The Petrofac (LSE: PFC) share price has climbed over 60% on the day as I write. At one point, it was up more than 70%.
The shares had lost nearly 90% of their value in the past five years. So is this the start of a new bull run?
The firm has won some major new work, with Hitachi Energy as a partner. The pair will help grow offshore wind capacity in Dutch and German areas of the North Sea.
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The deal, with power distribution operator TenneT and described as a Framework Agreement, is worth around €13bn. And Petrofac says it’s the biggest in its history.
We’ll see a series of individual contracts, with each worth over €2bn. And they’ll split the value approximately equally between the two firms.
It starts with an agreement for six projects. Five will connect up wind farms to the Dutch grid, with the sixth to the German grid.
Game changer?
On the face of it, I think this could be a game changer.
Petrofac has for years been one of the top in its sector. But that’s oil and gas services. It’s provided support engineering for drilling, pumping, and so on.
And we all know the way oil and gas looks set to go in the long term. The black stuff will be pumped and used for a while yet. But if exploration and upstream development slows, that’s not good for firms like Petrofac.
The future is renewable energy, and this news shows that Petrofac can be in as much demand for new energy sources. Maybe they should change the name to Electrofac.
Petrofac lost money in the past couple of years. And the City had it down for a couple more years of losses too.
Debt
At the halfway stage last year, net debt reached $341m. That’s close to the market cap, at least before today’s change.
The firm had $511m in liquidity, so there wasn’t an immediate danger. But I don’t like to see big debt. Especially not for a loss-making company in an industry in decline.
That worry could quickly fade now.
We won’t see any immediate wiping of debt. But such a valuable contract could make it a lot easier for Petrofac to raise any new funding it might need.
And I think it should put paid to any liquidity fears, for the near future at least.
Caution
There are still risks, though. This is still only a framework around which future contracts will hang. And those contracts don’t all exist yet.
There’s still no profit yet, though forecasts will inevitably need to be changed now. And that makes it hard to put a value on the stock at the moment.
So I see a fair chance that the share price could drift back down as we wait for work to start and for cash to flow.
Still, it does look like good news for Petrofac shareholders. And I look forward to hearing what the board say with FY22 results. I expect a spring in their step.
