LONDON, Feb 18 (Reuters) - British energy services company Wood Group said on Tuesday it expected strong demand for services in U.S. shale to drive overall growth despite a weaker outlook for its core engineering division.
Wood Group recently increased its exposure to the onshore oil and gas market in the United States, acquiring Wyoming-based services firm Elkhorn last November, and Chief Executive Bob Keiller said the acquisition should help deliver growth this year.
Wood Group shares rose 4 percent in morning trade, against a broader oil and gas index that was up just 0.1 percent.
Oil services experienced a difficult 2013, peppered by profit warnings, as years of bumper profits fed by a high oil price and record investment by oil companies came to an end.
Wood Group’s engineering division, which accounts for around half the company’s profit, provides equipment and pipelines and performs work on oil-well integrity and corrosion management.
The company expects the division’s profits to fall in 2014 as oil companies cut back on spending and delay or cancel new projects.
But Keiller told reporters that slowdown would be more than compensated by growth in the contractor’s services division - Wood Group PSN.
PSN saw profits jump in 2013, thanks to better margins in the United States, cost reductions in the division and lower losses from a contract in Oman with Petroleum Development Oman which has plagued the group for three years. Wood Group said it was in discussions to exit the seven-year contract.
“We now have something like 4,500 people in Wood Group PSN focused on shale activities. That covers everything in the main plays; from Bakken in the North down to Eagle Ford, across to Marcellus and Utica in the East,” Keiller told reporters on a call. “We think that’s a place we’re likely to see further growth.”
Wood Group posted an increase in full year 2013 profit of 14 percent, in line with its expectations, as a strong performance in services and engineering offset weakness in its gas turbine division.
The company reported pre-tax profit of $413 million on revenue of $7.1 billion for 2013, slightly below analyst forecasts. A Thomson Reuters I/B/E/S poll of analysts estimated pre-tax profit of $445 million from revenue of $7.2 billion.
“Wood Group are well positioned to deliver growth led by U.S. onshore shale related business. 2014 will benefit from a full year of the Elkhorn acquisition and Oman losses have been provided for,” analysts at Numis wrote in a note to clients. They have an “add” rating on the stock.
The company said Chairman Allister Langlands would retire in May to be replaced by Ian Marchant who has been a non-executive director at Wood Group since 2006.