By Scott Wright

WEIR Group will consider a range of options to offload its struggling oil and gas business after problems at the division in the US led to it reporting a hefty loss last year, chief executive Jon Stanton said.

Investors sent shares in the Glasgow engineering giant up more than 11 per cent after it revealed it will explore an exit from its oil and gas operation, following a sharp downturn in conditions in the North American shale market.

The drop-off in US fracking activity led to a fall in demand for original equipment and after-market orders, with Weir reflecting the uncertainty and market volatility with a £546 million write-down against its oil and gas business last year.

The charge led Weir to report an annual loss of £372m, despite its dominant minerals division reporting higher profits and revenue.

Weir has reduced its oil and gas workforce by around 600 staff in response to the challenging conditions in the US. The division now employs around 2,500 people, mostly in the US.

Weir now generates around 90% of its operating profits from the minerals business, which supports the mining industries across the globe.

Mr Stanton said: “The financial profile of our oil and gas business, which is largely North American shale dominated, has changed – the market has become more short-cycled and unpredictable.

“The two businesses now present quite a different investment case. We have concluded that we should really focus on where the best opportunities are and the stronger business, and that is on the mining technology side.”

Asked to specify its options for exiting the oil and gas business, Mr Stanton replied: “I think there are potentially multiple options ranging from a trade sale to a strategic buyer, through to a spin-out or possibly some form of merger.”

Noting that the announcement made to the market would give the company the time to “flush out” opportunities” for oil and gas, he added: “The backcloth is quite challenging and we clearly don’t have to fire sale the assets. We want to think about value creation in the round and give ourselves space to explore all of the options.”

Mr Stanton highlighted in its results uncertainty over the impact of coronavirus on the global economy and demand for natural resources. Weir has 400 staff in China working across three manufacturing plants, and deals with other suppliers in the country.

The manufacturing sites re-opened recently following the Chinese New Year holiday, but Mr Stanton acknowledged that if the virus spreads to the Shanghai area “it could have a negative impact”.

He said: “We do have alternative sources of supply around the world that we could switch to for  many of the components we buy from China.

"We are putting contingency plans in place. But plan A  is obviously that are our plants and supply chain ramp back up to full capacity and continue to support the business globally.”

Away from oil and gas, Mr Stanton highlighted “excellent” performances by its minerals division and ESCO, the North American surface mining tools specialist, which made its first full-year contribution since its $1.3 billion (£920m) acquisition by Weir in April 2018. He said: “Both grew their top line by 4% and saw good expansion in margins and profitability. The market they are in has been buoyant, and unless coronavirus spreads more meaningfully, I would expect that to continue. We are benefiting from investment in innovation and technology that will make mining more sustainable and efficient, in terms of the orders and opportunities that we are seeing. I’m really pleased with the performance.”

Shares in Weir closed up 140.5p at 1,391p.