Delays caused by adverse weather conditions and industrial action mean that Petrofac will incur an additional $195 million loss on its work on the Laggan-Tormore gas plant project in the Shetland Islands, the oilfield engineering firm reported Monday.
Petrofac has previously stated that it expected to see no further profit or loss on the project over the remainder of its duration after recognizing a $230 million loss when it reached a final commercial settlement with its client, Total. However, adverse weather conditions during March ahead of a ramp-up in work as Petrofac moved to the final construction and commissioning phases of the gas plant project, as well as industrial action, delayed the ramp-up by almost a month, which means that the firm will need significantly more man-hours to complete the project than anticipated.
The gas plant is part of a wider project that will see the Laggan and Tormore fields, located some 75 miles northwest of the Shetland Islands, tied back to the islands themselves. Located on the edge of the UK Continental Shelf, and where water depths descend rapidly from an average of 395 feet to more than 2,000 feet, Total describes the project as “uniquely challenging”.
Commenting on this further hit to the firm’s profit and loss account, Petrofac Group Chief Executive Ayman Asfari said in a statement:
“We are deeply disappointed by this additional cost to complete on the Laggan-Tormore project. As we noted in our year-end results announcement, given the extent of direct construction involved in the project, Laggan-Tormore is different from the rest of our EPC [engineering, procurement and construction] project portfolio, where we typically utilize sub-contractors to deliver construction services.
“We had to take on this level of direct construction responsibility when some of our sub-contractors failed to deliver in line with their agreed scopes. Our lack of experience of operating a direct construction model in a wholly new geography for our Onshore Engineering & Construction (OEC) business, particularly in a location where labour costs are much higher and productivity much lower than we are used to, has cost us dearly.
“We have already affirmed that we will no longer take construction risk on large lump-sum projects within the UK to avoid a similar experience to Laggan-Tormore moving forward. For now, my senior management team and I are focused on delivering the project in line with the revised schedule agreed with our client. As such, we have refreshed the site leadership team and further strengthened it with key members of our Sharjah-based OEC team and have changed a number of elements of our working practices to drive the project through to completion.
“Putting the challenges we are facing on this project to one side, the rest of our portfolio continues to perform in line with expectations.”