERNANCE FINANCIAL STATEMENTS
Share interests – share plan awards at 31 December 2023
Share awards held at the year-end, or at the date of leaving, including awards of shares made to Executive Directors during 2023, are shown in the table below:
Director and date of grant Plan
Number of shares
under award at
31 December 2022
1
Shares granted in year Shares lapsed in year Shares vested in year
Total number of
shares under award at
31 December 2023
Dates from which shares
ordinarily vest
Tareq Kawash
3 May 2023 PSP – 2,894,924 – – 2,894,924 8 April 2026
3 May 2023 DBP – 714,796 – 178,699 536,097 18 September 2023
3,431,021
Afonso Reis e Sousa
6 March 2020
2
PSP 25,801 – 24,253 1,548 0 6 March 2023
6 March 2020
4
DBSP 6,300 – – 6,300 0 6 March 2023
25 May 2021
3
PSP 245,694 – – – 245,694 25 May 2024
4 April 2022 PSP 765,550 – – – 765,550 4 April 2025
4 April 2022
5,6
DBP 61,18 9 – 18,363 20,396 22,430 4 April 2023
3 May 2023 PSP – 1,200,857 – – 1,200,857 8 April 2026
3 May 2023 DBP – 142,959 – – 142,959 8 April 2024
2,377,490
Ayman Asfari
6 March 2020
2
PSP 127,871 – 120,19 9 7, 672 0 6 March 2023
0
Former Director
Sami Iskander
23 April 2021
3,7
PSP 1,759,658 – 635,434 – 1,124,224 23 April 2024
4 April 2022
7
PSP 1,287,559 – 894,139 – 393,420 4 April 2025
4 April 2022
5,6
DBP 280,893 – 102,030 93,631 85,232 4 April 2023
3 May 2023 DBP – 288,527 – – 288,527 8 April 2024
1,891,403
1. The award amounts disclosed under the PSP are the maximum number that may vest if all performance conditions attached to the awards are satisfied in full.
2. Following the end of the three-year performance period in respect of the March 2020 PSP award, the performance conditions were partially satisfied and therefore 6% of the maximum award vested on 27 April 2023.
3. The 2021 PSP award has partially satisfied the performance conditions and therefore 33.3% of the maximum award will vest. Based on a share price of 10.50 pence, which is the closing share price on 30 April 2024 (being the share price prior to the adoption of this report by the
Committee), the value of the award made to Afonso Reis e Sousa, pro-rated for time based on the vesting period from when he was appointed as an Executive Director, would be £7,875. The value of the award made to Sami Iskander would be £39,308.
4. On 27 April 2023, a third of the 2020 DBSP award vested. The share price on the date of vesting was 62.21 pence. Following his appointment to the Board on 1 September 2021, no further awards under the DBSP will be made to Afonso Reis e Sousa.
5. On 27 April 2023, a third of the 2022 DBP award vested. The share price on the date of vesting was 62.21 pence.
6. The lapsed shares awarded under the Deferred Bonus Plan on 4 April 2022 reflect the reduction of the 2021 bonus in the amount of £106,621 for Mr Iskander and £19,189 for Mr Reis e Sousa, as reported in the 2022 Annual Report and Accounts.
7. The PSP shares awarded to Sami Iskander have been prorated for time, based on his leaving date of 31 March 2023.
This represents the end of the audited section of the report.
135
PETROFAC LIMITED | Annual report and accounts 2023
Historical TSR performance and Group Chief Executive remunerationoutcomes
The chart below compares the TSR performance of the Company over the past 10 years with the TSR of the FTSE 250 Index. This index has been chosen because it is a recognised equity marketindex.
The table below the chart summarises the Group Chief Executive’s single figure for total remuneration, annual bonus pay-outs and long-term incentive plan vesting levels as a percentage of maximum
opportunity over this period.
TSR chart – one-month average basis
Group Chief Executive 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Group Chief Executive single figure of remuneration (US$’000) 1,245 1,162 1,817 1,946 2,250 1,153 999 1,646
1
1,415 2,502
2
Annual bonus pay-out (as a % of maximum opportunity) 0% 0% 47.5% 60.4% 69.9% 0% 0% 37%
1
30% 49.9%
PSP vesting out-turn (as a % of maximum opportunity) 0% 0% 0% 0% 0% 15.2% 16.1% 6% 6% 33.3%
1. Following the financial restatement in relation to the 2021 financial year, and in line with our Remuneration policy, the decision was taken by the Committee to recalculate the 2021 bonus awarded to Mr Iskander. This resulted in a reduction of the total bonus of £106,621. The figure
shown in the table above reflects this restated amount. Further details are set out in the 2022 Annual report and accounts.
2. The 2023 value includes an exceptional award of £500,000 granted to Mr Kawash under the Deferred Bonus Plan to compensate him for awards forfeited on leaving his previous employer. Further details are set out on page 132.
Annual Report on Remuneration continued
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
136
PETROFAC LIMITED | Annual report and accounts 2023
GOVERNANCE FINANCIAL STATEMENTS
Pay ratios of Group Chief Executive to UK employees
The table below illustrates the pay ratio of the Group Chief Executive to the 25th, median and 75th
percentile of the total remuneration of the full-time equivalent UK employees.
Financial Year ended Method
25th percentile pay ratio
(lower quartile)
50th percentile pay
ratio (median)
75th percentile pay ratio
(upper quartile)
31 December 2023
1
Option A 1:31 1:24 1:20
31 December 2022 Option A 1:18 1:14 1:12
31 December 2021 Option A 1:21 1:17 1:16
31 December 2020 Option A 1:16 1:12 1:10
31 December 2019 Option A 1:20 1:14 1:12
31 December 2018 Option A 1:33 1:25 1:23
1. The Group Chief Executive single figure used in the calculation of the 2023 ratios reflects the single figure for Tareq Kawash reported on
page 129.
The Group Chief Executive’s total remuneration is calculated on the same basis as the single figure
of remuneration table set out on page 129. The lower, median and upper quartile employee’s
remuneration was calculated on full-time equivalent data as at 31 December 2023. Option A was
chosen as it is considered to be the most accurate way of identifying the best equivalents of 25th,
50th and 75th percentile figures and is aligned with best practice and investor expectations.
In reviewing the employee pay data, the Committee is satisfied that the individuals identified within
each category appropriately reflect the employee pay profile at those quartiles, and that the overall
picture presented by the ratios is consistent with our pay, reward and progression policies for
UKemployees.
The following table provides further information on the total pay figures used for each quartile employee and the salary component within this:
Financial Year ended Element of pay CEO remuneration 25th percentile pay ratio (lower quartile) 50th percentile pay ratio (median) 75th percentile pay ratio (upper quartile)
31 December 2023 Salary £720,054 £54,290 £70,178 £83,485
Total Remuneration £2,012,261 £64,217 £83,899 £99,209
Our Group Chief Executive pay ratio at the median has increased from 1:14 in 2022 to 1:24 in 2023. The pay ratio for 2023 is adversely impacted by the exceptional £500,000 Deferred Bonus Award made to
Mr Kawash as part of his joining arrangements. The pay ratio for 2023 excluding the exceptional Deferred Bonus Award is 1:18.
137
PETROFAC LIMITED | Annual report and accounts 2023
Annual percentage change in Directors’ remuneration compared with average employee remuneration
In accordance with The Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019, as applicable to an equivalent UK company, the table below illustrates the
percentage change in each Executive and Non-executive Director’s total remuneration, including salary, benefits (excluding cash allowance in lieu of pension) and annual bonus for Executives, and annual fees
for Non-executives, compared with a representative group of the Company’s employees. For these purposes, we have used all UK-based employees as the comparator group, as this represents the most
appropriate comparator group for reward purposes:
% change
in base salary
2023/2022
% change
in base salary
2022/2021
% change
in base salary
2021/2020
% change
in base salary
2020/2019
% change
in benefits
2023/2022
8
% change
in benefits
2022/2021
% change
in benefits
2021/2020
% change
in benefits
2020/2019
% change
in annual bonus
2023/2022
% change
in annual bonus
2022/2021
% change
in annual bonus
2021/2020
% change
in annual bonus
2020/2019
René Médori
1
7.4% 8.3% -2.7% -7.5% – – – – – – – –
Matthias Bichsel
1
13.9% 5.8% -1.9% -5.4% – – – – – – – –
Sara Akbar
1
6.0% 8.3% -2.7% -7. 5% – – – – – – – –
Ayman Asfari
1,5
6.0% 392.2% -97.7% -5.7% – – – 0% – – – 0%
David Davies
1
7.8% 6.8% -2.2% -6.3% – – – – – – – –
Francesca Di Carlo
1,6
15.7% 21.6% -2.7% -7. 5% – – – – – – – –
Aidan de Brunner
7
– – – – – – – – – – – –
Tarek Kawash
2,3
– – – – – – – – – – – –
Afonso Reis e Sousa
2,4
7.1% – – – 11.3% – – – 67.4% – – –
All UK-based employees 7.8% 6.8% 5.3% -3.2% 11.3% 0% 0% 0% 14.6% -24% 100% -100%
1. For the Non-executive Directors, fees are paid in US dollars, Sterling or Euros as determined by each Director. The table sets out the change in total fees. The Non-executive Director base fee increased from £75,000 to £80,000 from 1 July 2023. The fee for acting as the Chair of a
Board Committee (excluding the Nominations Committee) increased from £15,000 to £20,000 from 1 July 2023 and the fee for acting as the Senior Independent Director increased from £15,000 to £30,000 from1July2023. The Chair fee increased from £320,000 to £350,000 from
1 July 2023. This was the first increase in fees since 2018.
2. Base salary is paid in sterling but translated into US dollars based on the prevailing rate at the date of payment (as set out on page 129).
3. Tarek Kawash was appointed as Group Chief Executive on 1 April 2023.
4. Afonso Reis e Sousa was appointed as an Executive Director on 1 September 2021.
5. Ayman Asfari retired from the role of Group Chief Executive on 31 December 2020. He became a Non-executive Director with effect from 1 January 2021 and agreed to receive no Board fees between 1 January and 11 October 2021.
6. Francesca Di Carlo received the fee for the position of Chair of the Compliance and Ethics Committee from 27 May 2022 onwards.
7. Aidan de Brunner was appointed as a Director on 4 December 2023.
8. The increase reflects an enhancement to the medical cover provided to all eligible employees based in the UK.
Annual Report on Remuneration continued
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
138
PETROFAC LIMITED | Annual report and accounts 2023
GOVERNANCE FINANCIAL STATEMENTS
Relative importance of the spend on pay
The chart below illustrates the change in total remuneration, dividends paid and net profit from 2022
to 2023.
The figures presented have been calculated on the following basis:
• Dividends – dividends paid in respect of the financial year
• Net profit – our reported net profit in respect of the financial year. This is a key performance
indicator for the Company
• Total remuneration – represents total salaries paid to all Group employees in respect of the financial
year (see note 5c for an explanation as to how this value is calculated). Note that this includes
social security costs, benefit and pension costs and share-based payment expenses.
Spend in respect of the financial year US$m
Dividends 0 0%
0
Net profit/(loss)
(294) (65.0)%
(485)
Total remuneration
708 9.0%
772
2022 2023
Looking forward to 2024
Implementation of remuneration policy in 2024
This section provides an overview of how the Committee is proposing to implement our remuneration
policy in 2024.
Base salary
The table below shows the base salaries for 2024 effective 1 April 2024:
2024 basic salary
from 1 April 2024
2023 basic salary to
31 December 2023
Tarek Kawash £708,750 £675,000
Afonso Reis e Sousa £441,000 £420,000
Benefits
The benefit framework will remain unchanged in 2024.
Cash allowances
The table below shows cash allowances for 2024:
Cash allowances
2024
Cash allowances
2023
Pension Car Pension Car
Tareq Kawash 6.2% of salary £20,000 6.2% of salary £20,000
Afonso Reis e Sousa 6.2% of salary – 6.2% of salary –
Chair and Non-executive Director remuneration
The table below sets out the fee structure payable to the Chair and Non-executive Directors for 2024:
2024 fees
Chair of the Board fee £350,000
Basic Non-executive Director fee £80,000
Board Committee Chair fee £20,000
Senior Independent Director fee £30,000
Annual bonus
The maximum annual bonus opportunity for Executive Directors will remain at 200% of base salary
for 2024. At least 60% of the bonus will be based on financial elements, with the remainder based
on strategic elements. The Committee will set stretching 2024 targets following the conclusion of the
Financial Restructure and will provide disclosure at the end of the performance year.
The annual bonus is subject to malus and clawback provisions as set out in more detail in our
remuneration policy. The Committee also retains the option to apply an additional discretion as
deemed appropriate, based on the performance of the Company or the relevant Director during the
financial year under review.
Performance Share Plan
In recognition of the uncertainty surrounding the Financial Restructure, the Committee will review the
appropriate structure of the Long Term Incentive Plan for 2024 and where appropriate will engage
with shareholders ahead of implementation.
139
PETROFAC LIMITED | Annual report and accounts 2023
Post-employment shareholding guideline
Executive Directors are required to maintain 100% of their shareholding guideline (or actual
shareholding at the point of departure, if lower) for a period of 24 months following departure.
Awards granted under any Company long-term incentive plan, which have vested but are subject
to a holding period, will count towards the guideline (on a net of tax basis). The Company has
implemented a mechanism for Executive Directors by which to enforce the application of these post-
employment guidelines. As part of this arrangement, a restriction will be placed on shares held that
will prevent their sale or transfer without prior authorisation by the Company until the guideline has
been satisfied.
External board appointments
Executive Directors are normally entitled to accept one non-executive appointment outside the
Company with the consent of the Board. Any fees received may be retained by the Director. As at the
date of this report, no Executive Director holds an externally paid non-executive appointment.
Consideration by the Directors of matters relating to Directors’
remuneration
Support for the Committee
During the year, the Committee received independent advice on executive remuneration matters from
Deloitte LLP (Deloitte), which was formally appointed as advisor by the Committee in October 2005.
Deloitte is a member of the Remuneration Consultants Group and, as such, voluntarily operates under
a code of conduct in relation to executive remuneration consulting in the UK.
The Committee has reviewed the advice provided by Deloitte during the year and is satisfied that it
has been objective and independent. Total fees received by Deloitte in relation to the remuneration
advice provided to the Committee during 2023 amounted to £84,500 based on the required time
commitment. During 2023, Deloitte did not provide any other services to the Company.
The Secretary to the Board acts as Secretary to the Committee. During the year, the Group Chief
Executive, Chief Financial Officer and the Group Director of Human Resources attended meetings
on an ad hoc basis at the invitation of the Committee and provided information and support as
requested. However, no individual was present when their own remuneration was being discussed.
Shareholder voting
The table below outlines the result of the advisory vote of the 2022 Directors’ remuneration report
received at the AGM held on 23 June 2023.
Annual Report on Remuneration
Number of votes cast excluding abstentions For Against Abstentions
290,091,592 268,380,799 21,710,793 43,586
92.52% 7.4 8%
The table below outlines the result of the advisory vote of the 2022 Remuneration Policy received at
the AGM held on 23 June 2023.
Remuneration Policy report
Number of votes cast excluding abstentions For Against Abstentions
290,059,852 288,867,454 1,192,39 8 75,326
99.59% 0.41%
Governance
The Board and the Committee consider that, throughout 2023 and up to the date of this report,
the Company has complied on a voluntary basis with the provisions set out in the UK Corporate
Governance Code relating to Directors’ remuneration. In addition, relevant guidelines issued by
prominent investor bodies and proxy voting agencies have been presented to and considered by the
Committee during its discussions.
The Committee endeavours to consider executive remuneration matters in the context of alignment
with risk management and, during the year, had oversight of any related factors to be taken
into consideration. The Committee believes that the remuneration arrangements in place do not
raise any health and safety, environmental, social or ethical issues, nor inadvertently motivate
irresponsiblebehaviour.
Availability of documentation
Service contracts and letters of appointment for all Directors are available for inspection by any
person at our registered office in Jersey and at our corporate services office in London. They will also
be available for inspection during the 30 minutes prior to the start of our 2024 AGM.
Annual General Meeting
As set out in my statement on pages 127 and 128, our Annual Report on Remuneration will be
subject to advisory shareholder votes at the AGM to be held by the end of July 2024.
On behalf of the Board
MATTHIAS BICHSEL
Chair of the Remuneration Committee
31 May 2024
Annual Report on Remuneration continued
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
140
PETROFAC LIMITED | Annual report and accounts 2023
GOVERNANCE FINANCIAL STATEMENTS
Directors’ statement
Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and Accounts and the financial
statements in accordance with applicable law and regulations.
The Directors have chosen to prepare the financial statements in accordance with IFRS Accounting
Standards (IFRS). The Directors are also responsible for the preparation of the Directors’ remuneration
report, which they have chosen to prepare, being under no obligation to do so under Jersey law. The
Directors are also responsible for the preparation of the corporate governance report under the UK
Listing Rules and FRC regulations.
Companies (Jersey) Law 1991 (the ‘Law’) requires the Directors to prepare financial statements for
each financial period in accordance with generally accepted accounting principles. The financial
statements are required by law to give a true and fair view of the state of affairs of the Company at
the period end and of the profit or loss of the Company for the period then ended. In preparing these
financial statements, the Directors should:
• Select suitable accounting policies and then apply them consistently
• Make judgements and estimates that are reasonable
• Specify which generally accepted accounting principles have been adopted in their preparation
• Prepare the financial statements on a going concern basis unless it is inappropriate to presume that
the Company will continue in business
The Directors are responsible for keeping proper accounting records, which are sufficient to show
and explain the Company’s transactions and to disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that the financial statements prepared
by the Company comply with the requirements of the Law. They are also responsible for safeguarding
the assets of the Group and Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial
information included on the Company’s website. Legislation in Jersey governing the preparation and
dissemination of financial statements may differ from legislation in other jurisdictions.
Directors’ approach
The Board’s objective is to present a fair, balanced and understandable assessment of the
Company’s position and prospects, particularly in the Annual report and accounts, half-year results
announcement and other published documents and reports to Regulators. The Board has established
an Audit Committee to assist with this obligation.
Going concern
The Company’s business activities, together with the factors likely to affect its future development,
performance and position, are set out in the Strategic report on pages 6 to 29. The financial position
of the Company, its cash flows, liquidity position and borrowing facilities are described in the financial
review on pages 86 to 93. In addition, note 33 to the financial statements includes the Company’s
objectives, policies and processes for managing its capital; its financial risk management objectives;
details of its financial instruments and hedging activities; and its exposures to credit and liquidity risk.
The Board monitors closely the Group’s cash flow forecasts and liquidity position throughout the
year, including monitoring financial covenant headroom, to ensure it has sufficient financial resources.
In addition, to support the going concern assessment, the Board reviews the Group’s cash flow
forecasts over the Assessment Period, considering the committed facilities available to the Group and
also assessed the ongoing Financial Restructure.
The Board has considered several risks to these projections under a severe but plausible downside
scenario as set out in note 2.5 to the financial statements and noted four material uncertainties
(detailed on page 156) which are not entirely within the direct control of the Group.
Notwithstanding these material uncertainties, the Directors have assessed, as set out in note
2.5 to the consolidated financial statements, that the Group has adequate resources to continue
in operational existence for the period of at least 12 months from the date of signing the Group
financial statements to 31 December 2024. Thus they continue to adopt the going concern basis of
accounting in preparing the annual financial statements.
Responsibility statement of the Directors in respect of the Annual Report
Each of the Directors listed on pages 102 and 103 confirms that, to the best of their knowledge:
• The Annual Report and Accounts, taken as a whole, is fair, balanced and understandable, and
provides the information necessary for shareholders to assess the Company’s position and
performance, business model and strategy
• The financial statements, prepared in accordance with IFRS, give a true and fair view of the
assets, liabilities, financial position and profit of the Company and the undertakings included in the
consolidation taken as a whole
• The Strategic report includes a fair review of the development and performance of the business and
the position of the Company and the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that they face
By order of the Board
AFONSO REIS E SOUSA
Chief Financial Officer
31 May 2024
141
PETROFAC LIMITED | Annual report and accounts 2023
Financial
Statements
143 Independent auditor’s report
146 Consolidated income statement
147 Consolidated statement of comprehensive income
148 Consolidated balance sheet
149 Consolidated statement of cash flows
150 Consolidated statement of changes in equity
Notes to the consolidated financial statements
151 Note 1 Corporate information
151 Note 2 Material accountingpolicy information
172 Note 3 Revenue from contracts withcustomers
174 Note 4 Segment information
177 Note 5 Expenses and income
178 Note 6 Separately disclosed items
179 Note 7 Finance income/(expense)
180 Note 8 Income tax
183 Note 9 Loss per share
183 Note 10 Dividends paid and proposed
183 Note 11 Deferred consideration
184 Note 12 Property, plant and equipment
185 Note 13 Non-controlling interests
186 Note 14 Goodwill
187 Note 15 Intangible assets
187 Note 16 Investments in associates and
jointventures
188 Note 17 Financial assets and financialliabilities
191 Note 18 Inventories
191 Note 19 Trade and other receivables
192 Note 20 Contract assets and contractliabilities
194 Note 21 Cash and short-term deposits
194 Note 22 Share capital and related reserves
194 Note 23 Employee Benefit Trust (EBT)shares
195 Note 24 Share-based payment plans
198 Note 25 Other reserves
198 Note 26 Interest-bearing loans andborrowings
199 Note 27 Provisions
200 Note 28 Trade and other payables
201 Note 29 Leases
202 Note 30 Commitments and contingentliabilities
202 Note 31 Related party transactions
203 Note 32 Accrued contract expenses
203 Note 33 Risk management and
financialinstruments
206 Note 34 Subsidiaries, associates and
jointarrangements
209 Appendices
FINANCIAL STATEMENTS
142
PETROFAC LIMITED | Annual report and accounts 2023
STRATEGIC REPORTOVERVIEW GOVERNANCE
Disclaimer of opinion
We were engaged to audit the consolidated financial statements of Petrofac Limited and its
subsidiaries (the Group) for the year ended 31 December 2023 which comprise:
• Consolidated income statement for the year ended 31 December 2023
• Consolidated statement of comprehensive income for the year ended 31 December 2023
• Consolidated balance sheet at 31 December 2023
• Consolidated statement of cash flows for the year ended 31 December 2023
• Consolidated statement of changes in equity for the year ended 31 December 2023
• Related notes 1 to 34 to the financial statements, including a summary of material
accountingpolicy information
The financial reporting framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards.
We do not express an opinion on the accompanying financial statements of the Group. Because of
the significance of the matters described in the Basis for disclaimer of opinion section of our report,
we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit
opinion on these financial statements.
Basis for disclaimer of opinion
As disclosed in note 1, the financial statements of the Group are prepared on the assumption that
the Group will continue as a going concern and that there is a realistic alternative to liquidation or
cessation of operations.
The Group is currently seeking to deliver a financial restructure (the Financial Restructure) to
strengthen its balance sheet, improve liquidity and secure performance and advance payment
guarantees to support its existing engineering, procurement and construction (EPC) contracts.
A critical assumption in the Directors’ assessment of Going Concern is that the Financial
Restructure can be successfully implemented within a time period in which liquidity can
bemaintained.
The court sanctioned restructuring plan through which the Financial Restructure is expected to
be implemented will require at least 75% (by value) of those present, voting of ‘an in money’ class
of creditors, such as the current lending group, comprising lending banks and noteholders, to
vote in favour. At present the detailed terms of the Financial Restructure are yet to be determined
and negotiated with stakeholders including the noteholders and bank lenders. Further, the Group
has not, to date, received any commitments for the provision of performance guarantees that are
required under the inter-conditionality of the Financial Restructure.
In maintaining short term liquidity there are in turn a range of key assumptions, including that
enforcement action is not taken by bondholders after 15 June 2024 following the non-payment of
US$29 million bond coupon on 15 May 2024, deferrals of the US$84 million amortisation payments
in respect of the bank facilities will continue to be made (these currently only being granted on a
rolling weekly basis) and that there are no significant unexpected demands on the Group’s liquidity
in the period ahead of a Financial Restructure, including enforcement action by other creditors.
In addition, the Group has received a notice of default from a key customer requiring a performance
guarantee to be posted by 16 June 2024. The payment of related collateral requires lenders consent
which has not yet been received. Failure to post this would entitle the customer to terminate the
contract which could have a detrimental impact on liquidity and the Group’s ability to proceed with
the Financial Restructure.
As detailed in note 2.5, the Directors have identified a number of material uncertainties with respect
to going concern which include the matters above. These are:
• The ability to maintain sufficient liquidity prior to the implementation of the Financial Restructure,
including maintaining the support of the lending group, trade and other creditors without
enforcement of their security rights.
• The successful implementation of inter-conditional elements of the Financial Restructure on terms
consistent with those currently proposed, including new guarantees, agreement of terms with a
sufficient majority of the lending group, approvals and Court sanction and final execution.
• The ability to secure performance and advance payment guarantees on normal commercial
terms, following the Financial Restructure.
• The ongoing reliance on the timely receipt of a small number of relatively high value collections
from clients.
Reflecting the interrelated nature of the above uncertainties, and the current status of the ongoing
discussions with stakeholders as set out in note 2.5, we were unable to obtain sufficient appropriate
audit evidence:
• that a successful restructuring is achievable in the necessary timeframe in order to maintain
liquidity, in conjunction with securing future performance guarantees and advance payment
guarantees, and
• as to whether there is a realistic alternative to liquidation or cessation of operations
in order to provide a basis for us to issue an audit opinion on these financial statements,
The financial statements do not reflect the adjustments that would be required should the Group be
unable to continue as a going concern.
Independent Auditor’s report
to the members of Petrofac Limited
143
PETROFAC LIMITED | Annual report and accounts 2023
Matters on which we are required to report by exception
Not withstanding our disclaimer of opinion on the financial statements, we have nothing to report in
respect of the following matters in relation to which the Companies (Jersey) Law 1991 requires us to
report to you if, in our opinion:
• proper returns adequate for our audit have not been received from branches not visited by us; or
• the financial statements are not in agreement with the company’s accounting records and returns.
Arising from the limitation of our work in relation to going concern referred to above:
• we have not received all the information and explanations we require for our audit; and
• we are unable to determine whether proper accounting records have been kept by the Company
in this regard.
Corporate Governance Statement
We have reviewed the Directors’ statement in relation to going concern, longer-term viability and
that part of the Corporate Governance Statement relating to the Group’s compliance with the
provisions of the UK Corporate Governance Code specified for our review by the Listing Rules.
In respect of the following information relevant to this review, the significance of the matters
described in the Basis for disclaimer of opinion section of our report means we are unable to form a
view on the adequacy or otherwise of:
• Directors’ statement with regards to the appropriateness of adopting the going concern basis of
accounting and any material uncertainties identified set out on page 141;
• Directors’ explanation as to its assessment of the Group’s prospects, the period this assessment
covers and why the period is appropriate set out on page 94;
• Director’s statement on whether it has a reasonable expectation that the Group will be able to
continue in operation and meets its liabilities set out on page 141; and
• Directors’ statement on fair, balanced and understandable set out on page 121.
Notwithstanding the impact of the matters described in the Basis for disclaimer of opinion section
of our report, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements or our knowledge obtained during
the audit:
• Board’s confirmation that it has carried out a robust assessment of the emerging and principal
risks set out on pages 70 to 77;
• The section of the annual report that describes the review of effectiveness of risk management
and internal control systems set out on page 120; and
Independent Auditor’s report continued
to the members of Petrofac Limited
• The section describing the work of the audit committee set out on pages 115 to 124.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 141, the Directors
are responsible for the preparation of the financial statements and for being satisfied that they give a
true and fair view, and for such internal control as the Directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless the Directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our responsibility is to conduct an audit of the Group’s financial statements in accordance with
International Standards on Auditing (UK) and to issue an auditor’s report.
However, because of the matter described in the Basis for disclaimer of opinion section of our
report, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an
audit opinion on these financial statements.
We are independent of the Group in accordance with the ethical requirements that are relevant to
our audit of the financial statements, including the FRC’s Ethical Standard as applied to a Market
Traded Company under the ICAEW Crown Dependencies Audit Rules and Guidance, and we have
fulfilled our other ethical responsibilities in accordance with these requirements.
Explanation as to what extent the audit was considered capable of
detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We
design procedures in line with our responsibilities, outlined above, to detect irregularities, including
fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate concealment by, for example,
forgery or intentional misrepresentations, or through collusion. The extent to which our procedures
144
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
are capable of detecting irregularities, subject to the limitation set out in the basis for disclaimer
paragraph above, including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those
charged with governance of the company and management.
Our approach was as follows:
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the
Group and determined that the most significant are International Financial Reporting Standards,
the Companies (Jersey) Law 1991, the UK Corporate Governance Code, the UK Bribery
Act, employment law, environmental regulations, health and safety, and tax legislation in the
jurisdictions where the Group operates.
• We understood how the Group is complying with those frameworks by making enquiries of
management, those charged with governance, internal audit, those responsible for legal and
compliance procedures and the company secretary. We corroborated our enquiries through our
review of board minutes and papers provided to the Audit Committee, as well as by considering
the results of our audit procedures across the Group. Our assessment considered the tone set
from the top by senior management.
• We assessed the susceptibility of the Group’s financial statements to material misstatement,
including how fraud might occur by meeting with individuals from various parts of the business to
gather their views. We considered the programmes and controls that the Group has established
to address the risks identified, or that otherwise prevent, deter or detect fraud, and how senior
management monitors those programmes and controls. We engaged EY forensics specialists to
provide input on specific aspects of our audit approach to risk of fraud and non-compliance with
laws and regulations.
• Based on this understanding we designed our audit procedures to identify non-compliance
with such laws and regulations that could give risk to a material misstatement in the financial
statements. These procedures included:
– responding to identified instances of non-compliance, as detailed below.
– addressing the identified risks of management override, including around judgments and
estimates, through audit work on identified fraud and signifcant risks and other procedures
including journal entry testing.
– assessment of the nature and cause of prior year adjustments for wider implications on the
financial statements and control environment.
– the provision of specific instructions to component teams including a specific work programme
to address the risks of bribery and corruption.
– enquires of Group management, those charged with governance, internal and external legal
counsel, and internalaudit.
• Our audit procedures responded to identified instances of non-compliance, these being detailed
in the Audit Committee Report on pages 115 to 124. In response:
– We engaged EY forensics specialists to assist the audit team in understanding and reviewing
the investigative and assurance procedures performed by management and external specialists
in response to identified instances of non-compliance. This included review of the
independence and objectivity, scope, approach and conclusions of Petrofac employees and
specialists engaged by management to respond to these instances. EY Forensics specialists
performed incremental procedures where considered appropriate.
– We communicated the nature of matters identified to component teams and designed and
implemented a programme of additional audit procedures in order to seek further assurance
that there were not other, unidentified, instances of non-compliance.
– We audited the financial impact of these matters on the financial statements, including a
resulting prior year adjustment relating to a previously recognised claim for variation on an
E&Ccontract.
Other matters we address
• We were first appointed by the company to audit the financial statements for the year ending
31 December 2005 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments is 19 years, covering the years
ending 31 December 2005 to 31 December 2023.
• The audit opinion is consistent with the additional report to the audit committee.
• The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group
and we remain independent of the Group in conducting the audit.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Article 113A
of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state
to the company’s members those matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our
audit work, for this report, or for the opinions we have formed.
DANIEL TROTMAN
for and on behalf of Ernst & Young LLP
London
31 May 2024
145
PETROFAC LIMITED | Annual report and accounts 2023
1
| Separately | Business | Separately | Reported | ||||
| Business | disclosed | Reported | performance 1 | disclosed | (restated) | ||
| performance | items | 2023 | (restated) 2 | items | 2022 | ||
| Notes | US$m | US$m | US$m | US$m | US$m | US$m | |
Revenue | 3 | ||||||
| Cost of sales | 5a | ( | ( | ( | ( | ||
Gross loss | ( | ( | ( | ( | |||
| Selling, general and administration expenses | 5b,6 | ( | ( | ( | ( | ( | ( |
| Expected credit loss (charge)/reversal | 5e | ( | ( | ||||
| Other operating income | 5f | ||||||
| Other operating expenses | 5g | ( | ( | ( | ( | ||
Operating loss | ( | ( | ( | ( | ( | ( | |
| Finance income | 6,7 | ||||||
| Finance expense | 6,7 | ( | ( | ( | ( | ( | |
| Share of net profit of associates and joint ventures | 16 | ||||||
Loss before tax | ( | ( | ( | ( | ( | ( | |
| Income tax credit/(expense) | 8a | ( | ( | ( | |||
Net loss | ( | ( | ( | ( | ( | ( | |
| Attributable to: | |||||||
Petrofac Limited shareholders | ( | ( | ( | ( | ( | ( | |
| Non-controlling interests | 13 | ( | ( | ( | ( | ||
( | ( | ( | ( | ( | ( | ||
| Loss per share (US cents) | |||||||
| Basic | 9 | ( | ( | ( | ( | ( | ( |
| Diluted | 9 | ( | ( | ( | ( | ( | ( |
2
1. This measurement (before separately disclosed items) is shown by the Group as a means of measuring underlying business performance (i.e. excluding separately disclosed items); see note 2 and Appendix A.
2. The prior year numbers are restated; see note 2.9.
146 PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
Consolidated income statement
For the year ended 31 December 2023
| 2022 | |||
| 2023 | (restated) | ||
| Notes | US$m | US$m | |
Reported net loss | ( | ( | |
| Other comprehensive (loss)/income that may be reclassified to consolidated income statement in subsequent periods (post-tax) | |||
| Net changes in fair value of derivatives designated as cash flow hedges | 25 | ( | |
| Hedging (gains)/losses reclassified to consolidated income statement | 25 | ( | |
| Foreign currency translation gains reclassified to the consolidated income statement | 25 | ( | |
| Foreign currency translation (losses)/gains | 25 | ( | |
Other comprehensive (loss)/income that may be reclassified to consolidated income statement in subsequent periods | ( | ||
| Other comprehensive loss that will not be reclassified to consolidated income statement (post-tax) | |||
| Remeasurement loss on end of service benefit plans | 27 | ( | |
Other comprehensive loss that will not be reclassified to consolidated income statement | ( | ||
Total comprehensive loss for the year | ( | ( | |
| Attributable to: | |||
Petrofac Limited shareholders | ( | ( | |
| Non-controlling interests | 13 | ( | ( |
( | ( | ||
| 1. The prior year numbers are restated; see note 2.9. |
1
147
PETROFAC LIMITED | Annual report and accounts 2023
Consolidated statement of comprehensive income
For the year ended 31 December 2023
The consolidated financial statements on pages 146 to 208 were approved by the Board of
Directors on 31 May 2024 and signed on its behalf by Afonso Reis e Sousa – Chief FinancialOfficer.
1. The prior year numbers are restated; see note 2.9.
| 2022 | |||
| 2023 | (restated) | ||
| Notes | US$m | US$m | |
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 12 | ||
| Goodwill | 14 | ||
| Intangible assets | 15 | ||
| Investments in associates and joint ventures | 16 | ||
| Other financial assets | 17 | ||
| Deferred consideration | 11 | ||
Income tax receivable | |||
| Deferred tax assets | 8c | ||
| Current assets | |||
| Inventories | 18 | ||
| Trade and other receivables | 19 | ||
| Contract assets | 20 | ||
| Other financial assets | 17 | ||
Income tax receivable | |||
| Cash and short-term deposits | 21 | ||
Total assets |
1
Equity and liabilities
| 2022 | |||
| 2023 | (restated) | ||
| Notes | US$m | US$m | |
| Equity | |||
| Share capital | 22 | ||
| Share premium | 22 | ||
| Capital redemption reserve | 22 | ||
| Employee Benefit Trust shares | 23 | ( | ( |
| Other reserves | 25 | ||
Retained earnings | ( | ( | |
Equity attributable to Petrofac Limited shareholders | ( | ||
| Non-controlling interests | 13 | ( | ( |
Total equity | ( | ||
| Non-current liabilities | |||
| Provisions | 27 | ||
| Other financial liabilities | 17 | ||
| Deferred tax liabilities | 8c | ||
| Current liabilities | |||
| Trade and other payables | 28 | ||
| Contract liabilities | 20 | ||
| Interest-bearing loans and borrowings | 26 | ||
| Other financial liabilities | 17 | ||
Income tax payable | |||
| Accrued contract expenses | 32 | ||
| Provisions | 27 | ||
Total liabilities | |||
Total equity and liabilities |
1
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
148
PETROFAC LIMITED | Annual report and accounts 2023
Consolidated balance sheet
At 31 December 2023
| 2022 | |||
| 2023 | (restated) | ||
| Notes | US$m | US$m | |
| Operating activities | |||
Loss before tax | ( | ( | |
| Separately disclosed items | 6 | ||
Loss before tax and separately disclosed items | ( | ( | |
| Adjustments to reconcile profit before tax and separately | |||
| disclosed items to net cash flows: | |||
| Depreciation, amortisation and business performance | |||
| impairment | 5a, 5b | ||
| Expected credit loss charge/(reversal) recognised | 5e | ( | |
| Share-based payments | 24 | ||
| Difference between end of service benefits paid and amounts | |||
| recognised in the consolidated income statement | 27 | ( | ( |
| Net finance expense before separately disclosed | |||
| financeexpense | 7 | ||
| Net movement in other provisions | 27 | ||
| Share of net profit of associates and joint ventures | 16 | ( | ( |
| Net foreign exchange gains and losses | 16 | ( | |
Net other non-cash items | ( | ( | |
( | ( | ||
| Working capital movements: | |||
Inventories | |||
Trade and other receivables | ( | ( | |
| Contract assets | 20 | ||
| Restricted cash | 17 | ( | |
| Net derivative contracts – designated and undesignated | 17 | ( | |
Trade and other payables | ( | ||
| Contract liabilities | 20 | ||
Accrued contract expenses | ( | ( | |
Net working capital movements |
1
| 2022 | |||
| 2023 | (restated) | ||
| Notes | US$m | US$m | |
Cash (used in)/generated from operations | ( | ||
Separately disclosed items paid – operating costs | ( | ( | |
Net income taxes paid | ( | ( | |
Net cash flows used in operating activities | ( | ( | |
| Investing activities | |||
Purchase of property, plant and equipment | ( | ( | |
| Payments for intangible assets | 15 | ( | ( |
| Contingent consideration paid | 17 | ( | ( |
| Dividends received from associates and joint ventures | 16 | ||
Receipts from Shanghai Zhenhua Heavy Industries Co Ltd in respect of JSD6000 vessel | 17 | ||
Receipts from joint operation partners in respect of leases | |||
| Net cash flows from disposal of subsidiaries, including receipt | |||
| against deferred and contingent consideration | 6, 17 | ( | |
| Net proceeds from disposal of investment in associates | 6, 16 | ||
Proceeds from disposal of property, plant and equipment | |||
Interest received | |||
Net cash flows generated from investing activities | |||
| Financing activities | |||
| Proceeds from interest-bearing loans and borrowings | 17 | ||
| Repayment of interest-bearing loans and borrowings | 17 | ( | ( |
| Repayment of lease liabilities | 29 | ( | ( |
Interest paid | ( | ( | |
Net cash flows used in financing activities | ( | ( | |
Net decrease in cash and cash equivalents | ( | ( | |
Net foreign exchange difference | ( | ||
Cash and cash equivalents at 1 January | |||
| Cash and cash equivalents at 31 December | 21 |
1
1. The prior year numbers are restated; see note 2.9.
149
PETROFAC LIMITED | Annual report and accounts 2023
Consolidated statement of cash flows
For the year ended 31 December 2023
| Attributable to Petrofac Limited shareholders | |||||||||
| Employee | |||||||||
| Issued | Capital | Benefit Trust | Other | ||||||
| share | Share | redemption | shares 1 | reserves | Retained | Non-controlling | Total | ||
| capital | premium | reserve | US$m | US$m | earnings | Total | interests | equity | |
| US$m | US$m | US$m | (note 23) | (note 25) | US$m | US$m | US$m | US$m | |
At 1 January 2022 | ( | ||||||||
| Reported net loss (restated) | ( | ( | ( | ( | |||||
Other comprehensive income | |||||||||
| Total comprehensive income/(loss) (restated) | ( | ( | ( | ( | |||||
Issue of Company’s shares by Employee Benefit Trust (note 23) | ( | ( | |||||||
Credit to equity for share-based payments charge (note 24) | |||||||||
| At 31 December 2022 (restated) | ( | ( | ( | ||||||
At 1 January 2023 | ( | ( | ( | ||||||
Reported net loss | ( | ( | ( | ( | |||||
Other comprehensive loss | ( | ( | ( | ( | |||||
Total comprehensive loss | ( | ( | ( | ( | ( | ||||
Issue of Company’s shares by Employee Benefit Trust (note 23) | ( | ||||||||
Credit to equity for share-based payments charge (note 24) | |||||||||
At 31 December 2023 | ( | ( | ( | ( | ( |
2
2
2
1. Petrofac Limited shares held by Petrofac Employee Benefit Trust.
2. The prior year numbers are restated; see note 2.9.
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
150
PETROFAC LIMITED | Annual report and accounts 2023
Consolidated statement of changes in equity
For the year ended 31 December 2023
1 Corporate information
2 Material accounting policy information
Notes to the consolidated financial statements
For the year ended 31 December 2023
151
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
152
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FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
153
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
2.5 Going concern continued
154
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FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
155
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
2.5 Going concern continued
Assessment continued
156
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
157
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
2.6 Basis of consolidation continued
Foreign currency translation continued
158
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
159
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
2.7 Significant accounting judgements and estimates continued
Fixed-price engineering, procurement and constructioncontracts continued
160
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
2.8 Significant accounting policies
161
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
2.8 Significant accounting policies continued
Engineering & Construction continued
162
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
Oil and gas assets | unit of production on a field-by-field basis (see below) |
Oil and gas facilities | 8 to 10 years |
| (or lease term if shorter) | |
Buildings and leasehold improvements | 3 to 20 years |
| (or lease term if shorter) | |
Plant and equipment | 3 to 7 years |
| (or lease term if shorter) | |
Office furniture and equipment | 2 to 4 years |
| (or lease term if shorter) | |
Vehicles | 3 to 5 years |
| (or lease term if shorter) |
163
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
2.8 Significant accounting policies continued
Leases continued
Group as a lessee continued
164
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FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
165
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
2.8 Significant accounting policies continued
166
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FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
167
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
2.8 Significant accounting policies continued
Financial liabilities continued
168
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FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
169
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
170
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FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
| 31 Dec 2022 | Restatement | Restatement | 31 Dec 2022 | |
| As reported | 1 | 2 | Restated | |
| US$m | US$m | US$m | US$m | |
| Income statement impact | ||||
Revenue (note 3) | 2,591 | (24) | – | 2.567 |
Cost of sales | (2,667) | – | – | (2,667) |
Gross loss | (76) | (24) | – | (100) |
Selling, general and administration expenses | (182) | – | – | (182) |
Operating loss | (217) | (24) | – | (241) |
Finance expense (note 7) | (116 ) | – | – | (116) |
Loss before tax | (321) | (24) | – | (345) |
Income tax expense (note 8) | (16) | – | 14 | (2) |
Net loss | (337) | (24) | 14 | (347) |
Net loss attributable to Petrofac Limited shareholders | (310) | (24) | 14 | (320) |
| Loss per share (US cents) | ||||
Loss per share – basic and diluted (note 9) | (60.2) | (4.7) | 2.8 | (62.1) |
| 31 Dec 2022 | Restatement | Restatement | 31 Dec 2022 | |
| As reported | 1 | 2 | Restated | |
| US$m | US$m | US$m | US$m | |
| Statement of comprehensive income | ||||
Total comprehensive loss for the year | (317) | (24) | 14 | (327) |
| Total comprehensive loss attributable to Petrofac | ||||
Limited shareholders | (290) | (24) | 14 | (300) |
| 31 Dec 2022 | Restatement | Restatement | 31 Dec 2022 | ||
| As reported | 1 | 2 | Restated | ||
| US$m | US$m | US$m | US$m | ||
| Balance sheet impact | |||||
Contract assets (note 20) | 1,329 | (5) | – | 1,324 | |
Total current assets | 2,664 | (5) | – | 2,659 | |
Total assets | 3,267 | (5) | – | 3,262 | |
Retained earnings | (143) | (24) | 14 | (153) | |
Total equity | 112 | (24) | 14 | 102 | |
Contract liabilities (note 20) | 136 | 19 | – | 155 | |
Income tax payable | 79 | – | (14) | 65 | |
Total current liabilities | 2,846 | 19 | (14) | 2,851 | |
Total liabilities | 3,155 | 19 | (14) | 3 | ,16 0 |
Total equity and liabilities | 3,267 | (5) | – | 3,262 |
| 31 Dec 2022 | Restatement | 31 Dec 2022 | |
| As reported | 1 | Restated | |
| US$m | US$m | US$m | |
| Statement of cash flows impact | |||
Loss before tax | (321) | (24) | (345) |
Loss before tax and separately disclosed items | (296) | (24) | (320) |
| Adjustments to reconcile profit before tax and separately | |||
| disclosed items to net cash flows: | |||
| Difference between end of service benefits paid and amounts | |||
recognised in the consolidated income statement | (10) | – | (10) |
| Net finance expense before separately disclosed finance | |||
expense | 91 | – | 91 |
| Working capital adjustments: | |||
Contract assets | 268 | 5 | 273 |
Contract liabilities | 62 | 19 | 81 |
Net working capital adjustments | 135 | 24 | 159 |
Cash generated from operations | 21 | – | 21 |
Net cash flows used in operating activities | (146) | – | (146) |
171
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
| 2022 | ||
| 2023 | (restated) | |
| US$m | US$m | |
Rendering of services | 2,376 | 2,431 |
Sale of crude oil and gas | 120 | 136 |
2,496 | 2,567 |
| Engineering & | ||||||||
| Engineering & | Asset | Integrated | Construction | Asset | Integrated Energy | 2022 | ||
| Construction | Solutions | Energy Services | 2023 | (restated) | Solutions | Services | (restated) | |
| US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | |
| Geographical markets | ||||||||
United Kingdom | 13 | 782 | – | 795 | 8 | 640 | – | 648 |
Algeria | 243 | – | – | 243 | 374 | 1 | – | 375 |
Lithuania | 220 | – | – | 220 | 159 | – | – | 159 |
Malaysia | 2 | 59 | 121 | 182 | 1 | 50 | 137 | 188 |
United States of America | – | 168 | – | 168 | – | 92 | – | 92 |
Oman | 115 | 21 | – | 136 | 233 | 24 | – | 257 |
Thailand | 103 | 29 | – | 132 | 255 | 25 | – | 280 |
Australia | – | 131 | – | 131 | – | 31 | – | 31 |
Netherlands | 67 | 18 | – | 85 | 14 | 26 | – | 40 |
Bahrain | – | 76 | – | 76 | – | 54 | – | 54 |
United Arab Emirates | 25 | 29 | – | 54 | 26 | 32 | – | 58 |
Libya | 48 | 3 | – | 51 | 21 | – | – | 21 |
Iraq | 31 | 16 | – | 47 | 54 | 75 | – | 129 |
India | 21 | 20 | – | 41 | 32 | 8 | – | 40 |
Kuwait | 28 | 4 | – | 32 | 74 | 5 | – | 79 |
Ivory Coast | – | 21 | – | 21 | – | – | – | – |
172
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
| Type of goods or service | |||||||||
Fixed price | 886 | 160 | – | 1,046 | 1,18 | 0 | 141 | – | 1,321 |
Reimbursable | 45 | 1,284 | 1 | 1,330 | 103 | 1,006 | 1 | 1,110 | |
Sale of crude oil and gas | – | – | 120 | 120 | – | – | 136 | 136 | |
Total revenue from contracts with customers | 931 | 1,444 | 121 | 2,496 | 1,283 | 1,147 | 137 | 2,567 | |
| Customer type | |||||||||
Government | 447 | 273 | 16 | 736 | 1,053 | 197 | 49 | 1,299 | |
Non-government | 484 | 1,171 | 105 | 1,760 | 230 | 950 | 88 | 1,268 | |
Total revenue from contracts with customers | 931 | 1,444 | 121 | 2,496 | 1,283 | 1,147 | 137 | 2,567 | |
| Timing of revenue recognition | |||||||||
Services transferred over time | 931 | 1,444 | 1 | 2,376 | 1,283 | 1,147 | 1 | 2,431 | |
Goods transferred at a point in time | – | – | 120 | 120 | – | – | 136 | 136 | |
Total revenue from contracts with customers | 931 | 1,444 | 121 | 2,496 | 1,283 | 1,147 | 137 | 2,567 |
| Engineering & | Asset | Engineering & | Asset | ||||
| Construction | Solutions | 2023 | Construction | Solutions | 2022 | ||
| US$m | US$m | US$m | US$m | US$m | US$m | ||
Within one year | 1,238 | 885 | 2 ,123 | 918 | 1,16 | 9 | 2,087 |
More than one year | 4,919 | 1,107 | 6,026 | 638 | 652 | 1,290 | |
6,157 | 1,992 | 8,149 | 1,556 | 1,821 | 3,377 |
173
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
4 Segment information
The Group organisational structure comprises the following three operating segments:
• Engineering & Construction, which provides fixed-price engineering, procurement and
construction contract execution services and reimbursable engineering, procurement and
construction management services to the onshore and offshore energy industries
• Asset Solutions, which mainly includes reimbursable engineering and production services
activities to the oil and gas industry
• Integrated Energy Services, which is focused on delivering value from the existing asset portfolio
The Chief Operating Decision Makers (CODMs) have been identified as the Group’s Chief Executive
Officer and Chief Financial Officer. The CODMs regularly review the performance of the operating
segments to make decisions about resource allocations and to assess financial performance.
Finance expense and income arising from borrowings and cash balances, which are not directly
attributable to individual operating segments, are allocated to Corporate.
The software cost associated with configuration or customisation services are centralised activities
not monitored at the segment level, and thus have been allocated to the Corporate segment.
In addition, certain shareholder services-related costs, intra-group financing and consolidation
adjustments are managed at Corporate and are not allocated to operating segments.
The Group’s financial performance presented below also separately identifies the effect of
separately disclosed items to provide users of the consolidated financial statements with a clear and
consistent presentation of the underlying business performance of the Group; refer to notes 2.8,
6 and Appendix A for details. Consequently, the CODMs assess the performance of the operating
segments based on measures of business performance operating profit and profit after tax,
excluding the effect of separately identified items.
The following tables represent revenue and profit/(loss) information relating to the Group’s operating
segments for the years ended 31 December 2023 and restated 31 December 2022.
Year ended 31 December 2023
| Integrated | Consolidation | |||||||
| Engineering & | Asset | Energy | Corporate | adjustments & | Business | Separately | ||
| Construction | Solutions | Services | & others | eliminations | performance | disclosed items | Reported | |
| US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | |
| Revenue | ||||||||
External sales | 931 | 1,444 | 121 | – | – | 2,496 | – | 2,496 |
Inter-segment sales | 5 | 2 | – | 6 | (13) | – | – | – |
Total revenue | 936 | 1,446 | 121 | 6 | (13) | 2,496 | – | 2,496 |
Operating (loss)/profit | (422) | – | 34 | (7) | – | (395) | (25) | (420) |
Finance income | – | – | 5 | 1 | – | 6 | 5 | 11 |
Finance expense | (4) | (2) | (9) | (104) | – | (119) | – | (119) |
Share of net profit of associates and joint ventures | – | 2 | – | – | – | 2 | – | 2 |
(Loss)/profit before tax | (426) | – | 30 | (110) | – | (506) | (20) | (526) |
Income tax credit/(expense) | 11 | 2 | (7) | (3) | – | 3 | – | 3 |
Net (loss)/profit | (415) | 2 | 23 | (113) | – | (503) | (20) | (523) |
| Attributable to: | ||||||||
Petrofac Limited shareholders | (397) | 2 | 23 | (113) | – | (485) | (20) | (505) |
Non-controlling interests | (18) | – | – | – | – | (18) | – | (18) |
Net (loss)/profit | (415) | 2 | 23 | (113) | – | (503) | (20) | (523) |
EBIT | (422) | 2 | 34 | (7) | – | (393) | (25) | (418) |
EBITDA | (412) | 13 | 90 | (1) | – | (310) | (30) | (340) |
174
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
Engineering &
Construction
US$m
Asset Solutions
US$m
Integrated
Energy Services
| Corporate | |||||
| & others | Total | ||||
| US$m | US$m | US$m | |||
| Other segment information | |||||
| Capital expenditures: | |||||
Property, plant and equipment (note 12) | 5 | 8 | 1 | 1 | 15 |
Intangible assets (note 15) | – | – | – | 6 | 6 |
| Charges: | |||||
Depreciation (note 12) | 10 | 10 | 56 | 2 | 78 |
Amortisation, business performance impairment and write off (notes 5a, 5b and 5g) | – | 1 | – | 4 | 5 |
Separately disclosed items, pre-tax (note 6) | – | 7 | (7) | 20 | 20 |
Expected credit loss (reversal)/charge (note 5e) | (1) | 15 | – | – | 14 |
Share-based payments (note 24) | 3 | 2 | – | 3 | 8 |
Year ended 31 December 2022
| Consolidation | |||||||||
| Engineering & | Asset | Integrated | Corporate | adjustments & | Business | Separately | |||
| Construction | Solutions | Energy Services | & others | eliminations | performance | disclosed items | Reported | ||
| US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | ||
| Revenue | |||||||||
| External sales (restated) | 1,283 | 1,147 | 137 | – | – | 2,567 | – | 2,567 | |
Inter-segment sales | 4 | 11 | – | 6 | (21) | – | – | – | |
Total revenue (restated) 1 | 1,287 | 1,15 | 8 | 137 | 6 | (21) | 2,567 | – | 2,567 |
| Operating (loss)/profit (restated) | (323) | 55 | 58 | (24) | – | (234) | (7) | (241) | |
Finance income | – | – | 6 | 1 | – | 7 | – | 7 | |
Finance expense | (2) | (1) | (10) | (85) | – | (98) | (18) | (116 ) | |
Share of net profit of associates and joint ventures | – | 5 | – | – | – | 5 | – | 5 | |
| (Loss)/profit before tax (restated) | (325) | 59 | 54 | (108) | – | (320) | (25) | (345) | |
| Income tax expense (restated) | 9 | (4) | (1) | (5) | – | (1) | (1) | (2) | |
| Net (loss)/profit (restated) | (316) | 55 | 53 | (113) | – | (321) | (26) | (347) | |
| Attributable to: | |||||||||
| Petrofac Limited shareholders (restated) | (289) | 55 | 53 | (113) | – | (294) | (26) | (320) | |
Non-controlling interests | (27) | – | – | – | – | (27) | – | (27) | |
| Net (loss)/profit (restated) | (316) | 55 | 53 | (113) | – | (321) | (26) | (347) | |
| EBIT (restated) | (323) | 60 | 58 | (24) | – | (229) | (7) | (236) | |
| EBITDA (restated) | (311) | 70 | 109 | (18) | – | (150) | (12) | (162) |
1
1
1
1
1
1
1
1
1
1. The prior year numbers are restated; see note 2.9.
175
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
4 Segment information continued
| Engineering & | Asset | Integrated | Corporate | ||
| Construction | Solutions | Energy Services | & others | Total | |
| US$m | US$m | US$m | US$m | US$m | |
| Other segment information | |||||
| Capital expenditures: | |||||
Property, plant and equipment (note 12) | 10 | 11 | 26 | – | 47 |
Intangible assets (note 15) | – | 1 | – | 6 | 7 |
| Charges: | |||||
Depreciation (note 12) | 12 | 9 | 51 | 2 | 74 |
Amortisation, business performance impairment and write off (notes 5a, 5b and 5g) | – | 1 | – | 4 | 5 |
Separately disclosed items, pre-tax (note 6) | 1 | 3 | (13) | 34 | 25 |
Expected credit loss credit (note 5e) | (19) | (2) | – | (2) | (23) |
Share-based payments (note 24) | 2 | 2 | – | 2 | 6 |
Geographical segments
The following tables present selected non-current assets by geographical segments for the years ended 31 December 2023 and 31 December 2022.
As at 31 December 2023
| United Arab | United | United States | Other | ||||
| Malaysia | Emirates | Kingdom | India | of America | countries | Total | |
| US$m | US$m | US$m | US$m | US$m | US$m | US$m | |
Property, plant and equipment (note 12) | 113 | 22 | 10 | 12 | 11 | 2 | 170 |
Goodwill (note 14) | 3 | 30 | 39 | – | 24 | – | 96 |
Other intangible assets (note 15) | – | – | 17 | – | 4 | 5 | 26 |
As at 31 December 2022
| United Arab | United | United States | Other | ||||
| Malaysia | Emirates | Kingdom | India | of America | countries | Total | |
| US$m | US$m | US$m | US$m | US$m | US$m | US$m | |
Property, plant and equipment (note 12) | 173 | 30 | 17 | 12 | 10 | 2 | 244 |
Goodwill (note 14) | 3 | 29 | 38 | – | 25 | 1 | 96 |
Other intangible assets (note 15) | – | – | 21 | – | – | 4 | 25 |
176
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
| 2023 | 2022 | |
| US$m | US$m | |
Staff costs | 114 | 100 |
Depreciation and amortisation (notes 12 and 15) | 11 | 11 |
Other general and administration expenses | 77 | 64 |
| Business performance selling, general and administration expenses | ||
(before separately disclosed items) | 202 | 175 |
Separately disclosed items (note 6) | 25 | 7 |
227 | 182 |
| 2023 | 2022 | |
| US$m | US$m | |
| Total staff costs: | ||
Wages and salaries | 692 | 644 |
Social security costs | 33 | 31 |
Defined contribution pension costs | 29 | 24 |
End of service benefits costs (note 27) | 10 | 3 |
Share-based payments costs (note 24) | 8 | 6 |
772 | 708 |
| 2023 | 2022 | |
| US$m | US$m | |
Group audit fee | 5 | 4 |
Audit of subsidiaries’ accounts | 2 | 1 |
7 | 5 |
| 2022 | ||
| US$m | US$m | |
ECL charge on trade receivables (note 19) | 16 | – |
ECL reversal on contract assets (note 20) | (1) | (21) |
ECL reversal on other financial assets (note 17) | – | (1) |
ECL reversal on cash at bank (note 21) | (1) | – |
ECL reversal on other receivables (note 19) | – | (1) |
14 | (23) |
| 2023 | 2022 | |
| US$m | US$m | |
Foreign exchange gains | 6 | 3 |
Other income | 6 | 20 |
12 | 23 |
| 2022 | ||
| US$m | US$m | |
Other expenses | 3 | 5 |
177
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
6 Separately disclosed items
| 2023 | 2022 | |
| US$m | US$m | |
Reversal of impairment of assets | (7) | (6) |
Impairment of assets | – | 1 |
Losses on disposal | 8 | – |
Fair value remeasurements | (3) | (10) |
Cloud ERP software implementation costs | 5 | 10 |
Restructuring and refinancing-related costs | 20 | 5 |
Other separately disclosed items | 2 | 7 |
| Total separately disclosed items as reported within selling, general | ||
and administrative expenses (note 5b) | 25 | 7 |
| Separately disclosed items as reported within finance (income)/ | ||
expense (note 7) | (5) | 18 |
Income tax charge on separately disclosed items | – | 1 |
| Total separately disclosed items as reported within income tax | – | 1 |
| charge (note 8) | ||
Consolidated income statement charge | 20 | 26 |
Reversal of impairment of assets
At 31 December 2023, internal and external indicators of impairment reversal existed, predominantly
due to the volatility in global oil prices. Consequently, the Group performed an impairment review of the
carrying value amount of its Block PM304 oil and gas assets on a fair value less cost of disposal basis
(Level 3 of the ‘fair value hierarchy’ contained within IFRS 13 ‘Fair Value Measurement’) using a post-tax
discount rate of 9.1% (2022: 10.0%). This review involved assessing the field operational performance,
oil price and licence extension assumptions (with an extension beyond the current PSC expiry date of
2026 deemed unlikely). This assessment resulted in an impairment reversal of US$7m (2022: US$6m)
allocated to property, plant and equipment in the Integrated Energy Services operating segment.
The average oil price assumptions used by management were US$84 per barrel for 2024, US$83
per barrel for 2025 and US$81 per barrel for the remaining period of the assessment (equivalent to
the end of licence period) (2022: US$85 per barrel for 2023, US$80 per barrel for 2024 and US$75
per barrel to the end of licence period). The oil price assumption and future field performance
were the most sensitive inputs in determining the fair value less cost of disposal. US$10 per barrel
decrease in oil prices would result in an incremental impairment charge of US$22m and a US$10
increase in oil prices would result in an incremental impairment reversal of US$19m and a 10%
decrease in production would result in an incremental impairment charge of US$18m and a 10%
increase in production would result in an incremental impairment reversal of US$15m.
Fair value less costs of disposal is determined by discounting the post-tax cash flows expected
to be generated from oil and gas production net of disposal costs considering assumptions that
market participants would typically use in estimating fair values. Post-tax cash flows are derived
from the projected production profiles for each asset considering forward market commodity
prices over the relevant period which informs the Group’s Board-approved business planning
assumptions. As each field has different reservoir characteristics and contractual terms, the post-
tax cash flows for each asset are calculated using individual economic models, which include
assumptions around the amount of recoverable reserves, production costs, life of the field/licence
period and the selling price of the commodities produced.
Impairment of assets
In the prior year, management identified impairment indicators for one of the Group’s operations in
the United Kingdom and as a result reviewed the carrying amount of property, plant and equipment
including right-of-use assets relating to that subsidiary using the value-in-use basis. This resulted in
an impairment charge of US$1m in the Asset Solutions operating segment.
Losses on disposal
During 2023, the Group sold its investment in two associate entities PetroFirst Infrastructure 2
Limited and PetroFirst Infrastructure Limited (note 16) and as a result, recognised a net gain on
disposal of US$3m and a loss on disposal of US$9m respectively, both in the Asset Solutions
operating segment. As a result of this disposal, the Group derecognised the right-of-use asset in
respect of the West Desaru mobile offshore production unit (MOPU) of US$16m and the associated
lease liability of US$17m, resulting in a net gain of US$1m in the Asset Solutions operating segment
(notes 12 and 29).
Additionally, on 22 September 2023, the Group disposed of its shareholding in a wholly-owned
subsidiary Petrofac Cyprus Limited (which held two Russian subsidiaries) as part of the Group’s
strategic decision to exit from Russia. The disposal, which related to the Asset Solutions operating
segment, was for US$nil consideration and resulted in a loss on disposal of US$3m, as follows:
| US$m | |
Disposal consideration less cost of disposal | – |
Trade and other receivables | 5 |
Cash at bank | 1 |
Trade and other payables | (3) |
Carrying value of net assets derecognised as part of the disposal | 3 |
Net loss on disposal | (3) |
178
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
Fair value remeasurements
Management reviewed the carrying amount of the deferred consideration associated with the
disposal of JSD6000 installation vessel (the ‘vessel’) that was recognised as a non-current
asset in the consolidated balance sheet. The fair value of the deferred consideration considers,
amongst other factors, an independent broker’s valuation of the vessel (a Level 3 measurement
of the ‘fair value hierarchy’ contained within IFRS 13 ‘Fair Value Measurement’). An upward fair
value adjustment of US$3m (2022: US$1m) was recognised as a separately disclosed item in the
Engineering & Construction operating segment which increased the deferred consideration to
US$59m at the end of the reporting period (2022: US$56m). Supporting the assessment was an
independent broker’s valuation, corroborating a fair value range for the deferred consideration
ranges of between US$57m and US$60m.
Management also reviewed the carrying amount of the contingent consideration payable associated
with the acquisition of W&W Energy Services Inc (W&W) based on W&W’s financial performance
during the earn-out period, which concluded in 2023. No fair value gain or loss was recognised
during the year (2022: negative fair value adjustment of US$1m recognised in the Asset Solutions
operating segment).
During 2022, the Group reached an agreement in respect of the contingent consideration receivable
arising from the 2020 disposal of the Group’s operations in Mexico resulting in a fair value gain of
US$10m in the Integrated Energy Services operating segment.
Software implementation costs
Following IFRIC’s agenda decision published in April 2022, the Group revised its accounting
policy regarding the customisation and configuration costs incurred when implementing a SaaS
arrangement. The Group is currently undertaking a major systems implementation of cloud
computing software, resulting in costs of US$5m being recognised as an expense in the current
year (2022: US$10m). The implementation has now been successfully completed for the majority of
the Group and will be completed for the remaining Group entities by the end of 2024.
Due to the size, nature and incidence of these costs, they are presented as a separately disclosed
item, as they are not reflective of underlying performance.
Restructuring and refinancing-related costs
The Group incurred US$20m of professional services fees in relation to non-recurring projects
within the Corporate reporting segment (2022: US$5m).
Other separately disclosed items
One of the Group’s subsidiaries in the United Kingdom ceased operations during the year and
as a result, served notice on their office lease (to effect the break clause) due to uncertainty over
the continued use of office space in future periods for the remaining lease period. As the related
right-of-use asset had been fully impaired in prior periods, the reduction in lease liability generated
a one-off gain of US$4m. Additionally, US$2m of goodwill associated with this subsidiary was
written off during the year and additional costs of US$1m were incurred, all in the Asset Solutions
operating segment.
The Group also recognised a provision for estimated penalties of US$3m due to administrative
non-compliance of Russian sanctions resulting from our exit from those operations (page 77) in the
Engineering & Construction operating segment.
During 2022, the Group collected US$12m of the deferred consideration due from Ithaca Energy
UK Ltd and sold the remaining deferred consideration receivable, with a carrying value of US$43m,
for US$40m, resulting in a loss of US$3m in the Integrated Energy Services operating segment
(note 17). Additionally, cost reduction measures were taken by management which resulted in total
redundancy costs of US$4m during 2022.
Separately disclosed finance income/(expense)
The terms of the Revolving Credit Facility provides for the Group to pay a certain proportion of
losses incurred by an original lender to facilitate any transfer of its commitment under the facility
to another lender. This has been classified as an embedded derivative on initial recognition and
remeasured at fair value through profit or loss. The fair value of the embedded derivative as at
31 December 2023 was estimated at US$17m (2022: US$22m) (Level 2 of the ‘fair value hierarchy’
contained within IFRS 13 ‘Fair Value Measurement’) resulting in a fair value gain of US$5m (2022:
fair value loss of US$18m) in the Corporate reporting segment.
| 2023 | 2022 | |
| US$m | US$m | |
| Finance income | ||
Bank interest | 1 | 1 |
Interest income from joint operation partners in respect of leases | 5 | 6 |
| Business performance finance income (before separately | ||
disclosed items) | 6 | 7 |
Separately disclosed items – finance income (note 6) | 5 | – |
Total finance income | 11 | 7 |
| Finance expense | ||
Group borrowings | (105) | (85) |
Lease liabilities | (9) | (12) |
Unwinding of discount on provisions (note 27) | (5) | (1) |
| Business performance finance expense (before separately | ||
disclosed items) | (119) | (98) |
Separately disclosed items – finance expense (note 6) | – | (18) |
Total finance expense | (119) | (116) |
179
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
| Separately | ||||||
| Business | Separately | Reported | Business | disclosed | Reported | |
| performance | disclosed items | 2023 | performance | items | 2022 | |
| US$m | US$m | US$m | US$m | US$m | US$m | |
| Current income tax | ||||||
Current income tax charge | 23 | – | 23 | 20 | 1 | 21 |
Adjustments in respect of previous years | (14) | – | (14) | (34) | – | (34) |
9 | – | 9 | (14) | 1 | (13) | |
| Deferred tax | ||||||
Relating to origination and reversal of temporary differences | (12) | – | (12) | (1) | – | (1) |
Derecognition of deferred tax assets previously recognised | – | – | – | 16 | – | 16 |
(12) | – | (12) | 15 | – | 15 | |
Income tax (credit)/expense reported in the consolidated income statement | (3) | – | (3) | 1 | 1 | 2 |
| Income tax reported outside profit and loss | ||||||
Foreign exchange movements | – | – | – | 2 | – | 2 |
Income tax expense reported | – | – | – | 2 | – | 2 |
180
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
b. Reconciliation of income tax expense
A reconciliation between income tax (credit)/expense and the product of accounting profit multiplied by the Company’s domestic tax rate is as follows:
1
| Separately | Business | Reported | ||||
| Business | disclosed | Reported | performance | Separately | 2022 | |
| performance | items | 2023 | (restated) | disclosed items | (restated) | |
| US$m | US$m | US$m | US$m | US$m | US$m | |
Loss before tax | (506) | (20) | (526) | (320) | (25) | (345) |
| Applicable tax (credit)/charge at standard statutory rates | (51) | – | (51) | (6) | 2 | (4) |
Expenditure not allowable for income tax purposes | 15 | 1 | 16 | 8 | 2 | 10 |
Income not subject to tax | (2) | – | (2) | – | (2) | (2) |
Adjustments in respect of previous years | (14) | – | (14) | (34) | – | (34) |
Adjustments in respect of deferred tax assets previously not recognised | (1) | – | (1) | 16 | – | 16 |
Utilisation of tax assets not previously recognised | (13) | (3) | (16) | (26) | – | (26) |
Current year deferred tax assets not recognised | 63 | 2 | 65 | 43 | (1) | 42 |
| At the effective income tax rate of positive 0.6% on reported profit before tax | ||||||
(2022: negative 0.6%) | (3) | – | (3) | 1 | 1 | 2 |
1
3
3
2
1. This measurement (before separately disclosed items) is shown by the Group as a means of measuring underlying business performance (i.e. excluding separately disclosed items); see note 2 and Appendix A.
2. The weighted average statutory tax rate was negative 9.7% (2022: 1.2%). Compared with 2022, the rate in 2023 was higher primarily due to lower profits in Malaysia and increased losses in Thailand, resulting in a higher weighted average statutory tax rate. The weighted average tax
rate applicable to business performance and separately disclosed items are different as they are impacted by the tax rate associated with the jurisdictions in which the profits were earned.
3. The prior year numbers are restated; see note 2.9.
The Group’s effective tax rate for the year ended 31 December 2023 was positive 0.6%
(2022: negative 0.6%). The Group’s effective tax rate excluding the impact of impairments,
remeasurements and other separately disclosed items for the year ended 31 December 2023
was also positive 0.6% (2022: negative 0.3%).
The adjustments in respect of previous years of US$14m largely relates to accrual adjustments and
the release of uncertain tax treatment items as the final outcome on certain issues was agreed with
the tax authorities during the year or the statute of limitations for audit by the tax authorities expired
without challenge.
The Group’s future tax charge will be sensitive to the levels and mix of profitability in different
jurisdictions, tax rates imposed and any future tax regime reforms. The Group monitors corporate
tax developments in these territories which could affect the Group’s tax liabilities.
A significant development in this landscape occurred in December 2021 when the Organisation for
Economic Co-operation and Development (OECD) issued model rules for a new global minimum tax
framework (Pillar Two). Governments worldwide have since been issuing or planning legislation to
align domestic tax laws with the Pillar Two requirements. The primary objective of these rules is to
establish a minimum level of taxation, effectively imposing a 15% minimum tax rate for multinational
entities. This effect is achieved through the imposition of a top-up tax when a subsidiary pays less
than a 15% effective tax rate, thereby triggering a liability for the top-up tax at the parent entity level.
Specifically, on 19 May 2023, the Jersey Government announced its intention to implement an
Income Inclusion Rule and a domestic minimum tax rate of 15% from 2025. On 20 June 2023, UK
Finance (No. 2) Act 2023 was substantially enacted, including legislation to implement Pillar Two
requirements for accounting periods beginning on or after 31 December 2023. On 13 September
2023, the UAE Ministry of Finance made an informal announcement deferring the implementation of
Pillar Two requirements until 2025.
Although the Group operates in a small number of jurisdictions where the effective tax rate is below
15%, any potential additional top-up tax that may arise is evaluated as being immaterial.
In addition, the Group has applied the exception in IAS 12 to recognising and disclosing information
about deferred tax assets and liabilities related to OECD Pillar Two income taxes.
On 16 January 2023, the UAE government published a Cabinet Decision establishing the threshold
for the application of the new federal Corporate Income Tax regime in the UAE. This event made
the Corporate Income Tax substantively enacted and enacted within the meaning of IAS 12.
Current taxes will only become payable for financial years beginning on or after 1 June 2023,
thus the Group will be subject to current tax for the first time in the UAE during the year ending
31 December 2024. However, the enactment of the legislation requires the Group to recognise
deferred taxes where relevant using the enacted tax rate of 9%. The associated impact of deferred
taxes as at 31 December 2023 is deemed immaterial to the consolidated financial statements based
on management’s assessment of its effects.
181
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
8 Income tax continued
Consolidated balance sheet | Movement | |||
| 2023 | 2022 | 2023 | 2022 | |
| US$m | US$m | US$m | US$m | |
| Deferred tax liabilities | ||||
Profit recognition 1 | 12 | 25 | (13) | (3) |
Overseas earnings | 6 | 4 | 2 | 1 |
Other temporary differences | – | 1 | (1) | 1 |
Gross deferred tax liabilities | 18 | 30 | (12) | (1) |
| Deferred tax assets | ||||
Losses available for offset | 1 | – | 1 | 15 |
Decelerated depreciation for tax purposes | – | – | – | 2 |
Other temporary differences | 2 | 3 | (1) | – |
Gross deferred tax assets | 3 | 3 | – | 17 |
Consolidated balance sheet | Movement | |||
| 2023 | 2022 | 2023 | 2022 | |
| US$m | US$m | US$m | US$m | |
| Net deferred tax liability and income | ||||
tax expense | (15) | (27) | (12) | (16) |
| Of which: | ||||
UK | – | – | – | (17) |
Other (outside of the UK) | 1 | 1 | – | – |
Deferred tax assets | 1 | 1 | – | (17) |
Deferred tax liabilities | 16 | 28 | (12) | 1 |
| 2023 | 2022 | |
| US$m | US$m | |
| Expiration dates for tax losses | ||
Expiring within 5 years | 373 | 144 |
Expiring within 6-10 years | 231 | 72 |
No expiration date | 1,347 | 1,445 |
1,951 | 1,661 | |
Tax credits (no expiration date) | 9 | 9 |
Other temporary differences (no expiration date) | 139 | 136 |
2,099 | 1,806 |
182
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
9 Loss per share
Basic loss per share is calculated by dividing the net profit for the year attributable to Petrofac
Limited shareholders by the weighted average number of ordinary shares outstanding during
the year.
Diluted loss per share is calculated by dividing the net profit attributable for the year to Petrofac
Limited shareholders, after adjusting for any dilutive effect, by the weighted average number of
ordinary shares outstanding during the year, adjusted for the effects of ordinary shares granted
under the share-based payment plans which are held in the Employee Benefit Trust.
The following reflects the net loss and share data used in calculating basic and diluted loss
per share:
| 2022 | ||
| 2023 | (restated) | |
| US$m | US$m | |
| Business performance net loss attributable to Petrofac Limited | ||
shareholders for basic and diluted earnings per share | (485) | (294) |
| Separately disclosed items attributable to Petrofac Limited | ||
shareholders for basic and diluted earnings per share | (20) | (26) |
Reported net loss attributable to Petrofac Limited shareholders for basic and diluted earnings per share | (505) | (320) |
3
| 2023 | 2022 | |
| Shares | Shares | |
| million | million | |
| Weighted average number of ordinary shares for basic earnings | ||
| per share | 519 | 515 |
Effect of dilutive potential ordinary shares granted under share-based payment plans | – | – |
| Adjusted weighted average number of ordinary shares for diluted | ||
earnings per share | 519 | 515 |
1
2
| 2022 | ||
| 2023 | (restated) | |
| US cents | US cents | |
| Basic loss per share | ||
Business performance | (93.4) | (57.1) |
Separately disclosed items | (3.9) | (5.0) |
Reported | (97.3) | (62.1) |
| Diluted loss per share | ||
Business performance | (93.4) | (57.1) |
Separately disclosed items | (3.9) | (5.0) |
Reported | (97.3) | (62.1) |
3
2
1. The weighted number of ordinary shares in issue during the year, excluding those held by the Employee Benefit Trust.
2. For the years ended 31 December 2022 and 2023, potentially issuable ordinary shares under the share-based payment plans are
excluded from the diluted loss per ordinary share calculation, as their inclusion would decrease the loss per ordinary share.
3. The prior year numbers are restated; see note 2.9.
10 Dividends paid and proposed
No dividends were paid or proposed during the year (2022: US$nil).
11 Deferred consideration
The deferred consideration associated with the disposal of the JSD6000 installation vessel was
recognised as a non-current asset in the consolidated balance sheet. The deferred consideration
is measured at fair value, with any fair value gain and loss recognised in the consolidated income
statement. The fair value of the deferred consideration took into account, amongst other factors,
an independent broker’s valuation of the vessel (a Level 3 measurement of the ‘fair value hierarchy’
contained within IFRS 13 ‘Fair Value Measurement’). The fair value of deferred consideration was
US$59m at 31 December 2023 (2022: US$56m) (note 6).
183
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
12 Property, plant and equipment
| Land, buildings | ||||||||
| Oil and gas | Oil and gas | and leasehold | Plant and | Office furniture | Assets under | |||
| assets | facilities | improvements | equipment | Vehicles | and equipment | construction | Total | |
| US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | |
| Cost | ||||||||
At 1 January 2022 | 587 | 205 | 428 | 31 | 35 | 166 | 1 | 1,453 |
Additions | 23 | 3 | 12 | 1 | 7 | 1 | – | 47 |
Disposals | – | – | (227) | (16) | (20) | (87) | – | (350) |
Transfer | 4 | – | (2) | (1) | – | 3 | (1) | 3 |
Translation difference | – | – | (8) | – | – | (7) | – | (15) |
At 1 January 2023 | 614 | 208 | 203 | 15 | 22 | 76 | – | 1,138 |
Additions | – | – | 6 | 2 | 5 | 2 | – | 15 |
Disposals | (2) | (16) | (9) | (6) | (1) | (1) | – | (35) |
Translation difference | – | – | 1 | – | – | 2 | – | 3 |
At 31 December 2023 | 612 | 192 | 201 | 11 | 26 | 79 | – | 1,121 |
| Depreciation and impairment | ||||||||
At 1 January 2022 | (462) | (139) | (360) | (26) | (32) | (165) | – | (1,184) |
Depreciation charge (notes 5a and 5b) | (39) | (11) | (15) | (1) | (3) | (5) | – | (74) |
Reversal of impairment/(impairment charge) (note 6) | 5 | 1 | (1) | – | – | – | – | 5 |
Transfers | – | – | – | (1) | – | – | – | (1) |
Disposals | – | – | 227 | 16 | 20 | 87 | – | 350 |
Translation difference | – | – | 3 | – | – | 7 | – | 10 |
At 1 January 2023 | (496) | (149) | (146) | (12) | (15) | (76) | – | (894) |
Depreciation charge (notes 5a and 5b) | (44) | (11) | (13) | (2) | (5) | (3) | – | (78) |
Reversal of impairment (note 6) | 5 | 2 | – | – | – | – | – | 7 |
Disposals | – | – | 8 | 6 | 1 | 1 | – | 16 |
Translation difference | – | – | (1) | – | – | (1) | – | (2) |
At 31 December 2023 | (535) | (158) | (152) | (8) | (19) | (79) | – | (951) |
| Net carrying amount | ||||||||
At 31 December 2023 | 77 | 34 | 49 | 3 | 7 | – | – | 170 |
At 31 December 2022 | 118 | 59 | 57 | 3 | 7 | – | – | 244 |
184
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
Additions
Additions during the year of US$15m mainly comprised of right-of-use asset additions of US$11m
related to land, buildings and leasehold improvements and leased vehicles, predominantly in the
Asset Solutions operating segment.
Disposals
The disposal within land, buildings and leasehold improvements and plant and equipment, having a
net carrying amount of US$1m (2022: US$nil), related to the write-off of unused assets in the Asset
Solutions operating segment. The disposal of US$16m within oil and gas facilities related to the
extinguishment of the obligation to acquire the West Desaru MOPU as set out on page 178.
Right-of-use assets
The table below provides details of right-of-use assets recognised within various categories of the
property, plant and equipment line item:
| Land, buildings | |||||
| Oil and gas | and leasehold | Plant and | |||
| facilities | improvements | equipment | Vehicles | Total | |
| US$m | US$m | US$m | US$m | US$m | |
At 1 January 2022 | 62 | 30 | – | 1 | 93 |
Additions | 3 | 10 | 1 | 6 | 20 |
Depreciation charge (note 29) | (11) | (8) | – | (2) | (21) |
Impairment charge (note 6) | 1 | (1) | – | – | – |
Translation difference | – | (3) | – | – | (3) |
At 1 January 2023 | 55 | 28 | 1 | 5 | 89 |
Additions | – | 6 | – | 5 | 11 |
Depreciation charge (note 29) | (11) | (8) | (1) | (4) | (24) |
Derecognition of assets | (16) | (2) | – | – | (18) |
Reversal of impairment (note 6) | 2 | – | – | – | 2 |
At 31 December 2023 | 30 | 24 | – | 6 | 60 |
The Group had an obligation to acquire the West Desaru mobile offshore production unit (MOPU) which
was previously recognised as a right-of-use asset and a corresponding lease liability (note 29). This
obligation expired upon the sale of the Group’s investment in associates (note 6) and therefore, the Group
derecognised the right-of-use assets (with a carrying value of US$16m) in relation to this obligation.
13 Non-controlling interests
Movement of non-controlling interest in Petrofac Emirates LLC and Petrofac Engineering Services
(Malaysia) Sdn. Bhd.
| 2023 | 2022 | |
| US$m | US$m | |
At 1 January | (17) | 10 |
Loss for the year | (18) | (27) |
At 31 December | (35) | (17) |
The proportion of the nominal value of issued shares controlled by the Group is disclosed in note
34. Summarised financial information for subsidiaries having non-controlling interests that are
considered material to the Group is shown below:
| Petrofac Emirates LLC | ||
| 2023 | 2022 | |
| Summarised income statement | US$m | US$m |
Revenue | 54 | 37 |
Cost of sales | (101) | (137) |
Gross profit | (47) | (100) |
Selling, general and administration expenses | (6) | (4) |
Other income | – | 9 |
Net finance expense | (17) | (10) |
Net loss for the year | (70) | (105) |
Attributable to non-controlling interest | (18) | (27) |
| Summarised balance sheet | ||
Current assets | 132 | 156 |
Total assets | 132 | 156 |
Non-current liabilities | 4 | 3 |
Current liabilities | 271 | 219 |
Total liabilities | 275 | 222 |
Total equity | (143) | (66) |
Attributable to non-controlling interest | (35) | (17) |
| Summarised cash flow statement | ||
Operating | 35 | (3) |
Financing | (34) | – |
1 | (3) |
No dividends were declared by Petrofac Emirates LLC during 2023 (2022: US$nil).
185
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
| 2023 | 2022 | |
| US$m | US$m | |
At 1 January | 96 | 101 |
Derecognised on cessation of operations (note 6) | (2) | – |
Translation difference | 2 | (5) |
At 31 December | 96 | 96 |
| 2023 | 2022 | |
| US$m | US$m | |
Engineering & Construction | 41 | 41 |
Asset Solutions | 55 | 55 |
96 | 96 |
186
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
| 2023 | 2022 | |
| US$m | US$m | |
| Intangible oil and gas assets | ||
| Carrying value: | ||
At 1 January | – | 4 |
Transferred to property, plant and equipment (note 12) | – | (4) |
At 31 December | – | – |
| Other intangible assets | ||
| Cost: | ||
At 1 January | 56 | 50 |
Additions | 6 | 7 |
Transfer from property, plant and equipment (note 12) | – | 2 |
Disposals | (2) | – |
Translation difference | 2 | (3) |
At 31 December | 62 | 56 |
| Accumulated amortisation: | ||
At 1 January | (31) | (27) |
Amortisation (notes 5a and 5b) | (5) | (5) |
Disposals | 2 | – |
Translation difference | (2) | 1 |
At 31 December | (36) | (31) |
Carrying amount of other intangible assets at 31 December | 26 | 25 |
Total intangible assets | 26 | 25 |
| Associates | Joint ventures | Total | |
| US$m | US$m | US$m | |
As at 1 January 2022 | 21 | 13 | 34 |
Share of net profit | 6 | – | 6 |
Dividends received | (10) | – | (10) |
As at 1 January 2023 | 17 | 13 | 30 |
Share of net profit/(loss) | 4 | (2) | 2 |
Dividends received | (2) | – | (2) |
Disposal of associates at carrying value | (19) | – | (19) |
As at 31 December 2023 | – | 11 | 11 |
| 2023 | 2022 | |
| US$m | US$m | |
PetroFirst Infrastructure Limited | – | 17 |
PetroFirst Infrastructure 2 Limited | – | – |
– | 17 |
| 2023 | 2022 | |
| US$m | US$m | |
Takatuf Petrofac Oman LLC | 10 | 13 |
Petrofac (Ghana) IJV Limited Company | 1 | – |
11 | 13 |
187
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
| 16 Investments in associates and joint ventures continued | |
| 2023 | 2022 | |
| US$m | US$m | |
Revenue | 84 | 62 |
Cost of sales | (85) | (61) |
Gross profit | (1) | 1 |
Selling, general and administration expenses | (5) | (3) |
Loss before tax and net loss | (6) | (2) |
Group’s share of net loss | (2) | – |
Non-current assets | 22 | 26 |
Current assets | 32 | 22 |
Total assets | 54 | 48 |
Non-current liabilities | (3) | (3) |
Current liabilities | (31) | (20) |
Total liabilities | (34) | (23) |
Net assets | 20 | 25 |
Group’s share of net assets | 11 | 13 |
Carrying amount of the investment in joint ventures | 11 | 13 |
| 2023 | 2022 | |
| US$m | US$m | |
| Other financial assets | ||
| Non-current | ||
Receivable from joint operation partners for leases | 34 | 60 |
Advances relating to decommissioning provision | 44 | 40 |
Restricted cash | 172 | 51 |
250 | 151 | |
| Current | ||
Receivable from joint operation partners for leases | 35 | 34 |
Restricted cash | 51 | 60 |
Derivative contracts not designated as hedges (note 33) | – | 4 |
Derivative contracts designated as cash flow hedges (note 33) | – | 5 |
86 | 103 | |
| Other financial liabilities | ||
| Non-current | ||
Lease liabilities (note 29) | 79 | 144 |
| Contingent consideration payable arising from acquisition of W&W | ||
Energy Services Inc | – | 2 |
79 | 146 | |
| Current | ||
Lease liabilities (note 29) | 68 | 66 |
| Contingent consideration payable arising from acquisition of W&W | ||
Energy Services Inc | – | 4 |
Interest payable | 12 | 9 |
Derivative contracts not designated as hedges (note 33) | – | 12 |
Derivative contracts designated as cash flow hedges (note 33) | – | 1 |
Embedded derivative in respect of the revolving credit facility (note 6) | 17 | 22 |
97 | 114 |
188
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
| 2023 | 2022 | |
| US$m | US$m | |
Opening balance | 6 | 7 |
Fair value loss (note 6) | – | 1 |
Payments | (4) | (2) |
Transferred to other payables | (2) | – |
As at the end of the reporting period | – | 6 |
| 1 January | Cash | Cash | 31 December | |||
| 2023 | inflows | outflows | Additions | Others | 2023 | |
| US$m | US$m | US$m | US$m | US$m | US$m | |
Senior secured notes | 583 | – | – | – | 3 | 586 |
| Other interest-bearing loans | ||||||
and borrowings | 216 | 38 | (65) | – | 9 | 198 |
Interest-bearing loans and borrowings | 799 | 38 | (65) | – | 12 | 784 |
Lease liabilities | 210 | – | (65) | 14 | (12) | 147 |
At 31 December 2023 | 1,009 | 38 | (130) | 14 | – | 931 |
189
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
| 1 January | Cash | 31 December | ||||
| 2022 | Cash inflows | outflows | Additions | Others | 2022 | |
| US$m | US$m | US$m | US$m | US$m | US$m | |
Senior secured notes | 580 | – | – | – | 3 | 583 |
| Other interest-bearing loans | ||||||
and borrowings | 184 | 62 | (36) | – | 6 | 216 |
Interest-bearing loans and borrowings | 764 | 62 | (36) | – | 9 | 799 |
Lease liabilities | 251 | – | (67) | 19 | 7 | 210 |
At 31 December 2022 | 1,015 | 62 | (103) | 19 | 16 | 1,009 |
Carrying amount | Fair value | ||||
| 2023 | 2022 | 2023 | 2022 | ||
| Level | US$m | US$m | US$m | US$m | |
| Financial assets | |||||
| Measured at amortised cost | |||||
Restricted cash | Level 2 | 223 | 111 | 223 | 111 |
Receivable from joint operation partners for leases | Level 2 | 69 | 94 | 69 | 94 |
Advances relating to provision for decommissioning liability | Level 2 | 44 | 40 | 44 | 40 |
| Measured at fair value through profit and loss | |||||
Deferred consideration arising from the disposal of the JSD6000 installation vessel (note 11) | Level 3 | 59 | 56 | 59 | 56 |
Derivative contracts – undesignated | Level 2 | – | 4 | – | 4 |
| Designated as cash flow hedges | |||||
Derivative contracts – designated for hedge accounting | Level 2 | – | 5 | – | 5 |
| Financial liabilities | |||||
| Measured at amortised cost | |||||
Senior secured notes (note 26) | Level 1 | 586 | 583 | 319 | 334 |
Term loans (note 26) | Level 2 | 71 | 99 | 71 | 99 |
Revolving credit facility (note 26) | Level 2 | 127 | 117 | 127 | 117 |
Interest payable | Level 2 | 12 | 9 | 12 | 9 |
| Measured at fair value through profit and loss | |||||
Contingent consideration payable | Level 3 | 2 | 6 | 2 | 6 |
Derivative contracts – undesignated | Level 2 | – | 12 | – | 12 |
| Embedded derivative in respect of the revolving credit | |||||
facility (note 6) | Level 2 | 17 | 22 | 17 | 22 |
| Designated as cash flow hedges | |||||
Derivative contracts – designated for hedge accounting | Level 2 | – | 1 | – | 1 |
190
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
18 Inventories
| 2023 | 2022 | |
| US$m | US$m | |
Project materials | 5 | 11 |
Crude oil | 5 | 5 |
Stores and raw materials | 1 | 1 |
11 | 17 |
Inventories expensed of US$81m (2022: US$79m) were included within cost of sales in the
consolidated income statement.
| 2023 | 2022 | |
| US$m | US$m | |
Trade receivables | 722 | 499 |
Advances to vendors and subcontractors | 130 | 105 |
Prepayments and deposits | 20 | 29 |
Receivables from joint operation partners | 19 | 18 |
Related party receivables (note 31) | 2 | 1 |
VAT receivable | 44 | 49 |
Other receivables | 40 | 38 |
977 | 739 |
| 2023 | 2022 | |
| US$m | US$m | |
At 1 January | 19 | 23 |
Reversal of ECL allowance (note 5e) | (2) | (4) |
Charge for the year (note 5e) | 18 | 4 |
Write-off | (11) | – |
ECL transfer to contract assets (note 20) | – | (3) |
Translation difference | (1) | (1) |
At 31 December | 23 | 19 |
191
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
19 Trade and other receivables continued
| Number of days past due | |||||||
| < 30 days | 31 – 60 days | 61 – 90 days | 91 – 120 days | 121 – 360 days | > 360 days | Total | |
| US$m | US$m | US$m | US$m | US$m | US$m | US$m | |
ECL rate | 0.1% | 5.7% | 2.4% | 17.0% | 38.3% | 31.7% | |
Gross trade receivables | 595 | 29 | 60 | 7 | 30 | 24 | 745 |
Less: ECL allowance | – | (2) | (1) | (1) | (11) | (8) | (23) |
Net trade receivables at 31 December 2023 | 595 | 27 | 59 | 6 | 19 | 16 | 722 |
| Number of days past due | |||||||
| < 30 days | 31 – 60 days | 61 – 90 days | 91 – 120 days | 121 – 360 days | > 360 days | Total | |
| US$m | US$m | US$m | US$m | US$m | US$m | US$m | |
ECL rate | 0.3% | 0.1% | 0.2% | 2.1% | 9.2% | 46.5% | |
Gross trade receivables | 403 | 34 | 11 | 8 | 31 | 31 | 518 |
Less: ECL allowance | (1) | – | – | – | (3) | (15) | (19) |
Net trade receivables at 31 December 2022 | 402 | 34 | 11 | 8 | 28 | 16 | 499 |
20 Contract assets and contract liabilities
a. Contract assets
| 2022 | ||
| 2023 | (restated) | |
| US$m | US$m | |
Work in progress | 680 | 1,148 |
Retention receivables | 106 | 133 |
Accrued income | 46 | 43 |
832 | 1,324 |
1
1. The prior year numbers are restated; see note 2.9.
At 31 December 2023, work in progress included AVOs pending customer approval of US$351m
(2022 restated: US$348m). The decrease in the work in progress balance is mainly in respect of one
customer in the Engineering & Construction operating segment, where commercial negotiations
were ongoing in the prior period and opening work in progress balances in excess of US$250m
were invoiced in the last quarter of the year. Of this total, over US$120m was collected before the
end of the year (note 19). Additionally, work in progress balances reduced as a result of contract
milestones achieved during the year in the Engineering & Construction operating segment.
192
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
b. Contract liabilities
| 2022 | ||
| 2023 | (restated) | |
| US$m | US$m | |
Billings in excess of costs and estimated earnings | 244 | 91 |
Advances received from customers | 48 | 64 |
292 | 155 |
1
1. The prior year numbers are restated; see note 2.9.
At 31 December 2023, billings in excess of costs and estimated earnings included an offset for
AVOs pending customer approval of US$9m (2022: US$6m).
Revenue of US$60m (2022: US$40m) was recognised during the year from amounts included in
contract liabilities at the beginning of the year.
c. Expected credit loss allowance on contract assets
The below table provides information on ECL allowance for each contract asset category at the end
of reporting periods:
As at 31 December 2023
| Total current | ||||
| Work in | Retention | Accrued | contract | |
| progress | receivables | income | assets | |
| US$m | US$m | US$m | US$m | |
ECL rate | 0.6% | 0.4% | 0.1% | 0.5% |
Gross carrying amount | 684 | 106 | 46 | 836 |
Less: ECL allowance | (4) | – | – | (4) |
Net contract assets at 31 December 2023 | 680 | 106 | 46 | 832 |
As at 31 December 2022
1
| Total current | |||||
| Work in | contract | ||||
| progress | Retention | Accrued | assets | ||
| (restated) | receivables | income | (restated) | ||
| US$m | US$m | US$m | US$m | ||
ECL rate | 0.4% | 0.1% | 0.4% | 0.4% | |
Gross carrying amount | 1,153 | 133 | 43 | 1,329 | |
Less: ECL allowance | (5) | – | – | (5) | |
Net contract assets at 31 December 2022 | 1,14 | 8 | 133 | 43 | 1,324 |
1
1. The prior year numbers are restated; see note 2.9.
The movement in ECL allowance against each contract asset category is as follows:
Year ended 31 December 2023
| Total current | ||||
| Work in | Retention | Accrued | contract | |
| progress | receivables | income | assets | |
| US$m | US$m | US$m | US$m | |
At 1 January 2022 | 5 | 16 | 2 | 23 |
Transfer from ECL trade receivables (note 19) | – | 3 | – | 3 |
Reversal of ECL provision (note 5e) | – | (19) | (2) | (21) |
At 1 January 2023 | 5 | – | – | 5 |
Reversal of ECL provision (note 5e) | (1) | – | – | (1) |
At 31 December 2023 | 4 | – | – | 4 |
d. Contract balances arising from contracts with customers
The Group’s contract balances at 31 December are as follows:
| 2022 | ||
| 2023 | (restated) | |
| US$m | US$m | |
Trade receivables (note 19) | 722 | 499 |
Contract assets | 832 | 1,324 |
Contract liabilities | (292) | (155) |
1
1. The prior year numbers are restated; see note 2.9.
Trade receivables represent the Group’s right to consideration that is unconditional (i.e. only the
passage of time is required before payment of the consideration is due).
The Group recognised an ECL allowance charge on trade receivables and contract assets arising
from contracts with customers, included within the expected credit loss allowance line item of the
consolidated income statement, amounting to US$15m for the year ended 31 December 2023
(2022: reversal of ECL allowance of US$21m).
Revenue recognised during the year from performance obligations satisfied in previous years,
resulting from a change in transaction price, amounted to US$106m (2022 restated: US$163m).
193
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
21 Cash and short-term deposits
| 2023 | 2022 | |
| US$m | US$m | |
Cash at bank and in hand | 121 | 418 |
Short-term deposits | 80 | 33 |
ECL allowance | – | (1) |
Cash and short-term deposits | 201 | 450 |
Short-term deposits are made for varying periods of between one day and three months depending
on the immediate cash requirements of the Group and earn interest at respective short-term deposit
rates. The fair value of cash and bank balances is US$201m (2022: US$450m).
For the purposes of the consolidated statement of cash flows, cash and cash equivalents comprise
the following:
| 2023 | 2022 | |
| US$m | US$m | |
Cash and short-term deposits | 201 | 450 |
Cash and cash equivalents included amounts totalling US$12m (2022: US$12m) held by the
Group undertakings in certain countries whose exchange controls significantly restrict or delay
the remittance of these amounts to foreign jurisdictions. Cash and cash equivalents also included
US$71m (2022: US$203m) in joint operation bank accounts which are generally available to meet
the working capital requirements of those joint operations but which can only be made available to
the Group for its general corporate use with the agreement of the joint operation partners.
| Capital | ||||
| Share | Share | redemption | ||
| capital | premium | reserve | ||
| Number of shares | US$m | US$m | US$m | |
At 1 January 2022 | 519,818,832 | 10 | 251 | 11 |
Issue of shares to Employee Benefit Trust | 1,338,610 | – | – | – |
At 31 December 2022 | 521,157,442 | 10 | 251 | 11 |
Issue of shares to Employee Benefit Trust | 892,079 | – | – | – |
At 31 December 2023 | 522,049,521 | 10 | 251 | 11 |
23 Employee Benefit Trust (EBT) shares
The Petrofac Employee Benefit Trust (the Trust or EBT) was established to facilitate the Group’s
discretionary share scheme awards made to the employees of the Group. For the purpose
of making awards under the Group’s share-based payment plans, shares in the Company
are purchased and held by the Trust. The Trust issues these shares to the Group employees
subject to the satisfaction of any service and performance conditions of each scheme. The Trust
is consolidated in the Group’s consolidated financial statements in accordance with IFRS 10
‘Consolidated Financial Statements’.
These shares have been classified in the consolidated balance sheet as EBT shares within equity.
Shares vested during the year are satisfied with these shares. The movements in total EBT shares
are shown below:
2023 | 2022 | |||
Number | US$m | Number | US$m | |
At 1 January | 4,090,678 | 56 | 5,232,105 | 69 |
| Purchase of Company’s shares by EBT | 1,492,079 | – | 1,338,610 | – |
Issue of Company’s shares by EBT | (2,286,445) | (18) | (2,480,037) | (13) |
At 31 December | 3,296,312 | 38 | 4,090,678 | 56 |
1
1. Shares purchased in 2023 were at an average price of US$0.19 (2022: all shares purchased were at par value of US$0.02 per share).
Shares vested during the year include dividend shares of 25,279 shares (2022: 91,304 shares).
194
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
24 Share-based payment plans
Performance Share Plan (PSP)
Under the PSP, share awards are granted to Executive Directors and a restricted number of other senior executives of the Group. The shares vest at the end of three years, subject to continued
employment and the achievement of certain predefined and independent market and non-market-based performance conditions. The market performance-based element of PSP awards is
50% (2022: 50%) dependent on the TSR of the Group compared with an index composed of selected relevant companies. The fair value of the shares vesting under this portion of the award is determined
by an independent valuer using a Monte Carlo simulation model taking into account the terms and conditions of the plan rules and using the following assumptions at the date of grant:
| Executive | Other | Executive | Other | Executive | Other | Executive | Other | |
| Directors | participants | Directors | participants | Directors | participants | Directors | participants | |
| 2023 awards | 2023 awards 1 | 2022 awards | 2022 awards | 2021 awards | 2021 awards | 2020 awards | 2020 awards | |
| Expected share price volatility (based on median of comparator group’s | ||||||||
three-year volatilities) | 75.5% | 75.5%/66.9% | 73.8% | 73.8%/ 75.1% | 69.9%/71.2% | 71.2% | 51.4% | 51.4% |
Share price correlation with comparator group | 30.7% | 30.7%/29.5% | 30.6% | 30.6%/30.3% | 31.8%/31.3% | 31.3% | 13.5% | 13.5% |
Risk-free interest rate | 3.7% | 3.7%/4.9% | 1.5% | 1.5% | 0.2% | 0.2% | 0.2% | 0.2% |
Expected life of share award | 3 years | 3 years | 3 years | 3 years | 3 years | 3 years | 3 years | 3 years |
Fair value of TSR portion | 25.0p | 28.5p/40.2p | 31.8p | 43.4p/65.3p | 46.7p/58.7p | 78.5p | 145p | 168p |
1
1
1. There were two separate grants in the year.
The non-market-based condition governing the vesting of the remaining 50% (2022: 50%) of
the PSP awards is subject to achieving certain strategic targets, including growing the revenue,
delivering sector-leading margins, deleveraging the balance sheet and promoting diversity over a
three-year period for the PSP awards granted during the year. The fair value of the equity-settled
award relating to the non-market-based condition is estimated, based on the quoted closing market
price of the Company’s ordinary shares at the date of grant with an assumed annual vesting rate
built into the calculation over the three-year vesting period of the plan and the estimated vesting rate
for the achievement of strategic targets.
Deferred Bonus Share Plan (DBSP)
Under the historical DBSP, selected employees were required to defer a proportion of their annual
cash bonus into Company shares (Invested Shares). Following such an award, the Company
generally granted the participant an additional award of shares (Matching Shares) bearing a
specified ratio to the number of Invested Shares, typically a 1:1 ratio. Subject to a participant’s
continued employment, Invested and Matching Share awards vest one-third on the first anniversary
of the grant, one-third on the second anniversary and the final proportion on the third anniversary of
the grant date.
The DBSP ended in April 2021 and no further awards will be made under this scheme. For historical
awards, the costs relating to Matching Shares are recognised over the corresponding vesting
period and the fair values of the equity-settled Matching Shares granted to employees is based on
the quoted closing market price at the date of grant with the charge to the consolidated income
statement adjusted to reflect the expected vesting rate of the plan.
Deferred Bonus Plan (DBP)
Under the DBP, selected employees are required to defer a proportion of their annual cash bonus
into Company shares (DBP shares). Subject to a participant’s continued employment, DBP share
awards vest one-third on the first anniversary of the grant, one-third on the second anniversary and
the final proportion on the third anniversary of the grant date. DBP share awards may be allocated
on an ad hoc basis at the discretion of the Remuneration Committee.
At the end of the reporting period, the value of bonuses to be settled by shares cannot be determined
until the Remuneration Committee has approved the portion of the employee bonuses to be settled in
shares. Once the portion of the bonus to be settled in shares is determined, the costs relating to DBP
Shares are recognised over the corresponding vesting period and the fair values of the equity-settled
Shares granted to employees is based on the quoted closing market price at the date of grant with the
charge to the consolidated income statement adjusted to reflect the expected vesting rate of the plan.
Share Incentive Plan (SIP)
All UK employees, including UK Executive Directors, are eligible to participate in the SIP. Employees
may invest up to £1,800 per tax year of gross salary (or, if lower, 10% of salary) to purchase ordinary
shares in the Company. There is no holding period for these shares.
Restricted Share Plan (RSP)
Selected employees are allocated grants of shares on an ad hoc basis. The RSP is primarily, but
not exclusively, used to make awards to individuals who join the Group part way through the year,
having left accrued benefits with a previous employer. The fair values of the awards granted under
the RSP at various grant dates during the year are based on the quoted market price at the date of
grant adjusted for an assumed vesting rate over the relevant vesting period, typically three years.
195
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
24 Share-based payment plans continued
Share-based payment plans information
The details of the fair values and assumed vesting rates of the share-based payment plans are below:
PSP (non-market-based condition) | DBSP | DBP | RSP | |||||||
Executive Directors | Other participants | |||||||||
| Fair value | Assumed | Fair value | Assumed | Fair value | Assumed | Fair value | Assumed | Fair value | Assumed | |
| per share | vesting rate | per share | vesting rate | per share | vesting rate | per share | vesting rate | per share | vesting rate | |
2023 awards | 65.6p | 28.5% | 74.8p/80.6p | 28.5% | n/a | n/a | 74.8p | 95.0% | 77.1p | 95.0% |
2022 awards | 88.9p | 49.4% | 103.5p/131.2p | 49.4% | n/a | n/a | 104p | 95.0% | 105p | 95.0% |
2021 awards | 101p/116p | 45.2% | 134p | 45.2% | – | – | n/a | n/a | 128p | 95.0% |
2020 awards | 250p | 31.5% | 271p | 90.3% | 271p | 90.3% | n/a | n/a | 126p | 90.3% |
The following table shows the movements in the number of shares held under the share-based payment plans outstanding but not exercisable:
PSP | DBSP | DBP | RSP | Total | ||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||
| Number | Number | Number | Number | Number | Number | Number | Number | Number | Number | |||||
Outstanding at 1 January | 12,955,080 | 7, 282,19 | 9 | 466,203 | 1,808,624 | 1,079,276 | – | 2,575,001 | 2, 317, 2 5 6 | 17,075,56 | 0 | 11,40 | 8,079 | |
Granted during the year | 14,585,597 | 7,4 | 8 2,6 4 4 | – | – | 6,599,146 | 1,163,631 | 7,861,789 | 1,618,858 | 29,046,532 | 10, | 265,133 | ||
Vested during the year | (86,965) | (62,647) | (460,715) | (1, 2 67, 0 41) | (542,427) | – | (1,175,716) | (1,059,045) | (2,265,823) | (2,388,733) | ||||
Forfeited during the year | (4,720,756) | (1,747,116) | (5,488) | (75,380) | (688,269) | (84,355) | (561,046) | (302,068) | (5,975,559) | (2,208,919) | ||||
Outstanding at 31 December | 22,732,956 | 12,955,080 | – | 466,203 | 6,4 | 47,726 | 1,079,276 | 8,700,028 | 2,575,001 | 0,710 | 37,88 | 17, 075,5 6 0 | ||
(1)
1
1. Includes Invested and Matching Shares.
196
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
The number of shares still outstanding but not exercisable at 31 December for each award is as follows:
PSP | DBSP | DBP | RSP | Total | |||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||
| Number | Number | Number | Number | Number | Number | Number | Number | Number | Number | ||||
2023 awards | 13,752,597 | n/a | n/a | n/a | 5,943,964 | n/a | 7,637,857 | n/a | 27,33 | 4,418 | n/a | ||
2022 awards | 5,569,509 | 7,114,108 | n/a | – | 503,762 | 1,079,276 | 861,381 | 1,591,374 | 6,934,652 | 9,784,758 | |||
2021 awards | 3,410,850 | 4,390,419 | n/a | – | – | – | 200,790 | 513,927 | 3,611,640 | 4,904,346 | |||
2020 awards | – | 1,450,553 | – | 466,203 | – | – | – | 468,991 | – | 2,38 | 5,747 | ||
2019 awards | – | – | – | – | – | – | – | 709 | – | 709 | |||
Total awards | 22,732,956 | 12,955,080 | – | 466,203 | 6,4 | 47,726 | 1,079,276 | 8,700,028 | 2,575,001 | 37,8 | 80,710 | 17,0 | 75 , 5 6 0 |
1
1
1. Includes Invested and Matching Shares.
The average share price of the Company’s shares during 2023 was US$0.83, Sterling equivalent of £0.67 (2022: US$1.44, Sterling equivalent of £1.16).
The number of outstanding shares excludes the dividend shares shown below:
| RSP | ||
| 2023 | 2022 | |
| Number | Number | |
| Dividend shares outstanding at 31 December | – | 25,279 |
1
1. There were no outstanding dividend shares in respect of the PSP, DBSP or DBP as at 31 December 2023 (2022: nil).
The charge in respect of share-based payment plans recognised in the consolidated income statement is as follows:
PSP | DBP | RSP | Total | |||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |
| US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | |
Share-based payment charge | 3 | 3 | 3 | 1 | 2 | 2 | 8 | 6 |
The Group recognised a share-based payment charge of US$8m (2022: US$6m) in the consolidated income statement relating to the employee share-based payment plans (note 5c) which was
transferred to the share-based payments reserve.
For further details on the above employee share-based payment plans, refer to pages 131 to 136 of the Directors’ remuneration report.
197
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
| Net | Share- | |||
| unrealised | Foreign | based | ||
| gains/(losses) | currency | payments | ||
| on derivatives | translation | reserve | Total | |
| US$m | US$m | US$m | US$m | |
At 1 January 2022 | (3) | (18) | 63 | 42 |
| Net changes in fair value of derivatives after reclassification | ||||
of hedging gains to consolidated income statement | 6 | – | – | 6 |
Foreign currency translation | – | 14 | – | 14 |
Issue of Company’s shares by Employee Benefit Trust | – | – | (12) | (12) |
Credit to equity for share-based payments charge (note 24) | – | – | 6 | 6 |
At 31 December 2022 | 3 | (4) | 57 | 56 |
At 1 January 2023 | 3 | (4) | 57 | 56 |
| Net changes in fair value of derivatives after reclassification | ||||
of hedging losses to consolidated income statement | (3) | – | – | (3) |
Foreign currency translation | – | (12) | – | (12) |
Foreign currency translation gains reclassified to the consolidated income statement | – | (3) | – | (3) |
Issue of Company’s shares by Employee Benefit Trust | – | – | (18) | (18) |
Credit to equity for share-based payments charge (note 24) | – | – | 8 | 8 |
At 31 December 2023 | – | (19) | 47 | 28 |
| 2023 | 2022 | |
| US$m | US$m | |
| Current | ||
Senior secured notes | 586 | 583 |
Revolving credit facility | 127 | 117 |
Term loans | 71 | 99 |
Total interest-bearing loans and borrowings | 784 | 799 |
198
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
| End of service | Provision for | Other | ||
| benefits provision | decommissioning | provisions | Total | |
| US$m | US$m | US$m | US$m | |
At 1 January 2022 | 83 | 50 | 10 | 143 |
Additions/(reversals) during the year | 3 | 7 | (1) | 9 |
Paid/utilised during the year | (13) | (4) | – | (17) |
Unwinding of discount (note 7) | – | 1 | – | 1 |
Translation difference | – | – | (1) | (1) |
At 1 January 2023 | 73 | 54 | 8 | 135 |
Additions during the year | 10 | – | 1 | 11 |
Paid during the year | (13) | – | – | (13) |
| Remeasurement of end of service | ||||
benefits obligation | 5 | – | – | 5 |
Unwinding of discount (note 7) | 3 | 2 | – | 5 |
Translation difference | 1 | – | – | 1 |
At 31 December 2023 | 79 | 56 | 9 | 144 |
199
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
27 Provisions continued
End of service benefits provision continued
2023 | 2022 | |
Average annual % salary increases | 3.3% | 2.0% |
Discount factor | 5.2% | 5.1% |
| Onerous contract | Other | ||
| provisions | provisions | Total | |
| US$m | US$m | US$m | |
At 1 January 2022 | 50 | 31 | 81 |
Amounts provided during the year | 269 | 1 | 270 |
Utilised during the year | (239) | (18) | (257) |
At 1 January 2023 | 80 | 14 | 94 |
Amounts provided during the year | 296 | 6 | 302 |
Utilised during the year | (277) | (1) | (278) |
Reversed during the year | – | (4) | (4) |
At 31 December 2023 | 99 | 15 | 114 |
| 2022 | ||
| 2023 | (restated) | |
| US$m | US$m | |
Trade payables | 604 | 475 |
Accrued expenses | 213 | 229 |
Retentions held against vendors and subcontractors | 60 | 73 |
Payable to joint operation partners | 28 | 28 |
Other taxes payable | 17 | 21 |
Other payables | 8 | 39 |
930 | 865 |
200
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
29 Leases
Group as lessee
The Group has lease contracts for various items of property, plant and equipment. The Group’s
obligations under its leases are secured by the lessor’s title to the leased assets. Generally, the
Group is restricted from assigning and subleasing the leased assets.
The Group also has certain leases of office buildings with lease terms of 12 months or less and
leases of office equipment with low value. The Group applies the ‘short-term lease’ and ‘lease of
low-value assets’ recognition exemptions for these leases.
a. Right-of-use assets
The Group recognises right-of-use assets, within the property, plant and equipment line item of
the consolidated balance sheet, at the commencement date of the lease (i.e. the date at which the
underlying asset is available for use). The carrying amounts of right-of-use assets recognised and
the movements during the period are disclosed in note 12.
b. Lease liabilities
The table below provides details of lease liabilities recognised within the other financial liabilities line
item of the consolidated balance sheet:
| 2023 | 2022 | |
| US$m | US$m | |
Lease liabilities at 1 January | 210 | 251 |
Additions | 14 | 19 |
Interest | 9 | 12 |
Principal payments | (57) | (54) |
Interest paid | (8) | (12) |
Derecognised | (22) | – |
Translation difference | 1 | (6) |
At 31 December | 147 | 210 |
The above lease liabilities included US$107m (2022: US$146m) of lease liabilities relating to Block
PM304 in Malaysia that are presented at 100%, which is necessary to reflect the legal position of
the Group as the contracting entity for these leases. The leases relating to Block PM304 in Malaysia
associated with oil and gas facilities include a renewal option of up to two years and a purchase
option at the end of the lease term.
The Group had a lease liability for an obligation to acquire the MOPU at the end of the lease term
for an amount specified in the lease contract which was recognised as a lease liability equal
to the future payment to acquire the unit, discounted at the incremental borrowing rate. The
obligation to acquire the MOPU was extinguished upon the disposal of the Group’s investment in
associates (note 6) and therefore the associated carrying value of the lease liability of US$17m was
derecognised during the year.
| 2023 | 2022 | |
| US$m | US$m | |
Depreciation charge in respect of right-of-use assets (note 12) | 24 | 22 |
Finance expense recognised associated with lease liabilities (note 7) | 9 | 12 |
Lease expense recognised for short-term leases and leases for low-value assets | 5 | 7 |
| Present | Finance | Future minimum | |
| value | expense | lease payments | |
| US$m | US$m | US$m | |
Within one year | 68 | 7 | 75 |
After one year but not more than five years | 79 | 5 | 84 |
147 | 12 | 159 |
| Present | Finance | Future minimum | |
| value | expense | lease payments | |
| US$m | US$m | US$m | |
Within one year | 66 | 10 | 76 |
After one year but not more than five years | 144 | 12 | 156 |
210 | 22 | 232 |
201
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
29 Leases continued
Group as lessor continued
During 2023, the Group recognised finance income on the lease receivable of US$5m (2022:
US$6m). The maturity analysis of the lease receivable, on an undiscounted basis, is presented
as follows:
| 2023 | 2022 | |
| US$m | US$m | |
Within one year | 38 | 39 |
One to two years | 21 | 29 |
Two to three years | 15 | 21 |
Three to four years | – | 15 |
Total undiscounted lease receivable | 74 | 104 |
Unearned finance income | (5) | (10) |
Net investment in the lease | 69 | 94 |
The Group estimates the loss allowance on the finance lease receivables at the end of the year at
an amount equal to the lifetime ECL. None of the finance lease receivables at the end of the year
are past due. Furthermore, under the associated joint operating agreement any default by the joint
operation partners is fully recoverable via recourse available to the non-defaulting partners through
a transfer or an assignment of the defaulting partner’s equity interest. Therefore, management
concluded that no ECL in respect of the receivable from joint operation partners was required at
31 December 2023 (2022: US$nil).
| 2023 | 2022 | |
| US$m | US$m | |
Block PM304 in Malaysia | – | 3 |
| Commitments in respect of development of the Group’s digital systems | ||
and other information technology equipment | 6 | 3 |
6 | 6 |
| 2023 | 2022 | |
| Related party receivables | US$m | US$m |
Joint ventures | 15 | 1 |
202
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
| 2023 | 2022 | |
| US$m | US$m | |
Short-term employee benefits | 11 | 7 |
Share-based payments charge | 5 | 4 |
Fees paid to Non-executive Directors | 1 | 1 |
17 | 12 |
Profit before tax | Equity | |||
| 100 basis point | 100 basis point | 100 basis point | 100 basis point | |
| increase | decrease | increase | decrease | |
| US$m | US$m | US$m | US$m | |
31 December 2023 | (2) | 2 | – | – |
31 December 2022 | (2) | 2 | – | – |
203
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
33 Risk management and financial instruments continued
2023 | 2022 | |||
Average rate | Closing rate | Average rate | Closing rate | |
Sterling | 1.24 | 1.27 | 1.24 | 1.20 |
Kuwaiti dinar | 3.25 | 3.25 | 3.27 | 3.27 |
Euro | 1.08 | 1.10 | 1.06 | 1.07 |
Profit before tax | Equity | |||
| +10% US dollar | −10% US dollar | +10% US dollar | −10% US dollar | |
| rate increase | rate decrease | rate increase | rate decrease | |
| US$m | US$m | US$m | US$m | |
31 December 2023 | 65 | (65) | – | – |
31 December 2022 | 25 | (25) | 3 | (3) |
Contract value | Fair value (undesignated) | Fair value (designated) | Net unrealised gain/(loss) | |||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |
| US$m | US$m | US$m | US$m | US$m | US$m | US$m | US$m | |
Euro (sales)/purchases | (13) | (42) | – | 1 | – | (1) | – | (1) |
Sterling sales | – | 275 | – | (9) | – | – | – | – |
Kuwaiti dinar sales | – | 218 | – | – | – | (1) | – | (1) |
| Arab Emirates dirham | ||||||||
purchases | – | (50) | – | – | – | – | – | – |
Others | 2 | 7 | – | 1 | 1 | |||
(11) | 408 | – | (8) | – | (1) | – | (1) |
204
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
| Contract | Fair value | Net unrealised | |
| value | (designated) | gain | |
bbl (thousands) | US$m | US$m | |
31 December 2023 – Brent Oil swaps | 515 | – | – |
31 December 2022 – Brent Oil swaps | 693 | 3 | 3 |
| Contractual | ||||||
| 6 months | 6 – 12 | 1 – 2 | 2 – 5 | undiscounted | Carrying | |
| or less | months | years | years | cash flows | amount | |
| US$m | US$m | US$m | US$m | US$m | US$m | |
| Financial liabilities | ||||||
Interest-bearing loans and borrowings | 84 | 114 | – | 600 | 798 | 784 |
Lease liabilities | 48 | 27 | 47 | 37 | 159 | 147 |
| Trade and other payables (excluding | ||||||
| other taxes payable | ||||||
and retention payable) | 853 | – | – | – | 853 | 853 |
Embedded derivative in respect of the revolving credit facility | – | 17 | – | – | 17 | 17 |
Interest payments | 45 | 34 | 59 | 59 | 197 | n/a |
1,030 | 192 | 106 | 696 | 2,024 | 1,801 |
| Contractual | ||||||
| 6 months | 6 – 12 | 1 – 2 | 2 – 5 | undiscounted | Carrying | |
| or less | months | years | years | cash flows | amount | |
| US$m | US$m | US$m | US$m | US$m | US$m | |
| Financial liabilities | ||||||
Interest-bearing loans and borrowings | – | 224 | – | 600 | 824 | 799 |
Lease liabilities | 42 | 34 | 57 | 99 | 232 | 210 |
| Trade and other payables (excluding | ||||||
| other taxes payable and retention | ||||||
payable) | 747 | 24 | – | – | 771 | 771 |
Derivative instruments | 13 | – | – | – | 13 | 13 |
Embedded derivative in respect of the revolving credit facility | – | 22 | – | – | 22 | 22 |
Interest payments | 43 | 37 | 59 | 117 | 256 | n/a |
845 | 341 | 116 | 816 | 2,118 | 1,815 |
205
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
33 Risk management and financial instruments continued
| 2022 | ||
| 2023 | (restated) 1 | |
| US$m | US$m | |
Cash and short-term deposits | 201 | 450 |
Interest-bearing loans and borrowings (A) | (784) | (799) |
Net debt (B) | (583) | (349) |
Equity attributable to Petrofac Limited shareholders (C) | (401) | 119 |
| Reported net loss for the year attributable to Petrofac Limited | (505) | (320) |
| shareholders (D) | ||
Gross gearing ratio (A/C) | (196)% | 671% |
Net gearing ratio (B/C) | (145)% | 293% |
Shareholders’ return on investment (D/C) | (126)% | (269)% |
| Percentage of nominal | |||
| value of issued shares | |||
| controlled by the Group | |||
Name of entity | Country of incorporation | 2023 | 2022 |
| Active subsidiaries | |||
Petrofac Algeria EURL | Algeria | 100 | 100 |
Petrofac International (Bahrain) W.L.L | Bahrain | 100 | 100 |
SPD Group Limited | British Virgin Islands | 100 | 100 |
Petrofac South East Asia (B) Sdn. Bhd. | Brunei | 100 | 100 |
Petrofac (Cyprus) Limited | Cyprus | – | 100 |
Caltec Limited | England | 100 | 100 |
K W Limited | England | 100 | 100 |
Oilennium Limited | England | 100 | 100 |
Petrofac (Malaysia-PM304) Limited | England | 100 | 100 |
Petrofac Contracting Limited | England | 100 | 100 |
Petrofac Engineering Limited | England | 100 | 100 |
Petrofac Services Limited | England | 100 | 100 |
Petrofac Treasury UK Limited | England | 100 | 100 |
Petrofac UK Holdings Limited | England | 100 | 100 |
PetroHealth Limited | England | 100 | 100 |
Petrofac Deutschland GmbH | Germany | 100 | 100 |
Petrofac International (Ghana) Limited Company | Ghana | 100 | 100 |
Jermyn Insurance Company Limited | Guernsey | 100 | 100 |
PT Petrofac International Indonesia | Indonesia | 67 | – |
Petrofac Engineering India Private Limited | India | 100 | 100 |
Petrofac Engineering Services India Private Limited | India | 100 | 100 |
| Petrofac Projects and Services Private Limited | India | 100 | 100 |
| (formerly Petrofac Information Services Private Limited) | |||
Petrofac Energy Developments International Limited | Jersey | 100 | 100 |
206
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
| Percentage of nominal | |||
| value of issued shares | |||
| controlled by the Group | |||
Name of entity | Country of incorporation | 2023 | 2022 |
Petrofac Facilities Management International Limited | Jersey | 100 | 100 |
Petrofac International Ltd | Jersey | 100 | 100 |
Petrofac Offshore Management Limited | Jersey | 100 | 100 |
Petrofac Training International Limited | Jersey | 100 | 100 |
Petroleum Facilities E & C Limited | Jersey | 100 | 100 |
Petrofac E&C Sdn. Bhd. | Malaysia | 100 | 100 |
Petrofac Energy Developments Sdn. Bhd. | Malaysia | 100 | 100 |
Petrofac Engineering Services (Malaysia) Sdn. Bhd. | Malaysia | 70 | 70 |
PFMAP Sdn. Bhd. | Malaysia | 100 | 100 |
Petrofac EPS Sdn. Bhd. | Malaysia | 49 | 49 |
Petrofac International (Mozambique), Lda | Mozambique | 100 | 100 |
Petrofac Kazakhstan B.V. | Netherlands | 100 | 100 |
Petrofac Netherlands Coöperatief U.A. | Netherlands | 100 | 100 |
Petrofac Nigeria B.V. | Netherlands | 100 | 100 |
Petrofac Norge B.V. | Netherlands | 100 | 100 |
PTS B.V. | Netherlands | 100 | 100 |
Petrofac Energy Services Nigeria Limited | Nigeria | 100 | 100 |
Petrofac International (Nigeria) Limited | Nigeria | 100 | 100 |
Petrofac Norge AS | Norway | 100 | 100 |
Petrofac E&C Oman LLC | Oman | 100 | 100 |
PKT Training Services Limited | Russia | – | 100 |
Sakhalin Technical Training Centre | Russia | – | 100 |
Petrofac Saudi Arabia Company Limited | Saudi Arabia | 100 | 100 |
Petrofac International (Senegal) Sarl | Senegal | 100 | n/a |
Atlantic Resourcing Limited | Scotland | 100 | 100 |
Petrofac Facilities Management Group Limited | Scotland | 100 | 100 |
Petrofac Facilities Management Limited | Scotland | 100 | 100 |
Petrofac Training Group Limited | Scotland | 100 | 100 |
Petrofac Training Limited | Scotland | 100 | 100 |
Scotvalve Services Limited | Scotland | 100 | 100 |
| Percentage of nominal | ||||
| value of issued shares | ||||
| controlled by the Group | ||||
Name of entity | Principal activities | Country of incorporation | 2023 | 2022 |
| Associates | ||||
| PetroFirst Infrastructure | Leasing of floating platforms to | Jersey | – | 20 |
| Limited | oil and gas industry | |||
| PetroFirst Infrastructure | Leasing of floating platforms to | Jersey | – | 10 |
| 2 Limited | oil and gas industry | |||
| Joint arrangements | ||||
| Joint ventures | ||||
Socar – Petrofac LLC | Training services | Azerbaijan | 49 | 49 |
| Petrofac Kazakhstan | Engineering services | Kazakhstan | 50 | 50 |
| Engineering | ||||
| Services LLP | ||||
Petrofac – ISKER LLP | Engineering and construction | Kazakhstan | 50 | 50 |
| services | ||||
| China Petroleum | Consultancy for petroleum and | Netherlands | – | 49 |
| Petrofac Engineering | chemical engineering | |||
| Services Cooperatief | ||||
| U.A. | ||||
207
PETROFAC LIMITED | Annual report and accounts 2023
Notes to the consolidated financial statements continued
For the year ended 31 December 2023
| Percentage of nominal | |||||
| value of issued shares | |||||
| controlled by the Group | |||||
Name of entity | Principal activities | Country of incorporation | 2023 | 2022 | |
| Petrofac (Ghana) IJV | Operations and maintenance for | Ghana | 65 | 65 | |
| Limited Company | floating production storage and | ||||
| offloading | |||||
| Takatuf Petrofac Oman | Construction, operation and | Oman | 40 | 40 | |
| LLC | management of a training centre | ||||
Petrofac HQC IJV LLC | Engineering, procurement and | United Arab | 70 | n/a | |
| construction for a contract in Algeria | Emirates | ||||
| Joint operations | |||||
Petrofac – CPECC JV | Operations and maintenance | Iraq | 65 | 65 | |
| contract in Iraq | |||||
PSS Netherlands B.V. | Engineering, procurement, supply | Netherlands | 36 | 36 | |
| of equipment and materials and | |||||
| related services to execute the | |||||
| Company’s scope of work for a | |||||
| contract in Thailand | |||||
Bechtel Petrofac JV | Engineering, procurement and | Unincorporated | 35 | 35 | |
| construction management of a | |||||
| contract in UAE | |||||
Petrofac/Bonatti JV | EPC for a contract in Algeria | Unincorporated | 70 | 70 | |
Petrofac/Daelim JV | EPC for a contract in Oman | Unincorporated | 50 | 50 | |
PM304 | JV | Oil and gas exploration and | Unincorporated | 35 | 35 |
| production in Malaysia | |||||
| Petrofac/Samsung/ | EPC for a contract in Kuwait | Unincorporated | 47 | 47 | |
| CB&I CFP | |||||
Petrofac/Samsung | EPC for a contract in Oman | Unincorporated | 50 | 50 | |
| Petrofac/Saipem/ | Onshore works for a contract in | Unincorporated | 36 | 36 | |
| Samsung | Thailand | ||||
| PFMIL/Gulf Petroleum | Operations and maintenance | Unincorporated | 65 | 65 | |
| Tech Services | services for a contract in Iraq | ||||
Petrofac/Saipem JV | Front-end engineering design | Unincorporated | 50 | 50 | |
| services for Umm Sharif Gas Project |
34 Subsidiaries, associates and joint arrangements continued
208
PETROFAC LIMITED | Annual report and accounts 2023
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
Appendices
Appendix A
The Group references Alternative Performance Measures (APMs) when evaluating the Group’s reported financial performance, financial position and cash flows that are not defined or specified under
International Financial Reporting Standards (IFRS). The Group considers that these APMs, which are not a substitute for or superior to IFRS measures, provide stakeholders with additional useful
information byadjusting for certain reported items which impact upon IFRS measures or, by defining new measures, aid the understanding of the Group’s financial performance, financial position and cash
flows. These are aligned to measures which are used internally to assess business performance in the Group’s processes when determining compensation.
The ROCE APM has been removed this year as it is no longer an APM that the Group actively monitors, as the volume of activity in the capital-intensive IES operating segment reduces.
APM Description Closest equivalent IFRS measure Adjustments to reconcile to primary statements Rationale for adjustments
Group’s business performance net profit
attributable to Petrofac Limited
shareholders (note A1)
Measures net profitability Group’s net profit/(loss) Petrofac presents business performance APM in
the consolidated income statement as a means
of measuring underlying business performance.
The business performance net profit measure
excludes Separately Disclosed Items (SDI) (note
2.8). Business performance diluted earnings per
share is calculated only when the reported result
is aprofit
The intention of this measure is to
provide users of the consolidated
financial statements with a clear and
consistent presentation of underlying
business performance
Business performance basic and diluted
earnings per share attributable to
Petrofac Limited shareholders (noteA2)
Measures net profitability Basic and diluted earnings per share
Business performance earnings before
interest, tax, depreciation
and amortisation (EBITDA) (note A3)
Measures operating profitability Operating profit/(loss) Excludes SDI (note 2.8), depreciation,
amortisation, business performance impairment
and includesshare of net profits from associates
and joint ventures
The intention of this measure is to
provide users of the consolidated
financial statements with a clear and
consistent presentation of underlying
operating performance
Business performance earnings before
interest and tax (EBIT) (note A4)
Measures operating profitability Operating profit/(loss) Excludes SDI (note 2.8) and includes shareof net
profits from associates and jointventures
The intention of this measure is to
provide users of the consolidated
financial statements with a clear and
consistent presentation of underlying
operating performance
Reported earnings before interest, tax,
depreciation and amortisation (EBITDA)
(note A5)
Measures operating profitability Operating profit/(loss) Excludes impairment of non-financial assets,
depreciation, amortisation and includesshare of
net profits from associates and joint ventures
The intention of this measure is to
provide users of the consolidated
financial statements with a clear
andconsistent presentation of
operatingperformance
Reported earnings before interest and tax
(EBIT) (note A6)
Measures operating profitability Operating profit/(loss) Includes share of net profits from associates and
joint ventures
The intention of this measure is to
provide users of the consolidated
financial statements with a clear
andconsistent presentation of
operatingperformance
209
PETROFAC LIMITED | Annual report and accounts 2023
APM Description Closest equivalent IFRS measure Adjustments to reconcile to primary statements Rationale for adjustments
Business performance effective tax rate
(ETR) (note A7)
Measures tax charge Income tax expense Excludes income tax expense or credit related to
SDI
The intention of this measure is to
provide users of the consolidated
financial statements witha clear and
consistent presentation ofunderlying
business performance ETR
Capital expenditure (noteA8) Measures net cash cost of capital
investment
Net cash flows generated from/(used in)
investing activities
Excludes dividends received from associates and
joint ventures, net loans repaid by/(paid to)
associates and joint ventures, proceeds
fromdisposal of property, plant and equipment,
proceeds from disposal of subsidiaries and
interestreceived
Excludes items not considered relevant
to capital investment
Free cash flow (note A9) Measures net cash generated after
operating and investing activities to
finance returns to shareholders
Net cash flows generated from/(used in)
operating activities plus net cash flows (used
in)/generated from investing activities less
interest paid and the repayment of finance
lease principal plus amounts received from
non-controlling interest
n/a n/a
Working capital, balance sheet measure
(note A10)
Measures the investment in
workingcapital
No direct equivalent. Calculated as inventories
plus trade and other receivables plus contract
assets plus restricted cash minus trade and
other payables minus contract liabilities minus
accrued contract expenses
n/a n/a
Cash conversion (note A11) Measures the conversion of EBITDA
into cash
No direct equivalent. Calculated as cash
generated from operations divided by
business performance EBITDA
n/a n/a
Net lease liabilities (note A12) Measures net lease liabilities No direct equivalent. Calculated as gross
lease liabilities less joint operation partners’
share of leases in respect of right-of-use
assets relating to Block PM304 in Malaysia
n/a n/a
Net debt/net cash (note A13) Measures indebtedness No direct equivalent. Calculated as interest-
bearing loans and borrowings less cash and
short-term deposits
n/a n/a
New order intake (note A14) Provides visibility of future revenue No direct equivalent. Calculated as net
awards and net variation orders
n/a n/a
Appendices continued
Appendix A continued
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
210
PETROFAC LIMITED | Annual report and accounts 2023
A1. Business performance net loss attributable to Petrofac Limited shareholders
2023
US$m
2022
(restated)
1
US$m
Reported net loss (A) (523) (347)
Adjustments – separately disclosed items (note 6):
Impairment of assets (net) (7) (5)
Losses on disposal 8 –
Fair value remeasurements (3) (10)
Cloud ERP implementation costs 5 10
Restructuring and refinancing-related costs 20 5
Other separately disclosed items 2 7
Operating loss separately disclosed items (B1) 25 7
Finance expense separately disclosed items (B2) (5) 18
Tax charge on separately disclosed items (B3) – 1
Post-tax separately disclosed items (C = B1 + B2 + B3) 20 26
Group’s business performance net loss (D = (A + C)) (503) (321)
Loss attributable to non-controlling interest 18 27
Business performance net loss attributable
to Petrofac Limited shareholders (485) (294)
1. The prior year numbers are restated; see note 2.9.
A2. Business performance basic loss per share attributable to Petrofac
Limitedshareholders
2023
US$m
2022
(restated)
3
US$m
Reported net loss attributable to Petrofac Limited shareholders (E) (505) (320)
Add: post-tax separately disclosed items (Appendix A, note A1) 20 26
Business performance net loss attributable to Petrofac Limited
shareholders (E1) (485) (294)
2023
Shares
million
2022
Shares
million
Weighted average number of ordinary shares for basic earnings per
share
1
(F) (note 9) 519 515
Weighted average number of ordinary shares for diluted earnings per
share
2
(F1) (note 9) 519 515
2023
US cents
2022
(restated)
3
US cents
Basic loss per share
Business performance (E1/F x 100) (93.4) ( 57.1)
Reported (E/F x 100) (97.3) ( 62.1)
Diluted loss per share
Business performance (E1/F1 x 100) (93.4) ( 57.1)
Reported (E/F1 x 100) (97.3) (62.1)
1. The weighted number of ordinary shares in issue during the year, excluding those held by the Employee Benefit Trust.
2. For the year ended 31 December 2023 and 2022, potentially issuable ordinary shares under the share-based payment plans are
excluded from both the business performance and reported diluted earnings per ordinary share calculation, as their inclusion would
decrease any loss per ordinary share.
3. The prior year numbers are restated; see note 2.9.
A3. Business performance EBITDA
2023
US$m
2022
(restated)
1
US$m
Reported operating loss (420) (241)
Adjustments:
Operating loss separately disclosed items (Appendix A, note A1) 25 7
Share of net profits from associates and joint ventures (note 16) 2 5
Depreciation (note 12) 78 74
Amortisation, business performance impairment and write-off
(notes5a, 5b and 5g) 5 5
Business performance EBITDA (310) (150)
1. The prior year numbers are restated; see note 2.9.
211
PETROFAC LIMITED | Annual report and accounts 2023
A4. Business performance EBIT
2023
US$m
2022
(restated)
1
US$m
Reported operating loss (420) (241)
Adjustments:
Operating loss separately disclosed items (Appendix A, note A1) 25 7
Share of net profits from associates and joint ventures (note 16) 2 5
Business performance EBIT (393) (229)
1. The prior year numbers are restated; see note 2.9.
A5. Reported EBITDA
2023
US$m
2022
(restated)
1
US$m
Reported operating loss (420) (241)
Adjustments:
Net impairment of non-financial assets classified as separately
disclosed items (notes 12 and 15) (5) (5)
Share of net profits from associates and joint ventures (note 16) 2 5
Depreciation (note 12) 78 74
Amortisation, business performance impairment and write-off
(notes5a, 5b and 5g) 5 5
Reported EBITDA (340) (162)
1. The prior year numbers are restated; see note 2.9.
A6. Reported EBIT
2023
US$m
2022
(restated)
1
US$m
Reported operating loss (420) (241)
Adjustments:
Share of net profits from associates and joint ventures (note 16) 2 5
Reported EBIT (418) (236)
1. The prior year numbers are restated; see note 2.9.
A7. Business performance ETR
2023
US$m
2022
(restated)
1
US$m
Reported income tax (credit)/expense (3) 2
Less: Tax charge on separately disclosed items (Appendix A, note A1) – (1)
Business performance income tax (credit)/expense (G) (3) 1
Group’s business performance net loss (Appendix A, note A1) (503) (321)
Group’s business performance loss before tax (H) (506) (320)
Business performance ETR (G/H x 100) (0.6)% 0.3%
1. The prior year numbers are restated; see note 2.9.
A8. Capital expenditure
2023
US$m
2022
US$m
Net cash flows generated from investing activities (32) (98)
Adjustments:
Contingent consideration paid (4) (2)
Dividends received from associates and joint ventures 4 8
Net proceeds from disposal of investment in associates 13 –
Receipts from Shanghai Zhenhua Heavy Industries Co Ltd in respect
ofJSD6000 vessel – 5
Receipts from joint operation partners in respect of leases 28 28
Net cash flows from disposal of subsidiaries, including receipt against
contingent consideration (1) 98
Proceeds from disposal of property, plant and equipment 2 1
Interest received 6 6
Capital expenditure 16 46
Appendices continued
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
212
PETROFAC LIMITED | Annual report and accounts 2023
A9. Free cash flow
2023
US$m
2022
US$m
Net cash flows used in operating activities (97) (146)
Net cash flows generated from investing activities 32 98
Interest paid (101) (86)
Repayment of lease liabilities (57) (54)
Free cash flow (223) (188)
A10. Working capital
2023
US$m
2022
(restated)
1
US$m
Inventories (note 18) 11 17
Trade and other receivables (note 19) 977 739
Contract assets (note 20) 832 1,324
Restricted cash (note 17) 223 111
Assets (I) 2,043 2,191
Trade and other payables (note 28) 930 865
Contract liabilities (note 20) 292 155
Accrued contract expenses (note 32) 691 759
Liabilities (J) 1,913 1,779
Working capital (I – J) 130 412
1. The prior year numbers are restated; see note 2.9.
A11. Cash conversion
2023
US$m
2022
(restated)
1
US$m
Cash (used in)/generated from operations (S) (39) 21
Business performance EBITDA (T) (310) (150)
Cash conversion (S/T x 100) 12.6% <0.0%
1. The prior year numbers are restated; see note 2.9.
A12. Net lease liabilities
2023
US$m
2022
US$m
Non-current lease liabilities (note 17) 79 144
Current lease liabilities (note 17) 68 66
Total lease liabilities 147 210
Non-current receivable from joint operation partners for leases relating
to Block PM304 in Malaysia (note 17) 34 60
Current receivable from joint operation partners for leases relating to
Block PM304 in Malaysia (note 17) 35 34
Total receivable from joint operation partners for leases relating to
BlockPM304 in Malaysia 69 94
Net non-current lease liabilities 45 84
Net current lease liabilities 33 32
Net lease liabilities 78 116
A13. Net debt
2023
US$m
2022
US$m
Interest-bearing loans and borrowings (U) (note 26) 784 799
Less: Cash and short-term deposits (V) (note 21) (201) (450)
Net debt (U – V) 583 349
A14. New order intake
2023
US$m
2022
US$m
Engineering & Construction operating segment
Net awards 5,337 281
Net variation orders 161 269
5,498 550
Asset Solutions operating segment
Net awards 1,332 1,312
Net variation orders 275 65
1,607 1,377
New order intake 7,105 1,927
213
PETROFAC LIMITED | Annual report and accounts 2023
Registrars
Equiniti (Jersey) Limited
26 New Street
St Helier
Jersey JE2 3RA
Corporate brokers
Goldman Sach
Peterborough Court
133 Fleet Street
London EC4A 2BB
Legal advisors to the Company
Linklaters LLP
One Silk Street
London
EC2Y 8HQ
Corporate and financial PR
Teneo
85 Fleet Street
London
EC4Y 1AE
Company Secretary and
Registeredoffice
Ocorian Secretaries (Jersey) Limited
26 New Street
St Helier
Jersey
JE2 3RA
Stock Exchange listing
Petrofac shares are listed on the London Stock
Exchange using code ‘PFC.L’.
Announcements
Copies of all announcements are available on
the Company’s website at petrofac.com
Auditors
Ernst & Young LLP
1 More London Place
London
SE1 2AF
JP Morgan Cazenove
25 Bank Street
Canary Wharf
London E14 5JP
Carey Olsen Jersey LLP
47 Esplanade
St Helier
Jersey JE1 0BD
Shareholder warning
Shareholders should be very wary of any unsolicited advice, offers to buy shares at a discount or
offers of free company reports on the Company. Fraudsters use persuasive and high-pressure
tactics to lure investors into scams and they may offer to sell shares that often turn out to be
worthless, overpriced or even non-existent. Whilst high returns are promised, those who invest
usually end up losing their money.
Please keep in mind that firms authorised by the Financial Conduct Authority (FCA) are unlikely to
contact you out of the blue. If you receive any unsolicited investment advice:
• Make sure you get the correct name of the person and organisation and make a record of any
other information they give you, e.g. telephone number, address, and ask for their ‘firm reference
number’ (FRN)
• Check that they are properly authorised by the FCA before getting involved. You can check the
FCA register at https://register.fca.org.uk or call +44 800 111 6768
• Report approaches to the FCA – a list of unauthorised overseas firms who are targeting, or have
targeted, UK investors is maintained. Reporting such organisations means the list can be kept up
to date and appropriate action be considered
• Inform Equiniti (Jersey) Limited, our Registrars. They are not able to investigate such incidents
themselves, but will record the details and pass them on to the Company and liaise with the FCA
on your behalf
• Consider that if you deal with an unauthorised firm, you would not be eligible to receive payment
under the Financial Services Compensation Scheme
If you suspect you have been approached by fraudsters, please contact the FCA using the share
fraud reporting form at fca.org.uk/scams
You can also call the FCA Helpline on:
0800 111 6768 (UK freephone) or 0300 500 8082 (UK), or +44 207 066 1000 (outside UK)
If you have already paid money to share fraudsters, you should contact Action Fraud on
03001232040 or online at actionfraud.police.uk.
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
214
PETROFAC LIMITED | Annual report and accounts 2023
Shareholder information
as at 31 May 2024
A
ADNOC The Abu Dhabi National Oil Company is the state-
owned oil company of the United Arab Emirates
APM Alternative performance measure
Appraisal well A well drilled into a discovered accumulation to
provide data necessary to define a Field Development Plan for
the accumulation
AS Asset Solutions
B
Backlog consists of the estimated revenue attributable to the
uncompleted portion of fixed-price engineering, procurement
and construction contracts and variation orders plus, with regard
to engineering, operations, maintenance and IES contracts, the
estimated revenue attributable to the lesser of the remaining
term of the contract and five years. The Group uses this key
performance indicator as a measure of the visibility of future
earnings. Backlog is not an audited measure.
BAME Black, Asian and minority ethnic
Barrel A unit of volume measurement used for petroleum
bbl One barrel of oil
BEIS The Department for Business, Energy and Industrial
Strategy, which is a department of the United Kingdom
Government
Bio-CCS Bioenergy Carbon Capture and Storage
Block A subdivision of an underground petroleum reservoir, by a
resource owner, for the purposes of licensing and administering
exploration, appraisal and production of resources, by oil and
gas companies
boe Barrel of oil equivalent
bpd Barrel per day
Brownfield development Further investment in a mature field,
to enhance its production capacity, thereby increasing recovery
and extending field life
C
CAGR Compound annual growth rate
Capex Capital expenditure
Carbon capture The process of capturing waste carbon dioxide
CCUS Carbon capture, usage and storage
CDP Carbon Disclosure Project
CGU Cash-generating unit
CIS Commonwealth of Independent States
CO
2
Carbon dioxide
Condensate The liquid produced by the condensation of steam
or any other gas
COP28 The 2023 United Nations Climate Change Conference.
This was the 28th UN Climate Change conference held in Dubai,
UAE from 30 November-12 December 2023
Cost plus KPIs A reimbursable contract which includes
an incentive income linked to the successful delivery of key
performance indicators.
D
DBP Deferred Bonus Plan
Decommissioning The re-use, recycling and disposal of
redundant oil and gas facilities
Downstream The refining of petroleum crude oil and the
processing and purifying of raw natural gas, as well as the
marketing and distribution of products derived from crude oil and
natural gas
Duty Holder A contracting model under which Petrofac
provides a complete managed service, covering production and
maintenance work, both offshore and onshore, to reduce the
costs of operating and to extend the life of the facilities
E
EBIT Earnings before interest, taxation and amortisation
EBITDA Calculated as profit before tax and net finance costs
and income, but after our share of profits/losses from associates
and joint ventures (as per the consolidated income statement),
adjusted to add back charges for depreciation and amortisation
(as per note 4 to the consolidated financial statements)
EBT Employee Benefit Trust
ECL Expected credit loss
E&C Engineering & Construction
EPC Engineering, Procurement and Construction
EPCC Engineering, Procurement, Construction and
Commissioning
EPCI Engineering, Procurement, Construction and Installation
EPCIC Engineering, Procurement, Construction, Installation and
Commissioning
EPS Earnings per share
ESG Environmental, Social and Governance
ETR Effective Tax Rate
F
FCA Financial Conduct Authority
FCPA Foreign Corrupt Practices Act
FEED Front-End Engineering and Design
Fixed-price turnkey project An agreement in which a
contractor designs, constructs, and manages a project until it
is ready to be handed over to the customer and operation can
begin immediately
FPF Floating Production Facility
FPSO Floating Production, Storage and Offloading vessel
FRC Financial Reporting Council
Glossary
215
PETROFAC LIMITED | Annual report and accounts 2023
G
Gas field A field containing natural gas but no oil
GHG Greenhouse gas
Greenfield development Development of a new field
H
HSE Health & Safety Executive (UK)
HVAC High-voltage alternating current
HVDC High-voltage direct current
Hydrocarbon A compound containing only the elements
hydrogen and carbon – can be solid, liquid or gas
I
IAS International Accounting Standards
IASB International Accounting Standards Board
ICV In-country value
IEA International Energy Agency
IES Integrated Energy Services. The IES division harnesses
Petrofac’s existing service capabilities and delivers them on an
integrated basis to resource holders with the aim of supporting
the development of their oil and gas resources.
IFRS International Financial Reporting Standards
IFRIC IFRS Interpretations Committee
IOC International oil company
J
Just transition Moving to a more sustainable economy in a way
that is fair to everyone
K
KPI Key performance indicator
L
LNG Liquefied natural gas
LPG Liquefied petroleum gas
LTI Lost time injury
M
mboe Million barrels of oil equivalents
MENA Middle East and North Africa region
MMscfd Million standard cubic feet per day
MOPU Mobile offshore production unit
MOU Memorandum of understanding
N
Net Zero The balance between the amount of greenhouse gas
emissions that are produced and the amount that are removed
from the atmosphere
New Energies Area focusing on opportunities presented by the
energy transition
NGO Non-governmental organisation
NOC National oil company
O
OECD Organisation for Economic Co-operation and
Development
Oil field A geographic area under which an oil reservoir lies
OPEC Organisation of Petroleum Exporting Countries
P
Paris Agreement A legal binding international treaty on climate
change, which was adopted by 196 parties at COP 21 in Paris in
2015. Its goal is to limit global warming to below 2, preferably to
1.5 degrees celsius, compared with pre-industrial levels.
PEC Production Enhancement Contract is where Petrofac is paid
a tariff per barrel for oil and gas production and therefore has no
commodity price exposure
PMC Project Management Contractor
PSC Production Sharing Contract
PSP Performance Share Plan
R
RCF Revolving credit facility
Reimbursable services Where the cost of Petrofac’s services
are reimbursed by the customer plus an agreed margin
RI Recordable injury
ROCE Return on capital employed
RSP Restricted Share Plan
S
SaaS Software as a Service
SDI Separately disclosed items
SFO Serious Fraud Office
SIP Share Incentive Plan
SMEs Small and medium-sized enterprises
SPA Sale and purchase agreement
T
TCFD Task Force on Climate-related Financial Disclosures
TCO
2
e Tonnes of carbon emissions
Technology neutral Being able to define the best technological
solutions for clients’ projects from a wide range of suppliers
andpartners
TSR Total shareholder return
U
UKCS United Kingdom Continental Shelf
UNGC United Nations Global Compact Upstream The segment
of the petroleum industry relating to exploration, development
and production of oil and gas resources
W
W2V Waste-to-value
Glossary continued
FINANCIAL STATEMENTSSTRATEGIC REPORTOVERVIEW GOVERNANCE
216
PETROFAC LIMITED | Annual report and accounts 2023
217
PETROFAC LIMITED | Annual report and accounts 2023
Petrofac Services Limited
117 Jermyn Street
London SW1Y 6HH
United Kingdom
Tel: +44 20 7811 4900
www.petrofac.com