Wood Group has netted its biggest deal for seven years to secure Calgary-headquartered engineering firm IMV and a route into the potentially lucrative Canadian oil sands.
Wood Group has netted its biggest deal for seven years to secure Calgary-headquartered engineering firm IMV and a route into the potentially lucrative Canadian oil sands.
The Aberdeen-based company has paid C$131m (£65.5m) cash for IMV and is likely to shell out a further C$56m (£28m) in three further performance-based payments due before 2014.
It is the biggest deal for Wood Group since it bought oil rig design company Mustang Engineering of Houston, Texas.
The move is attractive because Canada has 180 billion barrels of proven oil reserves, making it the second-largest source of black gold in the world after Saudi Arabia. But around 80% of it is buried too deep to drill and requires other extraction techniques such as the use of steam to reduce the viscosity of the heavy oil deposits.
Wood Group chief executive Allister Langlands said: "Over the last couple of years we have increasingly believed the oil sands activity in Canada is going to be an area of significant growth over the next 10 to 15 years.
"It is a very significant area of engineering activity that the Wood Group has not been engaged in."
He said IMV was attractive because the privately-owned company was the only one of the top three engineering companies specialising in this work that was not part of a multi- national company. Worley Parsons and Jacobs are its main rivals. "They will be a terrific cultural fit. They are very similar to our other company, Mustang," he added.
In 2000, Wood Group bought Mustang, which has expertise in downstream activities like refining. "We believe we can become a player in the downstream activities there the Canadian oil sands," Langlands said.
Mustang and another Wood Group company, JP Kenny, also have expertise in larger- dimension pipelines, whereas IMV has always focused on smaller ones. One potential risk for Wood Group is the direction of the oil price, because the cost of extracting oil from oil sands means it is only cost-effective when prices are high.
However, Langlands commented: "The general thinking is that the oil sands project requires $50-plus oil, and we think that it is very likely the oil price will stay over $60 for the foreseeable future. There can always be short-term dips below that. The oil sands will be a very profitable area."
IMV's existing management team, including founder and president Ivan Velev, is expected to stay with the company, which made a pre-tax profit of C$2.6m (£1.3m) in the year to August 2007.
Wood Group is not the only foreign firm to have sought exposure to the Canadian oil sands. Royal Dutch Shell has operations there, as has US company Conoco Phillips and Statoil from Norway.
Langlands said one of the attractions is that unlike other countries with massive oil reserves, such as Russia, China or much of the Middle East, foreign companies are able to operate independently in Canada.
The deal seems unlikely to be the last for Langlands, who took over the chief executive role at the beginning of 2007 from Sir Ian Wood, now company chairman and the man who built Wood Group up over 30 years from its origins as a fishing and ship repair business.
Langlands would like to see the company expand its presence in Norway, the Middle East, North and West Africa and the Caspian Sea (between Russia and Iran).
Shares in Wood Group finished up 1p at 407.75p.
