What's Next for Petrofac Limited?

LONDON -- In September 2011 I wrote an article on oil services company Petrofac  (LSE: PFC  ) . The article highlighted the fact that this largely unknown company was one of the fastest growing resources companies in the U.K. In a decade, it had expanded from a company of less than a thousand people to one with over 14,000 employees.

This is a company that few people had heard of, which had emerged from nowhere. But the crucial question is: Will the company keep growing? Surely, at some point, the growth will come to an end? The share price has already increased fourfold since the depths of the credit crunch; even the biggest trees don't grow to the sky. The answer to this question will determine whether the share price will continue to rise.

Business is booming
Well, Petrofac is expanding both geographically and in the services it offers. Its beginnings were in the Middle East, but it now has operations across the Americas, Europe, the former Soviet Union, Asia Pacific, Africa, and India.

The company's core business in engineering, construction, operations and maintenance continues to do well, with new projects in Saudia Arabia, Malaysia, and the North Sea. But the company has particularly been investing in the rapidly growing integrated energy services division, whose high-risk, high-return projects could be the source of much of Petrofac's future growth.

Overall, business is booming: the firm now has over $11 billion of orders on its order book, and has a net cash position, giving it considerable scope for future investment.

Petrofac's expertise is in demand
Petrofac has also struck a deal with Schlumberger, which it sees as a way of pooling their resources and pitching to the oil majors who require the technical expertise of these companies, as the world's remaining oil reserves get harder and harder to access and exploit.

What's more, an increasing proportion of the world's oil reserves are now held by national oil companies rather than independents like BP or Shell, and these companies really could use the expertise of businesses such as Petrofac.

For all these reasons, Petrofac has been growing and, I believe, will continue to grow in the medium term. It is on track to meet its growth targets.

Foolish bottom line
Since my article, the share price has increased by over 20%, and it is now on a forward price-to-earnings ratio of 14. Are there any reasons to be bearish? Well, the oil price could tumble, or contracts could dry up. But, with emerging markets recovering, I expect this to put a floor on the oil price, and to ensure there is demand for oil services. And Petrofac has some way to go before it reaches the size of, say, a Schlumberger, which has 10 times the market cap and is not far off the scale of BP.

Although it is not the screaming buy it was in 2011, Petrofac is still not expensive for a company which is growing -- I think this is one for the watch list. I would consider any fall in the share price a possible buying opportunity.

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