Good morning, everyone. Thank you for joining us for Petrofac's full year results presentation. I'm Tareq Kawash, Petrofac's new Group Chief Executive. I'm very pleased to be joined by Afonso Reis e Sousa, our Chief Financial Officer. On screen, you should see our standard disclosure notice. Please read it at your leisure. Turning to today's agenda. In a few moments, Afonso is going to take you through our detailed 2022 financial results. I'll then cover our operational performance, progress against Petrofac's strategy and future business outlook. We'll then have time for Q&A, during which Afonso and I will be happy to take your queries. Before we move into the detail, most of you know that I assumed the role of Petrofac's Chief Executive at the start of April. I joined Petrofac from McDermott, where I'd been for more than 20 years.
More recently, I was senior vice president of its global onshore and Middle East offshore business lines, and a member of McDermott's executive committee. I know Petrofac's markets and its customers very well, and I've also known Petrofac well, first as a formidable competitor, but also as a joint venture partner. I always admired the drive of Petrofac's people, its focus on delivery and its execution capability. The Petrofac leadership and management teams welcomed me in March to begin my handover from Sami Iskander. I want to thank Sami for ensuring continuity of leadership. I've always associated Petrofac with an entrepreneurial and client-focused culture. These are the foundations for its differentiation alongside a strong track record of execution for clients in its core markets.
I have already been able to visit our primary locations in the UAE and UK, and there remains a strong project delivery and operations capability at the heart of this business that is capable of delivering outstanding results for our clients. I have also met with many of our key clients. The feedback has been very positive, and it is clear from these conversations that Petrofac's reputation within the industry remains strong. It is a company that clients trust with their most important projects, want to see succeed and want to work with. This is encouraging and is a good platform on which to build. I will share more on my early perspectives on the business later in the presentation.
Like much of the services sector, Petrofac's E&C business continued to feel the lingering impact of project delays caused by the pandemic, unfavorable commercial settlements, together with slow investment in new capital projects. This led to a disappointing set of financial results for 2022, demanding the continued patience of our stakeholders. Afonso will talk about this and the steps we're taking to ensure the financial strength of the business, such as unlocking working capital, balancing long-term value against near-term liquidity, and securing advances from new awards. I want to take a brief moment to highlight the content on the right of the slide. The leadership team has made good progress in a number of areas, positioning the business for its rebuild. The closeout of seven legacy contracts in 2022 helped draw a line under many projects of the past.
These are positive step forward. Of course, we still have work to do, which we'll talk about later. The Asset Solutions business continued to grow and expand into new markets and win more decommissioning projects. We also saw strong performance in IES. Strategically, the team made progress with our re-entry into the UAE, where we secured new work with ADNOC and continued to bid on a number of sizable future projects. In new energies, we continue to expand our offering into hydrogen, carbon capture, waste to value, and offshore wind. Finally, the formation of the collaboration with Hitachi Energy last summer recently led to the award of Petrofac's largest ever framework agreement. I look forward to talking more about that and our plans for the renewable sectors later. For now, I'll pass to Afonso.
Thank you, Tareq. Good morning, everyone. Welcome to our results presentation. Our results for the year ending December 31, 2022 reflect the continuing challenges in the E&C portfolio, partly offset by strong performance in Asset Solutions and in IES as well. As a result of low levels of activity in E&C, the group experienced an overall reduction of 14% in revenue to $2.6 billion. As we mentioned the trading update earlier this month and also in December, the performance of E&C was affected by cost overruns in its portfolio of mature legacy contracts which were in execution throughout the pandemic period. This resulted in a full year EBIT loss for the group of $205 million.
I'll discuss the divisional financial performance in more detail in a minute. Just want to register both Asset Solutions and IES continued to perform well and delivered healthy margins during 2022. Group backlog declined overall and stood at $3.4 billion at the end of the year. This was a direct result of the low level of industry awards and therefore a reduced backlog in the E&C sector. Asset Solutions, on the other hand, delivered another strong year of order intake as it continued to expand operations both in its existing geographies and into new territories. The outlook for E&C is, however, very positive. In the first quarter of the current year, it secured its biggest ever framework contract covering multiple offshore transmission platforms for the wind power sector for TenneT.
This positive outlook at E&C is reflected in the group pipeline of some $51 billion, which are scheduled for award by June of 2024. The majority of these opportunities are in our core regions in MENA, the UK, and Europe. Within this, we remain well positioned on the number of near-term prospects, including $1.5 billion of contracts at preferred bidder stage, which we have referenced before. I know Tareq will come back to these opportunities later. Net debt at 31st of December 2022 was $349 million, predominantly reflecting the free cash outflow in the year, driven by the payment of the SFO penalty as well as the delay in new awards. Let's now take a look at performance at the divisional level.
As I said a moment ago, 2022 was a challenging year for E&C, reflective of a difficult commercial operating environment. Given the low level of new contract awards in recent years, the portfolio is both small and primarily consists of mature contracts as opposed to a more balanced portfolio which would normally comprise contracts at different stages of execution. The lingering impact of the pandemic continued to affect the portfolio, resulting in extended schedules and additional costs which have not been compensated or certainly not fully compensated by clients. I should call out in particular the Thai Oil Clean Fuels project where we experienced significant cost overruns during 2022. This is a uniquely complex project. The contract has been onerous since 2021. We do, however, expect to recover a proportion of the incremental costs recognized as discussions progress between us and our partners and the client.
In addition, in order to accelerate the unwinding of working capital, we have taken a pragmatic view on commercial settlements, which has resulted in the recognition of adverse outcomes. Finally, as E&C operates below its minimum efficient scale, there was also an adverse impact from under recovery of overhead costs from the relatively small portfolio of active contracts. Having said that, we made good progress in closing out the legacy portfolio, having completed or substantially completed 7 contracts in 2022 and with a further 5 scheduled to complete in 2023. Overall, E&C reported full year revenues of $1.3 billion. As a result of the factors I've just outlined, cost overruns across the portfolio, adverse settlements and subscale operations, E&C delivered an EBIT loss for the year of $299 million.
Order intake in the year was lower than prior years at $0.5 billion, comprising a new EPC contract in Algeria and net variation orders. This contrasts with the outlook for 2023, where E&C has positioned itself for growth in anticipation of the expected upcycle, as Tareq will come to shortly. In Asset Solutions, the operational and financial performance has held up well over the past couple of years, with revenue growing 4% to $1.2 billion in 2022. The EBIT margin for the year was in line with guidance at 5.2%. The reduction from 2021 was due to the change in the mix of the contract portfolio with the completion of historic high margin contracts as well as a higher proportion of pass-through revenue.
Order intake was high, with $1.4 billion of contract awards and extensions, representing a book-to-bill ratio of 1.2 times. The growth in backlog was evident in each of its service lines. In New Energies, the strong momentum we have gained over the last two years continued in 2022 and into 2023 with a series of early stage awards and strategic alliances with technology providers. This leaves us well positioned over the medium term to secure EPC and other project work as customers progress to final investment decisions. Again, Tareq will cover this in greater detail later. Moving on to our Integrated Energy Services division. The financial performance in IES was bolstered by both high oil prices and increased production.
Net production for the year was double that in 2021, reflecting a full year of production from the East Cendor development and the completion of other well workovers. The average realized oil price for the year, taking into account hedging, was 45% up on the prior year at $112 per barrel. EBITDA was $109 million, up significantly from prior year, reflecting the higher revenues generated without a commensurate increase in costs. At the same time as increasing production, improving the efficiency of our operations on this asset has been central to our decarbonization strategy. In 2022, we delivered a reduction in emissions intensity of almost 50% working with our Flare Reduction Task Force. Turning now to the balance sheet and working capital.
Working capital has traditionally been very low in Petrofac and grew since 2019 as a result of the pandemic. Returning to a more typical working capital position represents a huge financial prize for the group. As we close out the legacy contracts and finalize the associated settlements, and with the additional benefit of positive cash flows from new awards, we expect to revert to a neutral working capital position over the next 18 months. As you can see on the chart, the working capital balances grew up to the middle of 2022 and have started to reverse since then. This is partly as a result of targeted efforts to close out settlements, including where appropriate, a pragmatic approach to the balance of long-term value versus near-term liquidity.
Speaking of which, let's now look at the liquidity position in more detail. Free cash outflow for the year was $188 million, which resulted in net debt increasing to $349 million. This was largely driven by the reported EBITDA, as well as the payment of the SFO penalty, which is included within the other line on the table. These outflows were partly mitigated by the reduction in net working capital balances as well as proceeds from previous divestments. Interest payments were materially higher in 2022 as a result of the refinancing at the end of 2021. Whilst liquidity has reduced versus the prior year, we maintained our liquidity position over the second half of 2022, despite the delay in new awards and cost overruns. This liquidity position has also been maintained over the first quarter of 2023.
In the near term, as we build up the backlog, the group is reliant on a small number of relatively high-value collections related to the closing out of legacy contracts and associated settlements, as well as advances on new awards. Details are set out in our financial statements. Finally, as you will have seen, last week, we signed an extension to our bank facilities for an additional 12 months. Looking now to the full-year outlook. Guidance for the year remains in line with the December 2022 trading update. E&C has approximately $900 million of secured revenue for the year, of which about half relates to onerous contracts and therefore will not contribute to EBIT margin. The dynamics I described earlier, that is the mature portfolio and the adverse operating leverage, will continue to play out in 2023.
Given our accounting policies, the new awards secured in 2023 will not contribute to margins until next year. As we said in December, we expect E&C to deliver a small EBIT loss for this year. Asset Solutions is expected to continue to grow with higher revenues driven by the backlog increase last year. The revenue secured for the year stands today at $1.2 billion. Asset Solution margins are expected to remain healthy, albeit lower than in 2022 due to the roll-off of the historically high-margin work in the Middle East, as well as an increased proportion of pass-through revenues. IES is also expected to deliver another robust performance in 2023, even recognizing that production is expected to be slightly lower and oil prices are also trending lower.
At $85 per barrel, EBITDA in IES is expected to be in the range of between $65 million and $75 million. As further guidance, a sustained $1 change in the price of oil equates to approximately $700,000 of EBITDA over the course of the year. From a group perspective, we expect cash flow to be broadly neutral. However, there is upside potential depending on progress made in reducing our net working capital balances. Overall, the key focus areas for 2023 are the conversion of pipeline into backlog, which Tareq will talk more about shortly, as well as the release of working capital from the legacy portfolio. With that, I will now hand you over back to Tareq.
Thank you, Afonso. Let's look at operational performance, starting with our ESG highlights. In 2022, the group made good progress against each of its environmental, social, and governance commitments. I'm committed to this agenda and ensuring Petrofac is positioning itself as a socially engaged and environmentally responsible business with an industry-leading governance regime. A significant percentage of our management incentives were linked to ESG performance, including the three following areas. Firstly, in line with our goal to reach net zero in Scope 1 and Scope 2 emissions by 2030, our teams have significantly reduced emissions intensity across our operations. Secondly, the proportion of women in senior roles increased to 26%, bringing us insight of our 2025 diversity target. Finally, from a governance perspective, we continued to drive a best-in-class compliance culture aligned to international benchmarks.
We were pleased to see third-party recognition of our progress from MSCI. Having reviewed Petrofac's ESG risks and how these are managed relative to our peer group, they awarded us A Leadership status. Turning now to group-wide health and safety performance. 2022 brought a sustained safety performance across our global operations. We continued to mitigate lost time injuries with our low incident rate remaining unchanged. I'm pleased to tell you that the severity of workplace injuries decreased with the majority of incidents involving cuts, scrapes, trips, and falls. While the chart demonstrates that we have performed significantly better than the industry average, my leadership team and I will focus on further reducing our recordable incident rate in pursuit of our aspiration to be the safest contractor. In support of this, the group's HSE strategy was refreshed last year.
Based on the five pillars you see on the left of the slide, the emphasis was to ensure the same uncompromising safety culture exists across the entire group. Let's take a look at business unit operational performance. In E&C, across the mature portfolio, seven contracts were completed or substantially completed last year. As Alfonso described, many of these projects were impacted by the pandemic, both in terms of schedule and costs and settlements with clients. This was further compounded by the inflationary headwinds on newer projects. Five of the eight remaining projects will be completed this year. These are captured on the graphic on the right of the slide. Notwithstanding the Thai Oil contract, these projects stretch across well-known customer groups in Petrofac's core locations and represent a more balanced risk profile. While bumps are inevitable in every road, we are very much focused on closing them out quickly and safely.
We're also working hard to build the backlog, and as we do, we see the return of the portfolio effect. This will naturally reduce the risk profile in E&C, supported further by a disciplined and selective approach to bidding. Let's look at two of the E&C projects listed, starting with Thai Oil. The Thai Oil contract performance was highlighted in our December and April trading updates. What makes this contract so unique? We are part of a joint venture supporting the improvement and expansion of a large 1960s refinery. This mega project is particularly complex. Let me explain. A large portion of the scope is brownfield EPC, which is more challenging than greenfield because you need to factor in existing infrastructure and tie into existing process plant. In this instance, there are 1,400 interfaces to consider.
This site is additionally complex because the refinery continues to be operational while our team works around it. Access is another challenge. The site lies between a forested mountain and the community of Sriracha. All these things considered, construction demands a carefully planned modular approach. The order we procure and fabricate in, the order materials arrive in, and the order in which we undertake work matters hugely. Unfortunately, source materials used by the joint venture, such as China, Italy, and India, were badly impacted by the pandemic, affecting sequential activities and causing significant delays. What are we doing about it? While the cost implications have been disappointing, our team have done a great job despite these challenges. We continue to maintain strong relations with our partners and client and have progressed the project in a way that will support us to recoup some of the time lost.
Together, we have reworked elements of the execution strategy based on a new phase delivery, changed subcontractors, and worked to get elements of the refinery on stream. Today, engineering is complete, materials have been delivered, and final modules have been shipped, providing greater assurance on the critical path to completion. I look forward to visiting our Thai Oil project team soon. I'd like to talk now to one of the most recent contracts in E&C's portfolio. Having successfully delivered two previous projects for TenneT and then established our partnership with Hitachi Energy last summer, TenneT selected us to provide joint grid integration and infrastructure for its 2 GW program. Part of Europe's largest ever infrastructure award, this significant framework agreement is worth approximately EUR 13 billion to our partnership. The first platform agreement under the framework was awarded in April. The second is expected later in the year.
Each is worth over $2 billion to the partnership. Our scope is to engineer, procure, construct, and install onshore and offshore infrastructure for the landmark 2 GW offshore wind program. The 6 project program will set a new standard for offshore wind, doubling connection capacity. For service providers involved, it is unique for 3 additional reasons. First, it represents an all new approach to contracting, enabling Petrofac and our partner Hitachi to see exactly what's coming, plan ahead, and secure resources accordingly. Secondly, the program truly harnesses supply chain collaboration, enabling a design one build many approach. Finally, the contract involves a de-risked price mechanism with cost plus elements, adjustable elements, as well as lump sum. I was very pleased to be in Berlin last week to celebrate the signing of the framework.
It goes without saying, this is a landmark opportunity for Petrofac, which underpins the backlog growth expected over the coming years and sets us on a track to achieve our new energy ambitions. Turning to Asset Solutions, the business unit delivered a robust performance in 2022, growing revenue and delivering a healthy margin. Maintaining its core 40% UK market share and renewal rate of 80% for operations and maintenance contracts, Asset Solutions evidence continued high standards of delivery. Internationally, clients increased their emphasis on late life asset strategies, looking to Petrofac to deploy the same high UK standards elsewhere in the world. In 2022, this supported geographic expansion in operations, projects, well engineering, and decommissioning. For many clients, our ability to integrate these services across the asset life cycle gave Petrofac an element of differentiation, and I expect this to be an ongoing theme.
I've been particularly impressed by our ability to provide a one-stop shop for full decommissioning projects. I see a big opportunity here to provide this service as a strategic enabler for the energy transition. Looking forward, I'd like to focus on some of my early observations and the market outlook. What do I see? I see a number of strengths. Great people running a strong engine room, an impressive track record in MENA and the UK, structural cost advantages through established engineering houses. I see a resilient and growing Asset Solutions business and a fantastic differentiation in well engineering and decommissioning. Finally, I see clear parallels between our capabilities and our customer needs in new and renewable energies.
Of course, I also see clear opportunities to close out legacy contracts, to pursue high quality backlog growth, bringing balance to our aging portfolio, to take a more selective approach to bidding, and to release a significant working capital built up through the pandemic. I see a group which is resolute in its efforts to capture these opportunities and turn the corner. Moving forward, four particular themes give me confidence for the future. First, all market data, backed by ongoing customer dialogue, points to an increase in CapEx spend between now and 2025 and beyond. This will be particularly prevalent in Petrofac's core MENA region. We have an extensive track record here with strong customer relationships and the prospect of a significant catch-up following a decade of underinvestment in the region.
Secondly, offshore wind will play a crucial role in the transition to clean, affordable energy. We have been successfully delivering major projects in this sector for more than a decade now. Our collaboration with Hitachi Energy positions us to grow further in this space. Thirdly, I talked earlier about the opportunity to integrate services across late life asset management and decommissioning. As the energy transition progresses and the number of assets in mature basin heading towards decommissioning increases, we have the ability to combine our services in a way that reduces safety risk and environmental risk and lowers costs for our clients. We saw growth in the Gulf of Mexico and Australia in 2022 and have already secured additional work in these regions in 2023. This will continue to support the fourth and final theme of the slide, further geographic expansion and Asset Solutions.
In addition to the decom piece, Asset Solutions has a fantastic opportunity to grow its initial footprint in Africa, where asset acquisition is a key customer theme, driving a need for outsourced services. Our bidding pipeline supports these themes. Let's take a look at it. Our group bidding pipeline sits at $51 billion over the next 14 months. In E&C, 59% of its $40 billion pipeline exists within our home markets, where Petrofac has an impressive track record. While delays are always frustrating, they are not unusual. This is a very positive pipeline that will underpin our recovery over the coming years. In Asset Solutions, I've talked about geographic growth.
A portion of its $11 billion pipeline represents the opportunity to build on the foothold gained in Africa during 2021 and 2022 as customers invest in their assets. In regions like Africa, Asset Solutions is excellently placed to command good margins. Of the total pipeline, new energy scopes account for over $10 billion. A large portion of this is offshore wind. In the short term, I believe this sector will continue to underpin our new energies expansion. We have successfully undertaken various early engineering scopes in carbon capture, hydrogen, and waste value and continue to amass experience in these sectors. Earlier this week, we announced an exclusive partnership to deliver green methanol projects with OCI Global. I expect a portion of these opportunities to turn into projects in the medium term.
Before we wrap up, let me summarize some of the key points from today's presentation. We are working resolutely to put the challenges of our legacy portfolio behind us, and we have a clear path forward. Our recovery will take time, but by unlocking the significant working capital built up during the pandemic, delivering near-term backlog growth, expanding further into new energies and new geographies and Asset Solutions, we will come out the other side stronger and ready to deliver our medium-term ambitions. We have an exceptional EPC and operational capability that is well-positioned to deliver and support critical infrastructure for the world's leading resource holders. In an increasingly active market, we must, however, be selective and disciplined as we grow our order book across all markets to build a more balanced portfolio, return to sector-leading margins and free cash flow.
Alongside the data we've discussed today, the people at Petrofac give me the confidence for the future. Their capability, customer focus, and resolve impress me. I'm excited to work together with them to deliver on the group's potential.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We'll take our first question from Christian Hinderaker at Goldman Sachs. Your line is open. Please go ahead.
Yes, good morning, everyone, thank you for the opportunity. I wanted to start maybe with the working capital position. I think $436 million on the balance sheet at year-end. Obviously cash very much in focus at the minute. Just interested in actions taken since December and indeed, what you can do in the months ahead with regard to cash collection, how we should think about that composition across the different working capital lines. Thank you.
Thank you. Good morning. Thanks for joining. Thank you for the question. I think what you have seen is the working capital position that we built up over the last three years, really since the pandemic started, starting to reverse in the second half of 2022 with a slightly lower working capital, particularly in E&C. I think what we've guided is that we're expecting that to unwind fully and I think this is in line with previous guidance over 2023 and 2024. We are working extremely hard to accelerate that. The vast majority of this working capital isn't disputed. It's to do with reaching the invoicing milestones.
You, you asked about the journey, sort of migrating it from work in progress into receivables and then into cash. In addition to that, of course, there are some elements which require agreement with clients where they're to do with final settlements on this mature portfolio we've talked so much about. So we're engaged with those clients to accelerate those discussions and get to conclusion and bring that resolution and visibility. Think we've also guided that we're taking a pragmatic approach in relation to those resolutions. In other words, trading some potential value for the acceleration of the unwinding of the working capital. I think in our guidance to, about the cash flow for the year, we've made reference to that.
We don't want to be overly optimistic, so but also we want to be transparent about the potential for some upside there if we bring in those accelerated reductions in the net balances.
Thank you very much. Maybe secondly, if we can discuss the cost overruns within E&C and in particular, obviously the Thai Oil Clean Fuels contract. I think $160 million of overruns in total with $48 million in the 2021 period. Just looking at the project completion stage and I think you talked about this a little bit earlier on the call. Now 78% complete and 2 years left in terms of the forecast completion. Just eager to understand whether these cost adjustments that you've announced are likely to substantially reduce the risks on the remaining processes, or whether there could be further project difficulties in that contract that mean there could be some further cost issues.
Yes. Look, it is absolutely a uniquely complex contract and I think Tarek spent some time just now in the video, and I hope you were all able to see it because we had some difficulties watching at our end, but hopefully you didn't. Spend a little bit of time explaining some of the characteristics of that contract and he's going out there quite shortly and I'm sure he'll have some views on that. In terms of the history and the costs we've recognized, I think it's a combination of both increased costs and some pre-investment in trying to protect the schedule of that contract for the benefit of our client.
At the same time, we've also taken a relatively prudent view on how much of those costs we're likely to recover from client. We are in those discussions, but they've not matured to a level where we felt it was appropriate to take a recognition of that incremental revenue. Which is to say that there is some potential upside from as we reach the agreement with the client, some potential upside to the recovery of past costs and as well as future acceleration costs. If you in terms of risks, it is a bit more balanced at the moment because it is a lump sum contract. We cannot pretend that there aren't risks in every lump sum contract. It is the inherent nature of them.
You'll never hear us say that there are no risks. Those risks are also balanced at the moment because of our prudent recognition by some potential upsides. Never say never, but we do feel that the risk profile of that contract is now relatively balanced. The final thing, of course, is there is nothing we know that we haven't made public. You know, your state of knowledge is aligned to ours at this point.
Maybe I can just add a couple of comments. Thai Oil obviously is a, will be a priority of mine going forward. I've, you know, I've only been in the seat for a few weeks. I've already engaged with the joint venture partners and I plan to visit the site pretty soon. This is a big project. It's complex, three-way joint venture. It ticks all the difficult boxes. The team has made good progress. We did get to some settlement last year with the owner. We are working to reengage with the owner, with the client, over the coming few months to address the acceleration costs and what is required to complete the job.
This is a high priority on my agenda as well.
Thank you both. Again, also the color earlier on it, very much appreciated. Just finally then, I guess new energies, I think 24% or close to $10 billion of your E&C pipeline through June 2024. There was some comment on it in the call, but interested in the makeup of those orders, whether you're able to elaborate on whether there are regional concentrations, how to think about the broader decision-making process of customers in new energy markets relative to the state oil majors, for example, in your core business. Thank you.
Maybe I can take that question. Yeah, I mean, new energies is a big focus of ours. It's a growth area. As we announced last week, we signed the TenneT contract. That's the offshore wind contract. That makes a big portion of our new energies backlog, as well as, you know, our revenues over the next two years. I mean, this is the largest. The project, the contract we signed is the largest framework agreement ever signed by Petrofac. These are six different platforms that will be released over six months period. We're really excited about that. We have a fantastic relationship with Hitachi. That's not the only thing we're doing in new energies.
I mean, we are engaged with clients on waste-to-value projects. We have a lot of studies and feeds going on there, carbon capture, hydrogen and other spaces. Earlier this week, we announced a partnership with OCI on their green methanol program. As we work with these clients towards FID, I expect these will become projects in the next 2 to 3 years going forward. We're well-positioned. We are strengthening our team there and picking up a number of quite a bit of work in that space.
Thank you both. Most appreciated.
Thank you. We'll move on to our next question from James Thompson at JP Morgan. Please go ahead.
Okay, thank you very much. Morning. Morning, chaps. Just a couple of questions for you. Firstly, in terms of the TenneT award, I'm interested to see that only 25% or so of the award is lump sum. I mean, I think that's a pretty major de-risking for the project. Does that format of sort of 25% lump sum continue through the life of each of these six projects? Does it sort of change as you kind of get more experience just to try and understand the risk profile of the overall frame agreement?
Thank you, James. You're right that the TenneT framework agreement and the individual platform contracts underneath it for each of the projects are not a sort of full lump sum turnkey type contract. The philosophy, if you like, behind it, was to portion risk to some extent of the people best able to manage it. Because these are extremely long contracts, both in execution and actually with, you know, if you think about the six-platform program, that the last one of those won't be awarded for another 2 and a half years or so. You're talking about a program that will take the best part of a decade to deliver.
The approach has been that we, as a contractor, should take the risk of the things that we can control, so our own engineering costs and so on, and the quantities that we estimate for certain activities, but that certain exogenous risks like commodity prices and so on, we retained by the client. Then there would be a third category of risks, which is a combination of sort of price and quantity risk, where we as a contractor have an ability to control the quantities, and so we take the quantity risk, but the client would take the price risk associated with that. For example, fabrication man-hours and that sort of thing. That has been the principle behind it.
It does apply, as you say, across the entire framework agreement for each of the platform contracts.
Okay. The frame you announced or you, sorry, you described there is how we should think about it for Petrofac and not Petrofac and Hitachi. You know, you will be sort of 25% lump sum in your specific parts of the delivery. Is that right?
Correct. We've not made any comments around the part of the contract that is being executed by Hitachi. It would not be appropriate for us to do so.
Okay. That's right. That's right. I'll just been thinking about the, you know, the bids that have been submitted and obviously the preferred bidder bids that have been around for some time now. You could talk a little bit about your discussions there and confidence or otherwise in actually getting some of these over the line in the relatively near term? It's obviously been quite a long process up to this point.
Maybe I can make a comment there. I've talked or visited the all our major clients over the last couple of months, including the clients on the projects where we are preferred bidder status. We are still preferred. I can confirm we're still preferred bidder on all those projects. Based on my recent discussions and the team's discussions on there, I think we have a high degree of confidence that these will be converted towards this year. We are our teams are engaged with those clients, and we expect those projects, those awards to convert and those projects to work towards in the near term.
Okay, thanks. Maybe final one for me. Obviously, you've extended the banking facilities quite recently, but it's, you know, it's only a 12-month extension. I guess you're gonna start thinking about it again in the not too distant future. I mean, just with that in mind, I mean, maybe you could talk a little bit about how you're sort of thinking about or how ideally you'd like to sort of finance the business going forwards and, you know, the building blocks there in terms of cash receipts and how that can help you to sort of get a longer tenor in, into some of those facilities. That'd be helpful. Thanks.
I'm very happy to do that, James, and thank you. It'd be maybe an opportunity to clarify, or maybe reiterate what we've said. This business is, essentially a capital light business, and we've made an active decision to return to capital light model. We have divested primarily, you know, most of the assets, in fact, of the IES, the old capital intensive principal investments business that we created 10 years ago. We're left with just the one asset there. We have, therefore, the stated ambition of returning to a net cash position in the relatively, near term.
A lot of that, as you can see, if you just compare our net debt with our working capital position, you can see that primarily it's funding our working capital position. As we unwind that working capital, you should therefore see the deleveraging trajectory reaching its net cash objective and a reduced reliance on bank debt. There's always going to be some funding required. We carry some cash from balance sheet, which we need to fund. The natural place for us to fund ourselves is in the capital markets.
The reason for that is, and this is part of why we're trying to reduce the reliance and amortize and pay down the bank debt, is as we grow the backlog going forward, particularly in the Middle East, we're going to rely very heavily on the bank's balance sheets to provide the guarantees, the performance guarantees, the advanced payment guarantees, the bid bonds, the retention guarantees and so on, that are required, that are sort of the oxygen of the contracting industry. Because we rely on those banks' balance sheets for that provision, we want to not rely on the banks' balance sheets for funding, which then dovetails with what you're seeing, which is a gradual reduction in exit from the banking market as a source of funds.
Thanks very much, Walter. I'll pop it over there. Great.
Thank you. We'll now move on to our next question from Mark Wilson at Jefferies. Please go ahead.
Hi, good morning. Thank you for the questions. The first one is, can we just clarify the difference in the EBIT result, the $205 today versus what you guided as a $150, $170 result just last month? Thank you.
Yes. Mark, I appreciate we have not made life easy for you, so my apologies. It is a relatively straightforward answer. When there's been no change to the position that we announced two weeks ago, in other words, the position of the group as at the end of December 2022 is as we guided. What has changed is when we made the announcement, we thought it was appropriate to tell the market that we had a prior year adjustment. Necessarily, what we went out with was the very much a draft figure, and we guided to $90 million of a prior adjustment. In fact, when the audit work was completed, that figure reduced to $48 million.
What you're seeing is that delta that we had thought was going to be allocated to 21 was in fact retained in 22, and that accounts for the difference in the headline number. What we guided about the incremental costs of $150-$160 hitting the bottom line have very much come in at the top end, admittedly, but within that figure.
Got it. Okay. Thank you. Understood. Second point. I, you know, clearly a lot of focus on this Thai Oil Clean Fuels project, and thank you for the clarity and discussions. I will say it says 78% complete. That sounds like by value, I thought the commentary suggested that a lot of construction on site has really yet to begin. You spoke about modules coming in, and supply from India and China. Is that a fair reflection on where the physical progress over the next 2 years is? If a lot of construction on site still to go.
There is a lot of construction on site still to go. The modules, the last of the modules have been shipped now. There has been a huge amount of progress in fabricating, testing and shipping those modules from their points of origin. The amount of work at site mustn't be underestimated because each of those modules needs to be brought in, transported, installed, linked, commissioned and so on and so forth. The 78% completion is that's the value of work done. That's indeed the accounting result. It reflects partly also the fact that a lot of the value in procurement and so on has already been extended.
Those 2 figures, I appreciate may not look obvious, in comparison, but they do reflect accurately the value of work done to date, but also still with a very significant amount of work to do in construction at site over the next 2 years.
Just to clarify on construction. The construction is in full force. I mean, even though the modules are, have been delivered in a sequence, so the last module's been delivered, you know, we have a significant workforce on site, that's been on site for a while. Putting these, installing the modules and hooking them up and working on the rest of the plant. The construction is in full force. We have awarded all the subcontracts and working with our joint venture partners, work through all that and bring this to completion.
Okay.
There is a significant amount of construction already executed.
Already executed. Okay. Thank you. The last one for me is on the market outlook. You spoke to still being preferred bidder on all the projects that have been spoken before. Can we just confirm that's $1.5 billion of work you're preferred bidder on? Regarding the markets out there, speak to two specific geographies, if I may, Gary. Could I ask where you feel you stand in terms of that bidding pipeline in Abu Dhabi, and also could you give a comment on where you think you are in Saudi Arabia and a possible return to work there?
On your first question regarding the preferred bidder status, I think I can confirm that. We are still preferred bidder on those contracts. The value is roughly what you mentioned, one and a half billion. In terms of the other activities in E&C and bidding, I mean, obviously we are back bidding in Abu Dhabi for ADNOC. We have a number of live tenders, bids that have already gone in, the proposals we're working on. ADNOC has recently been slow over the last couple of years in taking projects to FID. We see that accelerating in 2023 and 2024.
We're, I think we're well positioned to pick up our fair share of work in Abu Dhabi. On Saudi Arabia, I mean, Saudi, I mean, just to give you a bit of background, I've worked personally a lot in Saudi Arabia. I've, my previous company, we had a large amount of work for Saudi Aramco. I still have a residence permit there. I did visit Saudi Arabia early on when I joined Petrofac, I've already engaged with the stakeholders there. Dialogue has begun and I'm confident we'll move into the right direction. At this point it's early days and I don't want to give any details on timelines.
This is a priority for me and be working through this in 2023.
Excellent. Thank you very much. I'll hand it over.
Thank you.
Thank you. We'll take our next question from Kevin Roger at Kepler Cheuvreux. Your line is open. Please go ahead.
Yes. Good morning. Thanks for taking the question. I would ask two if I may, please. The first one is maybe to get a bit more details on your current feeling regarding your equity position. You have currently something like $100 million of equity. You have one of your peers that recently decided to initiate a capital increase operation because they said that they needed to reassure clients in the way they bid the contract to be able to face the upcoming wave of investment. I was wondering if you can give us a bit of sense of how you think about your current equity position. And the second question is coming back on the offshore wind project that you secured and will secure.
I was wondering if you can provide us a bit more color on how we should think about the marginality, the margin that you expect to generate. Would it be fair to assume that because you have quite a good proportion of the contract on the reimbursable basis, we could assume that the margin could even be bigger as you are doing the engineering, scheduling, et cetera, or if there is something on the downside? Thanks.
On the equity. First of all, there are no plans to raise equity. Obviously, I'll have to caveat by saying the board reserves the right to keep all options on the table. That sort of the standard disclaimer that you would expect. There are no plans. Our clients completely understand the state the industry is in. I think you've pointed to one of our competitors raising equity recently. They're not the only ones, including ourselves. We did that already at the end of 2021. The reality is that clients are very focused on our delivery capability. They want to know that we will continue to deliver for them in the new awards as we have done in the past.
Remembering that a lot of our clients are repeat clients that have been with us, in many cases for decades. The, as long as our capability is maintained and it is, I think that's really what they're focused on. Again, remember that, you talked about investment, in the upcoming contracts. Yes, we've seen a wall of projects, if you like, a large investment overhang from the underinvestment historically in the industry over the last few years, but that's by our clients. These contracts will not require capital commitments from Petrofac as a service provider. We will retain our capital light business.
At its simplest, the clients will pay for their own contracts rather than us. We don't anticipate funding requirements and therefore that we feel our balance sheet position will be fine. On the offshore wind contracts that you mentioned, obviously I'm not gonna get into details of exactly the margins, but I would say that they are both adequate for the risks that we are covering and in absolutely in line with our ambition that over the medium term, we are going to return to sector-leading margins across our portfolio.
Okay. Understand. Thanks for the time.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. Thank you. We'll now take our next question. From Areti at Boundary Creek Advisors. Please go ahead.
Yeah. Hi. I was wondering, given the focus on liquidity for both debt and equity investors, and we are already at the end of April, which is a little bit later than you guys report, if you could provide a liquidity update, maybe cash and available amounts to draw under the lines for the end of March. That's my first question.
Yeah. I think what we have said, Areti, is that we've maintained the position that we had broadly at the end of December throughout the first quarter of 2023. Liquidity is clearly now dependent on a relatively small number of large collections as you'll understand. We have confident that we will collect those advances. I've talked about that before. Sorry, not advances, those amounts. I've talked about that before when referring to the working capital. I think liquidity you'll never hear a CFO saying they've got enough liquidity, right? Of course more would be better, but we're confident that that will resolve itself as we clear up the historical portfolio and collect the working capital.
Okay. On the new RCF, could you possibly give us an idea on the amortization schedule, just so that we can update models and have an idea on what the, you know, how the cash flow develops, what the cash needs will be during the different points of the...
Sure.
of the year?
Broadly, the concept of the amortizing facility was already baked into the previous version of facility, which had it within that also, if you recall, the extension options built in, which we then exercised and discussed with the banks to have the 12 months extension. In fact, as I think, the slight change is that when we talked in December, I said we were going to extend one of our bilaterals and the RCF. In fact, we extended both of the bilaterals and the RCF, which gave us a little bit more headroom also to reduce the overall amounts because the second bilateral was also extended.
In broad terms, you should think that approximately half will be amortized over the next 12 months, the balance will be repaid at the end of October 2024.
Okay. Okay, that's helpful. Again, I mean, I know it's very, very hard in terms of giving timings for the working capital unwind. You mentioned 2023 and 2024. I guess I have two questions for that. One is, we are talking about just the legacy working capital as we see it at the moment when you refer to that unwind. Any chance you could give us some kind of split, like is it 50/50? Is it like 30/70? I, you know, I have no idea what, you know, how to think about that in terms, again, of thinking about the liquidity.
The second part of the working capital question would be on the potential prepayment coming in from, you know, the contracts with TenneT that have already been announced, and I guess there's gonna be the second quarter being announced at some point in the second half of the year. When do those start kicking in? Yeah, and again, You don't have to give me the month and date, obviously. I'm just looking for some rough guidance for us to have some idea when to expect some of those to start showing up.
I may disappoint you in the specificity of my answer, but I'll give it a try. First of all, you're absolutely right to talk about advances. When we talk about the working capital position, and particularly in E&C, we're always talking about the net working capital position. In other words, the, you know, how we balance the assets and working capital assets and liabilities. When I said that historically E&C had run, I didn't actually say it, but it's true, had run either a nil or negative working capital, i.e. a working capital position in our favor, which is true historically up to the pandemic with, you know, a few exceptions every now and then, but generally true.
That is a balance, as I said, between the assets and liabilities, including within that, contract advances. When we're saying reducing the working capital to a net zero position or a net neutral position, we're talking about balancing both sides of that. Absolutely, working capital, new contract advances are part of that. Of course, new contract advances are not permanent, right? They come in, and then we spend them in execution. But there tends to be a positive balance. In terms of giving you guidance on the timing of the unwind, we're confident about the endpoint by the end of 2024, which next 18 months or so.
We're working very hard to bring that forward, but you'll forgive me if I'm not gonna try and make a prediction because it requires agreement and discussion with clients. It's difficult for us to put a specific timeline around it.
Okay. That's helpful. I'll go back in the queue. Thank you.
Thank you. We'll move on to our next question from Guillaume Dubrulle at Societe Generale. Please go ahead.
Yes. Good morning. Good morning, Tareq, and welcome on board. Thank you maybe for adopting a very low profile tone, which is something which is always appreciated by the investment community. I would like to stretch you a little bit more on the question on cash collection, rights issue and possibly... Basically, you expect some cash collections. You expect to return to net cash in not so a distant future. You do not think at all about a rights issue. If I put those three moving parts together, it means that you are extremely confident in your ability to get this cash and basically to return in a net cash position very soon. When I say very soon, maybe by 1H 2023 results. I know you're not going to commit yourself, but I try.
Just would like to have maybe some more color with those three moving parts, net cash collection, no rights issue. If there is no rights issue, it means that you are really confident. Am I correct?
Nice try, Guillaume.
Let me just say, I mean, just say a few words. I'm not gonna answer all the questions you ask. I would say that, you know, part of my focus as the incoming CEO is really to what Afonso said, is to, you know, deliver the quality, the backlog. We have a number of projects where we're preferred bidder status. There's new bids that are ongoing. All this will, you know, once one of these projects are awarded, will improve our liquidity. There's a big focus on unlocking the working capital.
We are working with our clients closely, and I'm spending quite a bit of time with our clients on not only on new business, but also on sorting out legacy issues, which would unlock some of this working capital. It's a big focus of mine going forward. Alfonso, you wanna add anything to that or?
I'm just going to sort of refer back to remind you, Guillaume, of the guidance we've given. We've said broadly flat free cash flow for the year with some potential upside from working capital. I think you need to also recognize as we've got a relatively small CapEx commitment. We've got significant outflow in tax payments, and we've got quite a high interest burden currently. We do have, you know, wind pushing us in both directions. We've got some positive tailwinds from the awards and potential unwinding working capital. We still have a drag anchor of quite a lot of commitments.
I'm not gonna deviate from the guidance that we've carefully given of broadly flat cash flow of 2023 with potential for some upside. In terms of, you know, trying to, you know, your qualifiers of extremely confident in terms of, well, I'll simply say, yes, we are confident that we're gonna resolve the working capital. We are confident we will collect it. We're confident we're having the resolutions with our clients. The rights issues, again, I'm afraid I have to refer you to the answer I gave earlier, which is the, you know, the board reserves the right to consider every option at any time, but we're not currently have any plans to have a rights issue.
Okay. Thank you for the color.
Thank you. We'll now move on to our next question from Dmitry at Jefferies. Your line is open. Please go ahead.
Yeah. Morning, morning, everyone. Thank you for the presentation. Appreciate the color. I have like three quick questions on kind of recent credit debt management. I think, like, if I read your statements correctly, there was a transfer of some of their debt to another lender. Is it possible just to give us a bit more color, who is like new lender, and I think like, the company had to pay some fees?
On the transfer of the debt. What was the nature and who is their current, like, lender under these facilities? Is it, like, a commercial bank, hedge funds and et cetera? Maybe sub-question here, were there any changes to the terms of the loans? Like, maybe different interest rate or different equity options? Maybe I'll stop here, this, the first question.
Yeah. I'm afraid I don't know what you're referring to. Our negotiations have been with the same banks that were there before. They're the banks that have extended their long-term relationship banks to Petrofac, and I'm not sure what this you're referring to. Yes, yes, the cost of debt has gone up as you'd expect in a renegotiation given the general environment. The terms and conditions were updated, but, you know, they were not materially different to what we had before.
Understood. Thank you very much. As you mentioned there is like amortization schedule, right? Both on RCF and term loans. Half of their principal will be amortized this year and the remainder at the maturity October 2024. Just wanted to double check that your free cash flow neutral kind of guidance, like the preliminary guidance includes this, like, amortization schedule. Just to double check.
First of all, just to clarify, what I said is about half of it would amortize in the next 12 months, not during the course of this year. Then the second point is that the free cash flow doesn't include movements in debt. It's free cash flow not including into that the total repayments of debt.
It's a pre-pre-pre-amortization, like, free cash flows. Okay, understood. The last question. Sorry, my apologies for, I was crazy with the questions. There are, like, two components to test, like, first liquidity and the second EBITDA test, like, which should be tested on a quarterly basis. I guess, like, given, like, the first quarter has passed, like, will you give us a good color, like, kind of is there, like, is this test, like, gonna be in compliance so this EBITDA absolute EBITDA test, like? Any kind of color on this EBITDA test will be helpful. Thank you.
Yeah. Look, the EBITDA levels for the test was set by reference to our projections, which, of course, the banks get to see because they're insiders, unlike, obviously, the people on this call. They were by definition set at levels that we expect to meet.
Okay. Thank you very much for the color. Much appreciated. Thank you.
Thank you. We'll now take our last question from Daniel Thomson at BNP Paribas Exane. Please come ahead.
Hi. Good morning. Just one question from me around the bidding pipeline. I noticed that, you know, in December we were speaking about $33 billion scheduled for awards in E&C in 2023, and I think the figure has changed to $23 billion for this year. Obviously part of that is the TenneT award. I just wondered if the delta there relates to slippage into 2024 or if there's been any removal of that E&C pipeline. Yeah, just any color you could provide on that, please. Thank you.
Look, I think, I'm desperately scrambling to.
Yeah. Maybe just I'll just make a general comment. I mean, the bidding pipeline is live. I mean, It's a live document. Projects accelerate from 2024 to 2023. Some projects move from 2023 to 2024. There's constant movement. In general, the projects that we identified that we were pursuing back or mentioned back in December, we're still pursuing them. The pipeline of opportunities still remains robust and the markets are still strong. As I said, as we said earlier, we are bidding in a number of geographies. Some, including the current projects have come our way and have been awarded.
There are new prospects that's come up and we're pursuing as well.
Are there specific numbers we can refer to?
Yeah. I think rather than trying to sort of update numbers on the fly, I think the comments are absolutely right. We're a third of the way into the year, approximately. Clearly some awards have happened and we haven't won it. Clearly some awards have happened and we've won it. There's been a bit of a churn within the pipeline of things that have either been brought forward or pushed back in the normal course. In broad terms, we're continuing to bid very heavily in our core and core geographies, including particularly the UAE, the MENA region, as well as of course the wind in Europe.
Okay, understood. Yeah, I mean, I was just trying to confirm if maybe recent market conditions had changed the pace at which some of your clients are trying to move things forward. It looks like it's unchanged.
No, it's unchanged. As we said in the, in the prepared remarks earlier, I mean, in the three, in our three businesses, the Asset Solutions, New Energies and E&C, we still see a robust market and we are actually extremely busy in bidding for clients in all those three areas.
Yes. Thank you.
Thank you. There are no further questions in queue. I will now hand it back to your host for closing remarks. Thank you.
Thank you all very much for joining the call, and thank you for listening to us on the full year 2022 results.
Thank you very much.