'Challenging' market and spending slump cuts profits at Wood Group

Published on Tuesday 2 March 2010 20:22

OIL services firm John Wood Group yesterday blamed the "increasingly challenging" Venezuelan market and a 15 per cent global reduction in exploration and production spending for a 31 per cent drop in annual profits.

Pre-tax profits fell to $264.8 million (177m) after a $35.8m exceptional charge relating to the disposal of its interest in Venezuelan engineering firm, Vepica, plus impairment and restructuring charges in its other Venezuelan businesses.

The firm also changed the way it values its Venezuelan assets to reflect a more "prudent" position on its balance sheet. Revenue was also down, falling 6 per cent to $4.93 billion.

Although its production services business – which accounts for 56 per cent of Wood Group's total activities – held up well in 2009, its exploration and development-related operations suffered against a contraction in spending by oil and gas companies.

Allister Langlands, chief executive of Wood Group, said prospects for this year were better with investment by global oil and gas giants tipped to grow by 5-10 per cent.

"We saw the sharpest falls in the US gas markets last year but that's likely to be the area of most significant increase this year," Langlands told The Scotsman.

But he warned that the group's development-related engineering businesses were likely to experience further pressures in the first half of the current financial year before recovering in the final six months.

Analysts have recently raised concerns about the long-term impact of Wood Group's underdeveloped exposure to state-owned oil companies, which now control around 90 per cent of the world's oil reserves.

Langlands said it was a key part of the company's strategy to improve relations with national oil companies (NOCs) and he pinpointed Brazil, the Middle East, West Africa and Asia Pacific as areas where Wood Group is seeking to expand its capabilities.

The firm last year spent $200m on acquisitions and expansion. and Langlands said he expected to spend "at least a similar sum" this year, including on improving its exposure to NOCs.

"It's a key part of our strategy," he said.

The Aberdeen-based business said it enjoyed a "particularly strong" year in the North Sea" where it is regarded as the market leader. According to Oil and Gas UK, investment in the North Sea by global energy companies is expected to reach at least a three year high in 2010, at over 5bn.

The markets reacted positively to the results yesterday and Wood Groups shares rose 6.1p, or 1.68 per cent, to 369.8p.

The firm announced a second interim dividend of 6.9 cents, making a full year dividend of 10.0 cents, up 11 per cent on 2008's pay-out.