Wood Group’s Woes Drag On as North Sea Work Slows
Wood Group has warned that 2017 is turning out to be another tough year for the oil services giant as market prices drag and North Sea work dwindles.
The Aberdeen-based group, which provides engineering services to the oil industry, has been hard-hit by the market downturn in recent years and said today that the pain will continue after a weaker than expected start to the year.
“We have seen continued challenges in our core oil and gas market with a modest recovery only in certain areas,” the company said.
The toll of the oil industry downturn was laid bare in Wood Group’s 2016 results earlier this year which showed that pre-tax profits had fallen by more than half to $66m (£52m).
Wood Group said the first half of the year has proved to be weaker than in 2016 but should give way to a stronger second half. The group is nonetheless cautious over its full year targets due to the slowdown in work and “tougher pricing environment”.
In particular the North Sea has seen a significant reduction in spending. The market gloom has overshadowed the increase in Wood’s North American activity which includes BP’s Mad Dog 2 project in the Gulf of Mexico and the modest improvement in the US onshore shale oil industry.
Earlier this month the oil price fell back to ten month lows triggering a raft of cuts to price forecasts which could signal further struggles ahead for the industry.
Wood Group’s share price has dropped by more than a quarter since January and fell a further 2.75pc to 642.50p as jitters over the company’s debt. Wood Group assured investors that it plans to stick to its progressive dividend policy but added that its debt ratio is inching towards the upper end of its preferred range of 0.5 to 1.5 times its earnings.
Wood Group’s financial woes underline the importance of planned takeover of service provider Amec Foster Wheeler, which has a broader range of clients in industries beyond the struggling oil sector.
The deal was voted through by an overwhelming majority of more than 99pc by both sets of shareholders, despite Amec’s heavy debts and implication in the Unaoil corruption scandal.
Robin Watson, the Wood Group boss, has said the deal will help diversify its services to establish the group as “one of the UK’s truly global businesses”.
Wood Group also hopes the £150m annual savings from the merger will help ease the pain.
“Our objective is to create a leader in project, engineering and technical services delivery across a broad range of industrial markets, predominantly focused on oil and gas,” the company said.
Wood Group expects the deal to close in the fourth quarter of this year, subject to competition approvals.
Source: www.telegraph.co.uk
