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We are sure most of you will be familiar with the saying that there is 'more than one way to skin a cat'. Likewise there is more than one way to take part in the phenomenal growth story we have witnessed globally and specifically in the developing nations of Asia. A good case in point is the current resources bull market.

"Petrofac's growth over the years has coincided with the increasing inclination of oil and gas producers to outsource non-core activities such as those on offer from the support services industry."

This is a broad industry we identified sometime ago as ripe for an extended run and re-rating due to amongst other things the years of under investment that preceded the prodigious growth in emerging markets. Clearly the most straightforward way to benefit was to either invest in specific commodities or the miners and oil producers bringing the goods to market.

We have chosen predominantly the latter (to the general benefit of our Members) over the years. However, another avenue of success was with the support service providers to these industry constituents. Initially, this exposure came through the NYSE listed, closed end fund Petroleum & Resources Corporation (PEO) in December 2005 and more recently John Wood Group (WG) in June of this year.

Today, we are expanding our coverage in the sector with the introduction another servant to the oil and gas industry, Petrofac Limited (LSE, PFC).

Back in 1981, Petrofac began life in Texas as an engineering, procurement and fabrication (EPF) company. Although there was an international dimension to the business at that time, the addition of (now Chief Executive) Ayman Asfari in the early 1990's provided a boost, with the opening of a new office in Sharjah, UAE.

After a series of small acquisitions complimented by organic growth, the portfolio of services expanded dramatically, enabling Petrofac to provide a comprehensive service to clients throughout the oil and gas development life cycle. In fact, the company even participates in some projects to further align interests in an asset's development.

From these modest beginnings, Petrofac now employs over 9,500 people around the world. Four centres in Mumbai, India, Aberdeen, Woking and Sharjah form the backbone of operations with 16 additional offices scattered globally. (The US EPF business was sold in 2003.) Functionally, the group is divided into three principal divisions - Engineering & Construction (E&C), Operations Services (OS) and Energy Developments.

Petrofac's growth over the years has coincided with the increasing inclination of oil and gas producers to outsource non-core activities such as those on offer from the support services industry. Technically, things have moved on as well, and now companies such as Petrofac find themselves as stores of expertise that major independent and national oil companies are in need of.

This is a trend we expect to continue. As we have stated on numerous occasions, the remaining oil and gas reserves still accessible by listed oil companies tend to be more complex and require a higher degree of 'know how' to commercially exploit. In this environment, we expect Petrofac to excel.

However, we believe the company is also set to benefit from the national oil companies (NOCs). While the likes of many integrated oil companies have lamented the limits on their ability to access 'sovereign' deposits, Petrofac is having no such problem. In fact, two thirds of E&C's revenue though the first half of the year came from NOCs.

This jives well with the view that rather than surrender national resources to Western oil companies, NOCs can outsource the expertise, once a major calling card for inclusion in said projects, to the likes of Petrofac. Once again, we believe this trend will continue as the rise in energy nationalisation continues.

Finally, to head off a concern some Members may have over a new oil related recommendation during a period of rising prices. We are fully aware that the price of oil has risen markedly in the past several weeks (not to mention years).

Clearly this increase has been central to the improving performance that Petrofac has achieved in recent times. As prices rise, the search for, development of and refining into the products we use on a daily basis continues unabated. We believe this will be the case whether oil is trading at US$100 or US$60 per barrel. Oil companies will still be heavily involved in finding and producing oil and gas.

It is primarily this activity that Petrofac is a beneficiary of. Although we are under no illusion that oil services will fluctuate with the oil price, the more substantial driver will be oil company activity. And here we believe the industry will see no let up. The continued scarcity of resource ensures this situation in our view.

"As prices rise, the search for, development of and refining into the products we use on a daily basis continues unabated. We believe this will be the case whether oils is trading at US$100 or US$60 per barrel."

So with buoyant energy prices driving exploration and development spending by oil companies around the world, it comes as no surprise that Petrofac is performing well.

Interim results are evidence and our most recent guide. Through the first six months of the year, revenue was up a healthy 14 percent to US$1,057 million while earnings before interest, taxes, depreciation and amortisation (EBITDA) surged ahead 55 percent to US$137.3 million.

Solid performances were turned in across the three divisions, although due to the nature of lump-sum contracts and the stage of completion many are now in, E&C revenue was flat to last year. That said, margin improvements were wide spread and all segments recorded solid double and triple digit gains in earnings. A US$3.9 billion order backlog (2 times trailing twelve month revenue) will underpin near term turnover.

We have already alluded to the exposure Petrofac has to NOC expenditure, however another exciting segment is currently the group's smallest, Energy Developments. This is the division that leverages Petrofac's expertise and deepens relationships with oil companies by taking active participation in projects.

The start of operations at the Cendor field, offshore Malaysia, last year has resulted in a significant boost in activity. Revenue has nearly doubled and encouragingly, EBITDA margins have remained rock solid and high at 64.7 percent. We believe this demonstrates an advantage that Petrofac has in the market over other peers; the ability to take part to a limited degree in the buoyant energy market whilst still relying primarily on sector activity for baseline profitability.

Financially, Petrofac remains solid in large part due to the on-going operational success. At the end of June, the company had a net cash position (cash less short term loans) of US$391 million, an increase of US$50 million from last year. Gearing is a comfortable 24 percent, leaving ample financial leeway for acquisitions to further enhance growth prospects.

The importance of the sector and high quality performers such as Petrofac has not gone unnoticed and from a charting perspective, we are encouraged by the company's buoyant longer-term outlook. 

As evident on the daily chart, a strong upward trend has been in place since listing in October 2005. Over this two-year period, the share price has performed strongly, with the recent all time high of 537p approximately 150 percent higher than the issue price of 215p.

In the near term, we believe that any pause in the upward trend will prove to be short-lived with the June high of 498p providing initial support. Below here, an additional buttress lies in the region of 470p.

Given the exceptional growth opportunities available to Petrofac, we believe the shares currently trading on a 2008 prospective price earnings ratio of nearly 20 times, still offer compelling value. This is due to what are in our opinion are conservative consensus earnings estimates. Members will also receive a modest 1 percent dividend yield which should grow in time as evidenced by the doubling of the recent interim dividend.

In all, we are confident that higher oil price will be a feature of the next several years. As a result we believe the exploration and development of such resources will remain a priority for both public and government controlled oil companies around the world. With a solid presence established in such prolific oil basins as the UK continental shelf, the Middle East and the Commonwealth of Independent States as well as the emerging growth regions of Africa and the Asia Pacific, we believe the future for Petrofac is bright.

Management's view that 2008 is set for excellent growth reinforces this view. With underlying upward momentum remaining firm, we believe that Petrofac will soon extend the upward trend to new highs beyond 537p.

Accordingly, Fat Prophets recommend buying Petrofac around 500p.