Wood Group lands $700m contract as profits slide

Energy services giant Wood Group today reported a plunge in half-year profits as it secured a $700 million (£542m) contract in Kazakhstan.
Wood Group chief executive Robin Watson. Picture: ContributedWood Group chief executive Robin Watson. Picture: Contributed
Wood Group chief executive Robin Watson. Picture: Contributed

The Aberdeen-based group said it would provide main automation contractor services to Tengizchevroil (TCO) for a wellhead pressure management project at the Tengiz field in the north-west of the country.

“We are combining the global expertise and capabilities of our automation and controls personnel in the UK, US, Argentina and Kazakhstan to deliver the complex systems needed for this world-class field and expansion project,” said Wood Group chief executive Robin Watson.

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“The automation scope of the future growth project-wellhead pressure management project is one of the world’s largest industrial automation projects and we are pleased to be providing the solution that will help to enable TCO to meet its vision of a ‘flawless start-up’.”

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The multi-year contract was announced as Wood Group posted a 26.3 per cent slide in earnings before tax, interest and amortisation (Ebita) to $166.4m for the six months to the end of June, on revenues 16.6 per cent lower at $2.6 billion, which Watson said reflected the “challenging” conditions in the global oil and gas market.

He told The Scotsman that the group had a sense of “cautious optimism” as it headed into the second half, adding: “The North Sea is certainly challenging from a volumes and pricing perspective, but also Africa is flat and declining and Australia is pretty flat in terms of activity levels. But TCO is a fantastic contract win for us.”

Wood Group also revealed that its total headcount had shrunk by 10 per cent to about 32,200 during the first half of the year, with the number of people at its engineering arm falling more than 12 per cent to 8,500. At its PSN division, the headcount – including employees and contractors – dropped almost 12 per cent to 20,700.

“What we’ve done to try to retain capabilities is reduce our number of subsea hubs from ten to three ‘super hubs’,” Watson said.

“Where we’ve tried to avoid headcount reduction, we have some people in specialist areas working three days a week rather than five, which brings a reduction in the cost base. That’s the exception rather than the rule, and it’s in very niche areas, but we still run with a vacancy list in the business. Where we have regrettably parted company with individuals, if we’ve done it in the right way – and I think we tend to – we are usually one of the first companies that people want to work with.”

Watson added: “Our overall outlook for 2016 remains unchanged; with full-year Ebita anticipated to be around 20 per cent lower than 2015, in line with previous guidance.

“Looking further ahead, we see early indications of modest recovery in some areas and believe our customer relationships, geographic footprint, strong financial footing and relentless focus on delivering value through our asset life cycle services and specialist technical solutions, position us well.”

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Despite the drop in earnings, Wood Group announced a 10 per cent hike in its interim dividend to 10.8 cents a share, to be paid on 22 September, and said it plans a double-digit increase for the full-year payout.

The company also said it was working to resolve an industrial dispute with workers who have taken part in strike action in the North Sea.

Watson said: “We’re in the middle of negotiations with the unions. Our position has always been that, as the largest employer in our area, we of course have a responsibility to try to reduce the cost base but have an enduring North Sea oil and gas basin that provides employment for many people for many years to come. We were encouraged that the unions called off the industrial action and appear to be wanting to engage in constructive talks to see if we can come to an amicable solution.”