SHARES in Wood have plunged ten per cent wiping around £440 million off its market valuation after the firm said the renewed crude price weakness could pose challenges as the oil and gas industry emerges from a slump.
The Aberdeen-based engineering giant said it has returned to growth in the current year and its performance has been in line with expectations.
However, the group told investors: “Although our medium term outlook remains positive, in oil & gas recent volatility in commodity prices may impact confidence and the pace of contract awards.”
The comment follows a near 30 per cent fall in the oil price in recent weeks.
Brent crude a hit a four year high of $85 per barrel in October but has dropped to around $61.20/bbl amid booming production in the US.
This has offset efforts by major exporters such as Saudi Arabia to support the market with output curbs in a programme initiated late in 2016.
Read more:Oil price falls as hopes of significant output cuts ease
Opec members and Russia agreed to a further production cut of 1.2 million barrels per day last week after Brent crude fell below $60/bbl.
The price movements have caused renewed uncertainty for firms with big oil services operations such as Wood.
The company was hit hard by the downturn in the oil and gas market triggered by the sharp fall in the crude price from summer 2014 to early 2016.
This took a heavy toll on the North Sea market in which Wood made its name before developing a global business.
The outlook had appeared to be improving following the partial recovery in the crude price from late in 2016.
Read more: Wood boss upbeat on outlook for key North Sea oil and gas market
After Wood posted a 13% increase in first half group revenues in August chief executive Robin Watson said of its North Sea business: “We have seen an encouraging if modest increase in activity but after the three years of decline we have experienced I think we should all be fairly upbeat about that.”
The group did not refer to the North Sea in an update on trading since January 1 issued yesterday. It is understood the recovery noted in August has been maintained.
Wood said yesterday: “US shale improved, with significant growth in the Permian on infrastructure and pipeline work. In offshore upstream we remained active on a number of greenfield projects.” It noted challenging conditions in the Gulf of Mexico.
The company highlighted work on projects in Asia Pacific and the Middle East, in which oil and gas market activity has been stronger than in the North Sea.
Mr Watson said Wood had made good progress this year overall.
“Good momentum in trading has driven revenue growth of over 10%,” he said.
Read more: Wood boss underlines appeal of blockbuster takeover of rival as deal completes
The company has felt the benefit of the £2.2 billion acquisition of Amec Foster Wheeler it completed last year under Mr Watson’s plan to make it less reliant on the North Sea, which now accounts for less than 5% of revenues.
The deal brought Wood exposure to a wider range of engineering markets, including infrastructure and environment, and helped extend its geographic reach.
The group said: “Looking to 2019, the outlook remains generally favourable across our industrial end markets.”
Mr Watson said the integration process is complete and the enlarged business is generating strong operational cashflows.
Wood has increased its cost synergy targets to $210m, from $134m when the all-share takeover was announced in March last year.
The group has secured revenue synergies of $500m helped by combining the capabilities of the Wood legacy business and Amec Foster Wheeler.
Wood announced yesterday it had won a major contract to work on a new plastics manufacturing plant on the US Gulf Coast.
Mr Watson has predicted the AFW takeover will be good news for Aberdeen, which will remain home to the enlarged group’s headquarters.
The group employs around 3,000 in Aberdeen and 1,500 in its UK North Sea operations.
Wood shares closed down 65.6p at 578.6p leaving the firm with a market capitalisation of around £3.9bn.
The group said full year earnings before interest, tax and amortisation are expected to be in the range of around $620m to $630m.
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