NORTH Sea oil services giant Amec Foster Wheeler has posted a 135 per cent increase in annual losses highlighting the challenges faced by the company which Aberdeen’s Wood Group is set to buy for £2.2bn.
London-based Amec Foster Wheeler lost £542m before tax in the year to December amid tough times in its core oil and gas markets, against £235m in the preceding year.
The company noted clients in the USA delayed or cancelled a number of contracts in response to the fall in oil and gas prices.
The company said activity increased in the North Sea but this reflected the fact some big projects are nearing completion.
Chief executive Jon Lewis warned: “ We continue to expect another year of decline in oil and gas activity in 2017.”
Sector watchers have noted that pressure on workloads could increase in the North Sea in coming months as big developments which were commissioned during the boom that ended in 2014 are finished.
The increase in losses at Amec Foster Wheeler was partly driven by a £200m charge to reflect a cut in the valuation of the Foster Wheeler business that Amec acquired for £2bn in 2014.
The group said it recorded the impairment charge because of uncertainty about future prospects for the US oil and gas business run out of Houston, following a significant deterioration in trading conditions in the first half.
The statement may raise questions about Wood’s decision to make its £2.2bn all-share bid for AFW in March. This has been recommended by AFW’s directors.
When the bid was announced Wood Group chief executive Robin Watson said the takeover would create a global project engineering and technical services player with big positions in attractive markets.
Chief financial officer David Kemp said there had been a window of opportunity to move on AFW in the first quarter because the heavily-indebted firm had been planning to complete a £500 million rights issue and had suspended dividend payments to help strengthen its balance sheet.
Wood also highlighted the opportunity to achieve significant cost savings and said this would involve cutting jobs at the enlarged group, without saying where.
Concern among trades unions about the possible impact on jobs in Scotland increased earlier this month when Wood revised up its estimate of likely cost savings by £40m to £150m per year.
The company said then that 30 per cent of the synergies would result from administrative efficiencies including consolidation of overlapping office locations and the elimination of duplication from central functions.
Wood has shed thousands of North Sea jobs since 2014. Amec axed hundreds of posts that year.
The latest figures disclosed by the firms show Wood employed around 7,200 in the UK last month. AWF had 4,500 workers in the North Sea in March last year.
The proposed takeover requires approval from both sets of shareholders.
Mr Lewis said AFW had benefited last year from having a broad range of operations including a solar energy business which achieved a record performance in the second half. Cost cutting and the fall in the value of the pound after the Brexit vote helped.
Solar activity is expected to fall this year but the environment and infrastructure engineering divisions are expected to perform better.
Total revenues were flat in 2016 at £5.4 billion.
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