Wood bullish despite spending cut forecast

ALLISTER Langlands, the chief executive of Wood Group, yesterday insisted the company is well positioned to cope with an expected fall in investment in the oil and gas sector, as the oil services company finally admitted it expected customers would cut back spending next year.

Scotland's largest independent oil services company, shares in Wood Group hit record levels earlier this year on strong revenue growth and predictions that investment in the sector would continue to grow strongly.

But a collapse in the price of oil has seen shares tumble, and while previously the company has insisted customers invested on a long-term basis, it said yesterday that it was already seeing some projects being delayed.

"The global economic recession and significant fall in the oil price are resulting in a more uncertain and challenging outlook," Wood Group said.

"Indications are that there will be a reduction in spending by clients."

Langlands, who became chief executive at the start of 2007, said that, while the company would not be immune to a fall in investment, as it had the necessary facilities and positioning to allow it to remain strong through the downturn.

"I can read the same analysis and commentary of the industry as you, and people seem to be predicting that spending could fall by 10 or 15 per cent next year," he said.

"But as I look at Wood Group's individual businesses we don't think there would be that sort of impact on us."

Langlands said around 55 per cent of the group's business is tied to operational expenditure by clients – operating and maintaining existing projects – which is expected to be robust through the recession. The remainder related to capital expenditure on new projects, where overall demand is expected to fall.

Wood said that it had already seen some delay in the timing of projects, mainly at its gas turbine division where investment is often tied to the availability of project finance for customers, which had been hit by the credit crunch. Elsewhere, in particular in the North Sea, it had continued to win new contracts.

The board of Wood Group would "manage our cost base effectively" Langlands said, but the company had no plans to cut its head count.

"Our employment rises and falls based on the number of contracts we win, it always has, but in the UK for example, we've had some good contract wins so I would expect average employment in the North Sea to be higher in 09 than in 08."

Wood Group said its 2008 earnings would be in line with market expectations – around $440 million (284.5m), a 38 per cent increase on last year. The company did not give guidance on next year's profits.

Shares in Wood Group plunged 9 per cent in early trading yesterday, but rallied to close down just 1.2p at 198.8p.