Aberdeen Engineering Giant Highlights Strong Oil and Gas Market Activity
SHARES in Wood have surged six per cent after the engineering giant said it was on course to achieve strong earnings growth amid a recovery in key oil and gas markets such as the North Sea.
A trading update from Aberdeen-based Wood provided further evidence that the crude price rise since late 2016 has encouraged oil and gas firms to invest in developing facilities again after a grim few years.
Wood helps clients to develop and operate oil and gas facilities. It was hit hard by the cuts in spending that followed the plunge in the crude price earlier in the decade. This triggered a deep downturn in the North Sea.
In the update Wood highlighted signs that activity is increasing across oil and gas sectors ranging from exploration and production to refining
Wood told investors in May that it anticipated moderate growth in the North Sea as the year progressed. A spokesperson for the firm said yesterday its view had not changed.
All the same, chief executive Robin Watson is likely to feel the progress achieved in the year to date vindicates his decision to reduce Wood’s reliance on the North Sea.
The company appears to be reaping the benefits of the £2.2 billion acquisition of Amec Foster Wheeler it completed in 2017, which allowed it to bulk up in other markets such as environmental engineering and to extend its geographic reach.
Noting it had achieved significant growth in operating profit and improved margins in the first half, Wood highlighted the contribution made by its environment and infrastructure operations in North America.
The company said the operations have benefited from government and industrial spending increases in the US and Canada, which are expected to continue supporting activity.
Wood also noted good revenue growth in its specialist technical solutions arm, in areas such as subsea and consulting activities.
Chief executive Robin Watson said Wood had achieved further cost synergies attributable to the Amec Foster Wheeler acquisition. It expects these to be worth $60 million in the current year.
Mr Watson has noted previously that Aberdeen has been a beneficiary of the integration process involving Amec Foster Wheeler.
Wood closed Amec Foster Wheeler’s London head office and shifted some work to Aberdeen.
Mr Watson believes the acquisition has left the company in a stronger position to capitalise on developments in global markets.
“Our expectation of revenue growth, strong earnings growth and cash generation in 2019 is unchanged,” said Mr Watson yesterday.
Wood posted its first increase in annual profits for five years in March.
The company increased underlying earnings before interest, tax and amortisation by 69.4% to $630m in 2018, from $372m.
In its annual results announcement Wood said it expected to generate $210m cost synergies annually from three years after the Amec Foster Wheeler deal, up 24% on its previous target.
The group said then it saw a positive outlook for North Sea modifications work. This was hard to come by during the downturn.
Wood said yesterday that it expected to achieve a modest reduction in net debt during the current year, from $1.55bn at December 31.
Regarding oil and gas markets the company noted: “There is good activity in US shale focused on facilities and pipelines in the Permian and Niobrara.” It noted improving visibility on early stage concept and engineering design projects in offshore upstream work in the US.
The group added: “We saw relative strength from operations solutions work in the Middle East, driven by Iraq and the Caspian and growth in Asia Pacific, from Papua New Guinea and Australia, which is expected to continue.”
Wood shares closed up 27.5p at 445.4p, leaving it with a market capitalisation of around £3bn.