Petrofac Ltd. POFCY, a London-based oilfield services firm, is set to undergo major financial restructuring. The company has reached an agreement with a few important stakeholders and decided to convert a significant portion of its debt into equity. This move is anticipated to result in the dilution of its existing shareholders.

Per the terms of the agreement, the company shall receive funding underwritten by a group of senior secured noteholders. Furthermore, Petrofac will receive fresh equity from both new and existing investors. This financial restructuring plan is anticipated to improve Petrofac’s liquidity position and strengthen its financial position.

The in-principle agreement involved key stakeholders, including a group of senior secured noteholders and certain clients who have secured engineering and construction contracts with the company. The noteholders represent nearly 47% of the outstanding notes. POFCY is also in talks with its bank lenders and two of its majority shareholders, who cumulatively own 34% of its shares. The deal is non-binding at present. However, Petrofac mentioned that a lock-up agreement should be announced in the upcoming weeks, outlining the final terms and conditions.

Petrofac also mentioned that it plans to renegotiate terms with a few of its clients in order to safeguard important contracts in the firm backlog. The company highlighted that even though the deal has not closed yet, this is a significant step toward strengthening its balance sheet. The financial restructuring plan should enable Petrofac to adopt a sustainable capital structure. A better financial position should allow it to not only execute the existing deals but also sign new contracts.

POFCY currently boasts a backlog of approximately $8 billion. The company is facing financial difficulties, specifically in the engineering and construction division due to delayed payments and cost overruns on the contracts it secured in 2023. It had been looking to secure funding since (at least) December 2023.

POFCY’s Zacks Rank and Key Picks

Currently, POFCY carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the energy sector are PEDEVCO Corp. PED,TechnipFMC FTI and VAALCO Energy EGY. PEDEVCO presently sports a Zacks Rank #1 (Strong Buy), while TechnipFMC and VAALCO Energy carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

PEDEVCO is engaged in the acquisition and development of energy assets in the United States and Pacific Rim countries. PED stands to benefit significantly from its holdings in the Permian Basin, one of the most prolific oil-producing regions in the United States, as well as in the D-J Basin in Colorado, which includes more than 150 high-quality drilling locations. Combined with bullish oil prices, this is expected to boost the company's production and overall profitability.

TechnipFMC is a leading manufacturer and supplier of products, services and fully integrated technology solutions for the energy industry. The company’s total backlog witnessed a record high of $13.9 million in the second quarter of 2024, indicating a year-over-year increase of 4.51%. This growing backlog ensures strong revenue growth for FTI.

VAALCO Energy is an independent energy company involved in upstream business operationswith a diversified presence in Africa and Canada. Having a large inventory of drilling locations in premium Acreage of Canada, EGY’s production outlook seems bright.

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