SHARES in Weir Group surged by eight per cent last night, adding £336 million to its market value, as the Glasgow engineering giant declared its upstream oil and gas business in North America has rebounded more strongly than forecast.

Weir, which has a big exposure to the US shale gas sector, has been hit hard by the collapse in fracking activity which followed the plunge in crude oil prices in the latter part of 2014.

The company cut around 2,000 jobs and slashed costs by £170 million as the oil price fell from around $114 per barrel in the middle of 2014 to below $30 at the start of last year.

However, after reporting in its first quarter results that the company was at the start of a “cyclical upturn” in its key oil and gas market, Weir declared yesterday that its upstream markets in North America have “recovered more strongly than anticipated” in recent weeks.

Against a backdrop of increasing volumes and “modest” price recovery, it now expects to deliver full-year revenues and operating profits at the upper end of analysts’ forecasts on the back of “low-teens” operating margins in the second half, as long as “supportive market conditions” continue.

Weir noted this growth will be partially off-set by a £13m charge to operating profits arising from older contracts in its Gabbioneta downstream oil and gas business, part of its flow control division, which is emerging more slowly from the downturn amid competitive market conditions. The company had flagged conditions in its downstream and power markets would be challenging throughout 2017 when it reported its first quarter results in April.

Weir, meanwhile, said its expectations for the minerals division remain unchanged.

Analysts at Jeffries upgraded their forecast for underlying earnings at Weir by in the region of £20m to £25m on the previous group consensus of £288m, while UBS upgraded its forecast by around 8.5 per cent to £320 million.

Investors embraced up the update, sending shares up eight per cent to 1,978p.

“This is an update that will be well received by the market, we believe,” said Jeffries.

“There are still some caveats about the 2H-weighting and the need for these market conditions to stay strong, but this is management (sensibly) injecting a degree of caution into the update.

“The extent of the oil and gas upgrades are significant, obviously, and shows how volatile this end market can be. This time it’s going in the group’s favour and they are very much benefiting from it.”

Weir, headed by chief executive Jon Stanton, said that its oil and gas division was seeing the benefits of higher levels of frack fleet utilisation in the US, as well as a “significant tightening of industry capacity.”

The upswing follows a recent report by the International Energy Agency, which forecast that capital spending on oil and gas extraction in North America will rise by 50 per cent by 2022.

The latest Baker Hughes rig count, meanwhile, a key barometer of oil and gas activity, found that 1,143 rigs were in operation in North America last week, up from 542 at the same stage last year.

“The updated outlook for the group’s full-year performance is now for strong constant currency revenue and profit growth,” Weir said in a statement. “As previously indicated, profits will be weighted to the second half of the year.”

The update comes after Weir reported at its annual meeting in April that oil and gas orders had increased by 50 per cent in the first quarter, driven by “significant growth” in North America.

Mr Stanton told shareholders that 2016 had been “one of the most challenging the business had experienced in decades”, such was the severity of the oil and gas downturn.

Weir had seen profits tumble 22 per cent in 2016 to £170m, with revenue dropping 11 per cent to £1.84bn.