* Cuts earnings guidance for engineering division
* Canada's export projects mired in controversy
* Shares down 8.7 pct
(adds detail and story link on Canadian export plans in
paragraph four, updates shares)
By Andrew Callus
LONDON, Aug 20 Energy services company John Wood
Group expects weakening Canadian demand to restrict
earnings growth for its oil and gas engineering division this
year and into 2014.
The British company has been a strong performer in the
European oil services sector while others have suffered from
project delays this year. But delivering first-half profit
growth broadly in line with analysts' expectations, Chief
Executive Bob Keiller said it was "not immune" to that trend.
"We have seen some reduction in western Canada ... where
uncertainty over oil export routes is causing some of our
customers to rethink their investment options and to delay
projects," he said on Tuesday.
Canada's land-locked Western province of Alberta is home to
the tar sands, one of the world's largest crude oil deposits.
Plans to carry the oil west to the coast for export to Asia and
south to U.S. markets have become mired in political and
The company is a leading service provider to the tar sands
Wood Group downgraded the outlook for 2013 growth in its
engineering division's earnings before interest, tax and
amortisation (EBITA) to 10-15 percent, from 15 percent
previously, and said there are "challenges to growth in 2014".
The division, which provides equipment and pipelines as well
as performing work on oil-well integrity and corrosion
management, accounts for about half the company's profit.
"With muted outlook commentary, we see risk to consensus
estimates for 2014/15," said Credit Suisse analyst David Thomas
in a research note that cut his earnings-per-share forecast for
2013/14/15 by 3, 8 and 9 percent respectively.
Wood Group shares fell 8.7 percent, making it the biggest
faller among European oil stocks.
Group-wide EBITA was $243.2 million, up 18.6 percent from a
year earlier, driven by a strong performance in its oilfield
services arm, PSN, and in the engineering division, which
together account for more than three quarters of its business.
The Gulf of Mexico is another area suffering from project
delays, the company said, but its main concern is further
weakness in Canada. "We do not expect it to recover during
2014," it added.
Wood Group, which ranks eighth by market value among
companies in the European oil and gas services sector, has been
partially shielded from project delays that have resulted mainly
from a weakening outlook for oil prices.
The company's wide range of small, medium and large
contracts has had a smoothing effect, while some rivals have
suffered heavy bumps to cashflow.
Profit warnings have been common in the sector this year,
though second-quarter results from Subsea 7 and
Technip have suggested the worst may be over.
Keiller said that Wood Group is making good progress with
collaboration across its three divisions: engineering, PSN and
GTS. PSN works on modification, enhancement and abandonment of
mature oilfields, while GTS builds, operates and maintains gas
turbines and other rotating equipment.
"Activity levels generally remain healthy and we believe the
group is well positioned for future growth," Keiller said.
The company raised its interim dividend by 24.6 percent to
At Monday's close, Wood Group shares were trading at a level
that assumes a five-year compound annual growth rate (CAGR) for
earnings per share of 6.8 percent, against only 0.2 percent for
the European energy services sector, according to Thomson
Reuters Starmine data.
Similar-sized British rival AMEC and smaller
Petrofac were trading at a five-year CAGR of 2.2 and 0.6
percent respectively, while sector heavyweight Technip was at
7.2 percent. Italy's Saipem, suffering from financial
scandal as well as profit warnings, was on minus 14.2 percent.
AMEC brought the sector to life this week with news that it
had made a bid approach to smaller British group Kentz.
(Additional reporting by Simon Jessop; Editing by Christine
Murray and David Goodman)