Gas terminal builder loses £284m on Shetlands job

Aaron Morby 10 years ago
Share

Oil and gas terminal design and build specialist Petrofac has warned it is facing a massive loss on the Laggan-Tormore gas plant in the Shetland Islands.

In February, the engineering contractor revealed it had booked a loss of £154m on the Sullom Voe Oil Terminal job after agreeing final completion terms with client Total.

But bad weather conditions and its decision to ramp up manpower to rectify poor works and finish the job in the third quarter of this year will see losses soar by a further £130m.

The London Stock Exchange quoted international engineering firm blamed the extent of its losses on having to take on direct construction risk after it claimed subcontractors failed to deliver to standard on the job.

Ayman Asfari, Petrofac’s Group Chief Executive, said: “We had to take on this level of direct construction responsibility when some of our subcontractors 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 and construction 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.”

cs-laggan-tormore-3

Morrison Construction was managing the building and civil engineering works for the new Laggan Tormore gas plant under a £110m contract.

Balfour Beatty Engineering Services has been one the engineering construction subcontractors.

The project has involved over 3,500 separate reinforced concrete foundations, offices, workshops, warehouses and 33 other industrial buildings and 4km of roads as well as excavation and backfilling for 1,000km of cables and 30km of pipes up to 6m deep in Shetland granite.

French oil company Total awarded Petrofac an £500m lump-sum engineering, procure and construct contract to develop the new Shetland gas plant back in October 2010.

When Petrofac announced results for 2014 it booked the £154m loss in an attempt to draw a line under the troubled project assuring shareholder that there would be no further losses on the project over the remainder of the contract.

During late March and early April, activity on the Laggan-Tormore site was ramped up substantially as it shifted into the final construction and commissioning phases of the project.

Continued adverse weather conditions during March on Shetland and industrial action delayed this mobilisation by almost a month.

It said that as the activity levels have increased, it became apparent that significantly more man-hours were needed to complete the project as a result of low manpower productivity levels as the project nears completion and a greater level of rectification and reinstatement work than expected from the failure of one of its subcontractors to deliver in line with their agreed scope.

Latest news

Balfour Beatty terminates Danny Sullivan labour deals

Around 500 workers on HS2 will be moved to alternative agencies or be taken on direct
21 hours ago

Trio face prosecution after Hinkley site death

Main contractors and client to face charges over death of site supervisor
21 hours ago

Buyers see recovery in house building sector

But civil and commercial work still in the doldrums
1 day ago

Apprentice saws-off thumb on hotel refurb site

Court hears how digit was reattached and teenager continued training with another firm
1 day ago

Laing O’Rourke tops June contracts league

£919m animal super lab dominates new orders
2 days ago

TSL turnover smashes £500m as profit almost trebles

Data centre and logistics contractor rises high on surging demand
2 days ago

Gleeson Homes chief exec leaves business after restructure

Management revamp after "challenging" year
2 days ago

Green light for 1,600-home Oldham town centre overhaul

Plans for over 1,600 homes across six regeneration sites approved
2 days ago

DSM wins Norwich city centre clearance job

Anglia Square shopping centre clearance for £300m scheme
2 days ago

13-year-old becomes UK’s youngest qualified digger driver

Grandson of Gallagher Group chairman sets industry record
2 days ago

Cubby reborn in £12m Svella-backed takeover

£50m revenue target set as 14 firms combine under new Cubby Group banner
3 days ago

North East NHS trusts plot £3bn health estate overhaul

Market engagement begins for major construction push across four trusts
3 days ago

HG goes green on cranes in £1.2m switch to battery power

Diesel-free crane drive cuts fuel bills by 94%
3 days ago

Developer fined £165,000 for fire safety failings

Firm ignored fire safety orders on apartment job in Preston
3 days ago

Bidding to start for £1.8bn North West framework

Contractors invited to bid for latest Procure Partnerships deal
3 days ago

Hill hits record £90m profit as homes pipeline swells

Build-to-rent push and £4.8bn contracting book to fuel next growth phase
3 days ago

Rayner unveils £39bn plan to build 300,000 social homes

Council building revival and rent reform feature in social and affordable homes plan
4 days ago

Keltbray bounces back with £3.2m profit

Tighter controls and smarter project selection fuel strong turnaround
4 days ago

VINCI JV wins 500-home twin town centre revamps

Chester Northgate phase 2 and Northwich Weaver Square schemes move to delivery stage
4 days ago

80 energy projects unlocked as Ofgem backs grid expansion

£24bn energy networks deal gets green light from regulator
5 days ago

How to see your stories on the Enquirer

Join our Suppliers and Buyers directory to get your news published
4 days ago

Henley lands Midland Mill revamp on Leeds tower scheme

Restoration of 18th-century mill kicks off on South Bank regeneration project
4 days ago

New boss at Eric Wright Civil Engineering

Gavin Hulme takes top job as Diane Bourne moves to group role
4 days ago

Pinewood submits £1bn data centre plan

Studio giant adds green and learning spaces to tech hub blueprint
5 days ago

Record results after TClarke goes private

Britain's biggest M&E contractor flourishes after de-listing
5 days ago

Dalkia lands £200m nuclear maintenance deal

1,000 nuclear FM staff to join M&E contractor
5 days ago

Construction comeback to outpace wider economy

Arcadis forecast fueled by spending review optimism
5 days ago

First steel goes up on giant car battery site

Severfield gets to work on McAlpine Somerset site
5 days ago

Permasteelisa wins cladding deal on Bovis city tower

Facade specialist lands package at 60 Gracechurch Street
5 days ago

Fox buys recycled asphalt specialist Fisher

Acquisition adds major recycled asphalt capacity in north west
5 days ago