August 20, 2013 / 7:13 AM / 6 years ago

Wood Group held back by Canadian oil uncertainty

LONDON (Reuters) - Energy services company John Wood Group (WG.L) expects weakening Canadian demand to restrict earnings growth for its oil and gas engineering division this year and into 2014.

The British company has been a strong performer in the European oil services sector while others have suffered from project delays this year. But delivering first-half profit growth broadly in line with analysts’ expectations, Chief Executive Bob Keiller said it was “not immune” to that trend.

“We have seen some reduction in western Canada ... where uncertainty over oil export routes is causing some of our customers to rethink their investment options and to delay projects,” he said on Tuesday.

Canada’s land-locked Western province of Alberta is home to the tar sands, one of the world’s largest crude oil deposits. Plans to carry the oil west to the coast for export to Asia and south to U.S. markets have become mired in political and environmental controversy.

The company is a leading service provider to the tar sands sector.

Wood Group downgraded the outlook for 2013 growth in its engineering division’s earnings before interest, tax and amortization (EBITA) to 10-15 percent, from 15 percent previously, and said there are “challenges to growth in 2014”.

The division, which provides equipment and pipelines as well as performing work on oil-well integrity and corrosion management, accounts for about half the company’s profit.

“With muted outlook commentary, we see risk to consensus estimates for 2014/15,” said Credit Suisse analyst David Thomas in a research note that cut his earnings-per-share forecast for 2013/14/15 by 3, 8 and 9 percent respectively.

Wood Group shares fell 8.7 percent, making it the biggest faller among European oil stocks.

Group-wide EBITA was $243.2 million, up 18.6 percent from a year earlier, driven by a strong performance in its oilfield services arm, PSN, and in the engineering division, which together account for more than three quarters of its business.

The Gulf of Mexico is another area suffering from project delays, the company said, but its main concern is further weakness in Canada. “We do not expect it to recover during 2014,” it added.


Wood Group, which ranks eighth by market value among companies in the European oil and gas services sector, has been partially shielded from project delays that have resulted mainly from a weakening outlook for oil prices.

The company’s wide range of small, medium and large contracts has had a smoothing effect, while some rivals have suffered heavy bumps to cashflow.

Profit warnings have been common in the sector this year, though second-quarter results from Subsea 7 (SUBC.OL) and Technip TECF.PA have suggested the worst may be over.

Keiller said that Wood Group is making good progress with collaboration across its three divisions: engineering, PSN and GTS. PSN works on modification, enhancement and abandonment of mature oilfields, while GTS builds, operates and maintains gas turbines and other rotating equipment.

“Activity levels generally remain healthy and we believe the group is well positioned for future growth,” Keiller said.

The company raised its interim dividend by 24.6 percent to 7.1 cents.

At Monday’s close, Wood Group shares were trading at a level that assumes a five-year compound annual growth rate (CAGR) for earnings per share of 6.8 percent, against only 0.2 percent for the European energy services sector, according to Thomson Reuters Starmine data.

Similar-sized British rival AMEC AMEC.L and smaller Petrofac (PFC.L) were trading at a five-year CAGR of 2.2 and 0.6 percent respectively, while sector heavyweight Technip was at 7.2 percent. Italy’s Saipem (SPMI.MI), suffering from financial scandal as well as profit warnings, was on minus 14.2 percent.

AMEC brought the sector to life this week with news that it had made a bid approach to smaller British group Kentz KENZ.L.

Additional reporting by Simon Jessop; Editing by Christine Murray and David Goodman

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