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Petrofac Blamed For Shetland Cost Overruns

Tuesday, April 28, 2015

GMB AND UNITE Shop Stewards Say Poor Planning And Mismanagement  To Blame For Petrofac Cost Overruns On Laggan Tormore Shetland Gas Plant

Petrofac management grossly underestimated the vast numbers of skilled workers needed to construct such a large complex, high level of specification gas plant in such testing weather conditions says GMB and Unite site shop stewards.

GMB and Unite shop stewards committee responded to the press release issued by Petrofac on Laggan-Tormore Project in the Shetland Islands. See notes to editors for copy of press release by Petrofac on April 20th 2015.

The statement says “We as democratically elected union shop stewards representing GMB and Unite members working at the Shetland Gas Plant (SGP) project for Petrofac and their sub-contracting companies and agencies working under the Shetland Island Agreement (SIA), could not let Petrofac’s  press release (20/04/15) go unanswered.

We believe this to be in parts an outrageous attack on the workers constructing this highly technical gas plant and the perception we take from the press release is that all the financial losses that Petrofac have incurred have been the fault of the workers, truly unbelievable. It mentions in press release “Continued adverse weather conditions during March on Shetland…”, this is the Shetland Islands there are adverse weather conditions all year round, didn’t Petrofac study the historical weather data of the Shetland Islands, the Shetland weather seems to come as a surprise to the Petrofac management.  Also the press release goes on to mention that “industrial action has delayed this ramp up by almost a month from our original expectations”, could Petrofac be more specific and state exactly what industrial action this was which caused a month’s delay, because we are at a loss as to what industrial action took place. Also the use of the phase “ramp up” does this relate to labour/manpower? If it does, why was it the case at the end of last year (2014) that Petrofac and their sub-contractors/agencies made hundreds upon hundreds of engineering construction workers redundant at SGP?

The Petrofac press release also states the following “..it has become apparent that we will need to expend significantly more man-hours to complete the project than anticipated as a result of low manpower productivity levels as the project nears completion..”. We would say this is because from day one the Petrofac management have grossly underestimated the vast numbers of skilled workers needed to construct such a large complex, high level of specification gas plant in such testing weather conditions.

The facts speak for themselves, the Sella Ness workers accommodation camp near the SGP was built to house approximately 850 workers (albeit sharing rooms in the 21st century) there has constantly been double or even treble that number of workers on the SGP project. So where have these 100s upon 100s of workers been accommodated?

Petrofac have had to hire and lease the following floatel barges, hotels and cruise ships such the Bibby Stockholm, Kalmar, Bibby Challenger, Lerwick Hotel, Shetland Hotel, Gemini, SNAV Toscana, Ocean Endeavour, Sans Vitesse and Regina. Then on top of this Petrofac have had to hire/lease dozens of 52 seater coaches to transport the 100s of construction workers the round trip of about 60 miles a day to the SGP project. The aforementioned have been in place now for approximately 2 years, so the cost of the accommodation and transport must have cost the SGP project millions upon millions of pounds. Why wasn’t this mentioned in Petrofac’s press release?

Petrofac management have fully managed the SGP project from day one, as they have wanted to manage it, some people might say not very well though, because there has been a constant changing of the supervision and management from the beginning, with the view from a large majority of the workers that a number of the supervision/management have not been earning their £100s a day pay based on their knowledge and skills of constructing a gas plant, but rather on who they know.

Group Chief Executive Ayman Asfari was quoted as saying in the Petrofac press release the following “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 as shop stewards can only reply to this in saying that Unite and GMB members whether employed by Petrofac or their sub-contractors/agencies at SGP are willing and contractual obligated to do a job of work that is put in front of them from the start of their shift to the finish of the shift, 7 days a week, 365 days of the year and that is what they will do if they are given a job of work to do in a safe manner and that is up to Petrofac to manage that process, which they are sometimes not very good at doing to say the least.

Also on finishing we can only say that that in regards to high labour costs and low productivity, which we totally refuted, we are employed under the Shetland Island Agreement as union members of independently recognised trade unions, which is compatible to the terms of the International Labour Organisation (ILO) which is a United Nations agency dealing with labour issues, particularly international labour standards, social protection, and work opportunities for all.

Could this be said of the places of work regards the rest of Petrofac’s EPC project portfolio around the world? Where Petrofac state in their press release that they “… typically use sub-contractors to deliver construction services…”

GMB and Unite shop stewards committee: Shetland Island Agreement (SIA) Shetland Gas Plant (SGP) 27/04/15.

End

Contact: Phil Whitehurst 07968 338810 or GMB 0191 233 3930 or GMB press office 07921 289880

Notes to editors

Petrofac press release of April 20th - Update on Laggan-Tormore Project:

The Company is entering the final stages of the Laggan-Tormore gas plant project on Shetland in the UK.

As we noted in our full year results announcement issued on 25 February 2015, in line with our latest assessment of schedule and cost-to-complete for the Laggan-Tormore project, and the final commercial settlement agreed with our client, Total, the Group had recognised a loss on the project of US$230 million(1) in the year ended 31 December 2014. We also stated in the results announcement that we expected to recognise no further profit or loss on the project over the remainder of the contract duration with completion expected in the third quarter of 2015.

During late March and early April, activity on the Laggan-Tormore site has ramped up substantially as we have moved into the final construction and commissioning phases of the project. Continued adverse weather conditions during March on Shetland and industrial action has delayed this ramp up by almost a month from our original expectations. As the activity levels have increased, it has become apparent that we will need to expend significantly more man-hours to complete the project than anticipated as a result of low manpower productivity levels as the project nears completion, a greater level of rectification and reinstatement work than expected, coupled with the failure of one of our sub-contractors to deliver in line with their agreed scope.

In light of these issues, we have just completed a full re-assessment of the schedule and cost-to-complete estimate for the Laggan-Tormore project. Whilst we still anticipate project completion in the third quarter of 2015, as a result of the significant amount of additional man-hours and associated support costs required over the remaining months of project execution, we now expect to recognise a further pre-tax loss on the project of around £130 million (US$195 million at current exchange rates) in 2015. The additional costs we expect to incur reflect our firm intention to devote all the necessary resources to the project to meet the delivery commitments we have made to our client. We anticipate that construction activity on the site will be substantially complete by mid-June and we intend to provide an update to the market on the status of the Laggan-Tormore project with our trading statement scheduled for 23 June 2015.

Ayman Asfari, Petrofac’s Group Chief Executive commented:
“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 project portfolio, where we typically utilise 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.”

Notes

(1) The Group recognised a loss on the Laggan-Tormore project of US$230 million in the year ended 31 December 2014. With around US$50 million of profits having been recognised on the project in previous years, overall the Group had recorded a cumulative loss on Laggan-Tormore by 31 December 2014 of around US$180 million.



 

 

 

 

 

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