Wood Group in US talks on possible £1.2bn well services arm sale

Published on Wednesday 2 February 2011 20:22

ENERGY services firm Wood Group is in talks with a number of US-based companies to sell a third of its business in a deal to raise as much as £1.2 billion.

The Aberdeen-based company issued a statement to the stock exchange yesterday confirming the sale negotiations in response to speculation from New York on Wednesday. It is thought the company would use the proceeds to help pay down debt from a recent acquisition.

Wood said it was "evaluating the possible sale of the well support division" but added "these discussions may or may not lead to a transaction".

It is understood the group was looking at first-round bids tabled on Wednesday. Analysts said possible bidders - all from the US - could include General Electric (GE), Halliburton, Weatherford International, FMC Technologies and Cameron International, the firm that supplied the blow out preventer to BP's disaster-hit Macondo well in the Gulf of Mexico.

Analysts said the deal represented a "logical streamlining of the business" following its 600 million acquisition of oilfield services group PSN.

They expect the business to sell for between $1bn (620m) and more than $2bn.

Keith Morris, at Evolution Securities, said the deal would allow Wood Group to slash its debt which means it will not have to go cap in hand to raise extra funds from shareholders.

He said: "The timing would be good and the proceeds would eliminate the debt incurred in the PSN acquisition - removing the need for a potential rights issue - a risk we highlighted."

Wood Group has denied it would resort to a rights issue to fund the deal.

But other analysts cast doubt on the firm's timing. "Selling the fastest growing, higher margin business of its portfolio at this stage of this cycle - strongly levered to crude and rig count - might not be pleading in favour of a multiple expansion," said Royal Bank of Canada analyst Todd Scholl.

Well services, one of three divisions in Wood Group, helps energy companies improve production rates and recovery from oil and gas wells.

The division accounted for 37 per cent of Wood's 2009 revenue.

Well services' performance recovered in the first half of last year following a 19 per cent decline in sales in 2009. Interim revenues for the division rose 11 per cent to $450m on the same period the previous year. The division employs 3,700 worldwide.

Evolution said the "jewel in the crown" of well services was the electric submersible pumps (ESP) business, which has a market leading position in the US and is number three in the world.

The oilfield services sector in the US has been a hotbed of transactions in the last year, including acquisitions made by GE, the US's largest conglomerate, which bought British oil pipe maker Wellstream Holdings for $1.3bn in December.

Shares in Wood Group rose 2.1 per cent to 579.5p.