Contract loss and delays hit Wood Group’s new combination

LOSING two big contracts and problems with projects in the Middle East and South America have dented the performance of the newly-combined Wood Group PSN oil services outfit.

Aberdeen-based Wood Group, which bought Production Services Network (PSN) in January for £600 million, yesterday warned it will lose money on a contract in Colombia and that the start of a major deal in Oman was still being delayed.

The new division, which is led by former PSN chief executive Bob Kellier, was also dealt a blow when it lost two “production facilities contracts”.

Yet, in a pre-close update ahead of its full-year results in March, Wood Group said the integration of PSN was “progressing well” and that demand remained strong in the North Sea.

After the second-half performance was “below expectations”, the group has since taken steps to improve the situation in Colombia and Oman in 2012.

The wider group reported good performances from its engineering and gas turbine services (GTS) divisions.

The company said: “Overall, performance for 2011 is anticipated to be in line with expectations, with engineering and GTS ahead of expectations and Wood Group PSN behind expectations.

“We anticipate good growth in all divisions in 2012 and remain confident in the longer-term fundamentals for oil and gas and gas-fired power generation and the prospects for the group.”

The GTS division yesterday won a contract with Associated Electric Co-operative covering a power plant in Arkansas. Keith Morris, an analyst at Evolution Securities, noted that, in Oman, there is a “mismatch between people on the ground and activity”.

Numis Securities analyst Sanjeev Bahl added that slower-than expected “manning up” for the Oman project – partly due to the “Arab spring” – led to Wood Group missing some contractual milestones.

Wood Group said the Oman project will be loss-making in its 2011 and 2012 financial years but will be profitable over the seven-year length of the contract.

Numis put its full-year profit forecast – $431.9m (£278m), up from $411.1m last year – under review while it calculates the affects of the loss-making contracts and also higher margins in the engineering business.

Evolution’s Morris added: “Although performance is in line with expectations and the 2012 rating is not expensive, we see higher-margin growth potential elsewhere in the sector and we retain our ‘neutral’ rating.”

l Deo Petroleum, the Aberdeen-based oil explorer, yesterday unveiled a contract to hire a ship to use in the development of the Perth field in the North Sea.

The firm said talks with the UK government on the development of the field will continue until at least April, with the first oil from the site, partly owned by Faroe Petroleum, due in 2014. Deo also has a partnership with Tom Cross’s Parkmead Group.