Aberdeen oil services giant highlights need to cut North Sea cost base

Unveiling a 63 per cent fall in first half profits, Wood Group welcomed early indications of modest recovery in some areas of the industry, such as the Caspian.

However, asked if there had been any indications of an upturn in the North Sea Mr Watson said: “The short answer would be no.”

He said activity levels remain really quite subdued, adding “It’s not inconceivable that there would be more job losses.”

Wood Group has shed more than 2,000 jobs in the UK and cut or frozen the pay of many people working for it in the country since the crude price started tumbling in 2014.

It remains embroiled in a bitter dispute with unions which have called a series of strikes in protest at cost cutting moves, but which suspended further action last week in the hope of agreeing a deal.

Mr Watson said Wood was engaged in what he hoped would be constructive discussions aimed at coming up with a fair and reasonable resolution to the dispute.

He noted the two sides have agreed not to comment on the negotiations while they are in progress but defended the company’s record as an employer in the North Sea.

“We’ve certainly looked at the North Sea as being a responsible social citizen and there is a need to reduce the cost base in the North Sea there’s no doubt about it. This is not just about blue collar people … all levels in the organisation and right across disciplines we’ve froze pay and those things.”

He added: “We’ve recognised our union agreements. No one has been offered less than the union agreed terms from days one … so we’re disappointed that it ever got to industrial action.”

Mr Watson defended the decision to recommend a 10 per cent increase in the interim dividend at a time when the group is trying to save every penny.

“The dividend policy is something that we committed to in 2014 to take the dividend level back to one we felt was peer comparable,” he said, noting that directors confirmed the policy earlier this year.

The policy reflects confidence in the long term prospects of the group. Wood said it has a strong balance sheet which gives it the flexibility to invest in growth through acquisitions.

The group has used acquisitions to broaden its geographic reach and service offering, reducing its reliance on the North Sea repairs and maintenance market.

Mr Watson said he expected the North Sea market to recover at some point, given the size of the remaining reserve base, although the timing could not be predicted.

The focus of growth looks likely to remain on other areas given recent developments.

Oil and gas giants are concentrating exploration and development activity in areas such as the Gulf of Mexico and West Africa, where they expect to be able to produce oil and gas more cheaply than in the North Sea.

Wood Group’s profits fell to $44.6m (£34m) after tax in the first half, from $121.2m last time.

The group said full year underlying earnings, before interest tax and amortisation, are anticipated to be around 20 per cent lower than 2015, in line with expectations.

It generated $166.4m EBITA in the first half, against $225.9m last time.

Wood said the repairs and maintenance arm faced continued pressure on volumes, scope and pricing in the North Sea and US onshore.

But, it added: “In the US onshore business, we are encouraged by the apparent bottoming out of the rig count.”

Wood welcomed some movement in upstream award sanctioning, which will help the division that works on new facilities.

The company announced it had won a $700m contract to provide control and automation systems on the giant Tengiz field in Kazakhstan.

Andrew Whittock, analyst at the Liberum brokerage, said Wood would be hit by lower activity levels at many oil and gas customers but the group’s balance sheet and cash flow generation remained strong.

Shares in Wood Group closed up 1p at 730.5p.

The company declared an interim dividend of 10.8 cents per share, up from 9.8 cents.