Wood Group confident despite challenges facing oil

Energy services giant Wood Group yesterday hailed the resilience of its business model as it said full-year trading was expected to be in line with forecasts despite the challenges facing the oil industry.

Bob Keiller, CEO of The Wood Group. Picture: Contributed

Although performance in the current financial year will be down on last year, the Aberdeen-based group said it was seeing the benefits of its “flexible and asset light” approach and remained committed to a double-digit increase in dividend per share from this year onwards.

The market responded positively to the update, which was provided to shareholders at the group’s annual meeting, with shares closing up more than 2 per cent, or 15p, at 715p.

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While the fall in oil price has led to reduced activity across the industry, the group said it was working with customers to help them reduce project costs, increase operating efficiency and improve performance in what it described as “challenging market conditions”.

Wood Group said full-year earnings would be broadly in line with analysts’ forecasts of $473 million (about £300m), albeit down from $549.6m last year.

“Looking further ahead, we remain confident of delivering good growth as market conditions improve,” said the company, which is headed by chief executive Bob Keiller.

The positive update was underlined with news that its Massy Wood Group joint venture has been awarded a five-year contract with a potential value of up to $250m by BP to provide services to its operations in Trinidad and Tobago.

The company – which is jointly owned by Wood Group PSN and the energy division of Massy Holdings – will deliver engineering, procurement and construction services to 13 upstream offshore facilities.

It is the second major contract that Wood has secured with BP in recent months, following a five-year contract to support six UK continental shelf offshore assets and the Forties Pipeline System onshore facilities in Grangemouth.

Although the group’s upstream engineering activity remains subdued, and there are still a number of projects being deferred, it said it was encouraged by the high volume of early-stage work being carried out as customers look to re-­engineer projects to improve returns.

Wood Group is working on a number of detailed engineering projects, including Det Norske’s Ivar Aasen in the Norwegian North Sea and Hess Stampede in the Gulf of Mexico.

In subsea and pipelines, activity levels have reduced with a smaller number of large projects coming to market and the focus switching to operations support activity. Recent contracts have included a five-year maintenance contract for subsea well control spanning the UK, Brazil and Singapore as part of a joint industry project.

Wood said its downstream, process and industrial activities were performing well, in part due to the impact of lower commodity prices. Contract successes have included work on a refinery modification project for Flint Hills Resources in the Eagle Ford region in Texas.

Its PSN production services division had been affected by reduced activity in the US onshore market but maintenance activity has held up relatively well.

In the North Sea, it said that five-year contract awards this year with Total and Enquest – covering engineering, construction, procurement, integrity and commissioning – helped to provide long-term visibility.

Analysts at Barclays Research said yesterday’s trading update added a “degree of comfort to our estimates, especially the dividend commitment”.

They added: “Importantly, earnings before interest, taxes, depreciation, and amortisation (Ebitda), on our numbers will be down by only 15 per cent, showing the resilience that the diversified business of Wood Group generates.”