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Does the Petrofac number two’s sell-off suggest that oil is due a slip?

by Simon Keane

The decision by Maroun Semaan to dispose of three million shares in oil services company Petrofac was never going to go unnoticed. Semaan joined Petrofac in the early 1990s at the same time as group chief executive Ayman Asfari and, after Asfari, is the second largest shareholder.

As chief executive of Petrofac Engineering & Construction division – which is the company’s largest source of revenue – Semaan is seen in the City as the company’s unofficial ‘number two’ and a more significant player than chief financial officer Keith Roberts. The official announcement for the disposal gives no reason for the sale and Semaan did not return Shares’ call.

With oil at more than $100 a barrel and stocks in the oil services sector enjoying a strong run, was Semaan’s disposal a sell signal for others too? This was perhaps a fair line of questioning going through the minds of Petrofac’s investors, who up until now have done very well from the FTSE 250 company’s gravity-defying ascent.

But analysts remain unfazed. They point to a significant residual holding – Semaan continues to own 30.1 million shares or 8.7% of the company, with the disposal representing about 10% of the pre-sale holding. It is also noteworthy that a hefty sale by Roberts last year did not precede a share price fall, in fact quite the opposite.

A noble Semaan

Semaan, who is based in the Sharjah, United Arab Emirates, joined Petrofac in 1991 from Middle East construction company Consolidated Contractors International (CCC). Apart from the link to CCC, and the fact that Semaan is a trustee of the American University in Sharjah, the company’s website gives away very little about the man.

What can be gleaned from Petrofac’s admission document ahead of its admission to the London Stock Exchange (LSE), is that Semaan, along with Asfari, has been central to Petrofac’s refocusing from what was a small-time engineer company based in Texas, America, to becoming a major main board FTSE 250 oil service company.

The pair were recruited in 1991 to open Petrofac’s office in Sharjah, from where they masterminded an expansion of international operations penetrating new markets in the Middle East, North Africa and Former Soviet Union (FSU). At the time of the company’s floatation in October 2005, Semaan held 37.5 million shares, which represented 10.9% of the company. Meanwhile, Asfari, by far the biggest shareholder, had 76.2 million shares or 22.1% of the business.

So, how should investors interpret last week’s disposal of three million shares, held via the Nola Trust of which Semaan and his ‘close’ family are beneficiaries? Peter Hitchens, analyst at independent broker Seymour Pierce, does not believe the move is a sell signal for other investors.

‘This [Semaan’s disposal) was only 10% of his holding,’ comments Hitchens. ‘The shares had a good run and he is just looking to take profit. The underlying business is still going along very well.’ Meanwhile, Ben Snow, analyst at Arden Partners, points to a big sale by Keith Roberts in September as having had no impact on the company’s share price. Roberts sold one million shares at 468p (current holding 2.1 million, or 0.6% of the company) since which the stock has continued its strong run up to 614p. Indeed, today’s price is up around 9% from the 565 pence at which Semaan offloaded his lot on 8 April.

Predicting the turn

With weekend press reports of a possible second private equity approach from Kohlberg Kravis Roberts for Expro International, it seems the oil service sector remains hot property. Recently we saw Abbot Group and Sondex fall into the hands of bidders and Expro – which is also said to have received an approach from French oil services business Technip – is not expected to be the closing shot.

While he does not expect a bid for Petrofac, Hitchens believes there are further earnings upgrades on the way. Without doubt the recent news flow has been good mainly thanks to Semaan’s division, which at the half-year point was the group’s largest source of sales. Only the week before Semaan’s share dump, Petrofac revealed it had won a $477 million contract to construct a new gas treatment plant in Syria.

Snow believes predictions that the oil services sector cycle is about to turn are premature: ‘People have been saying this for some time, but I don’t believe the cycle is turning. If you look at oil prices at $113 a barrel, Goldman Sachs is saying they could reach $170 or so.’