WOOD has highlighted continued challenges in the oil and gas market as it hailed the benefits of the £2.2 billion takeover of Amec Foster Wheeler which will reduce its reliance on the North Sea.
A day after Brent crude hit a two year high, the Aberdeen-based engineering giant provided a fresh indication that the partial recovery in the oil price has yet to provide a meaningful boost to activity in the North Sea.
“Our core oil and gas market continued to present challenges in 2017,” said Wood in an update on trading since January 1.
Wood noted that oil and gas activity had increased in the second half in the division covering Europe and Asia Pacific. This was led by work in the Asia Pacific region and a contract to work on a long-established SAGE North Sea pipeline system, which was acquired by a private equity investor in November.
However, the update made no mention of any contracts to work on new facilities in the North Sea. Firms have slashed spending in the area amid the sharp fall in the crude price since 2014.
Yesterday the Subsea UK trade body said the downturn had cost around 8,000 jobs in the sector. It noted this followed the deferral or cancellation of a range of major subsea projects.
Wood has axed more than 2,000 UK jobs in response to the downturn in the North Sea market since 2014.
In June Wood highlighted a material drop in business in North Sea in the first half. It said there had been a significant fall in spending on new facilities, accompanied by pressure on margins for maintenance work.
Led by chief executive Robin Watson, the company launched its £2.2 billion all share bid for Amec Foster Wheeler in March under a plan to reposition the group as a broad-based engineering group rather than an oil services specialist. Amec Foster Wheeler has significant businesses in areas such as environmental and nuclear engineering.
Wood pressed on with the takeover although the competition watchdog required Amec Foster Wheeler to sell the bulk of the significant North Sea services business it had built up.
“Customer reaction has been positive, we have momentum in contract awards and see good opportunities for future revenue synergies,” said Wood of the deal yesterday.
The integration of Amec Foster Wheeler is progressing well. Wood remains very confident of delivering cost synergies of over $170m (£125m) by the end of the third year following completion.
Wood said yesterday: “At the leadership levels alone, we have already delivered sustainable annualised cost savings ahead of plan … We have also made good progress on real estate rationalisation, merged bidding pipelines and aligned tendering and delivery governance.”
The size of the executive leadership team has been reduced from 150 to around 60 since the deal was completed in October.
The company expects to shed around 1,100 jobs globally, two per cent of the total, to help deliver the expected savings.
In August Mr Watson said job losses in the North Sea business resulting from the takeover were expected to be “minimal to zero”.
In the update Wood said earnings before interest, tax and amortisation for 2017 for the heritage Wood Group business and a contribution from AFW for the period from 9 October to 31 December will be in the region of $335m to $355m.
Wood Group made $363m EBITA in 2016.
The results of the latest survey of engineering firms by Subsea UK suggest the annual revenue generated by the industry has fallen around 16 per cent since 2014, to £7.5 billion from £8.9bn.
UK revenues fell around 30 per cent, to £3.3bn from £4.6bn. Exports fell to £4.16bn from £4.3bn.
Revenues generated from work on renewables projects rose to £1.3bn from £0.77bn.
The sector supports 45,000 jobs in the UK, against 53,000 in 2014.
Subsea UK chief executive Neil Gordon said: “We still need greater recognition of subsea as one of the UK’s best performing industry sectors to help attract investment and talent.”
Brent traded above $65 per barrel on Tuesday, when prices rose after the Forties pipeline was shut in for repairs to a hairline crack on the link. The link handles around 40 per cent of UK production.
Brent fetched around $62.70/bbl yesterday.
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