Benefits of oil price recovery may be feeding through to wider economy

ANALYSIS MARK

TWO leading Scottish engineering sector firms have this week provided evidence the benefits of the recovery in the oil price since late 2016 are feeding though into the wider economy. Generatorhire specialist Aggreko said yesterday that growing activity in oil and gas markets helped power a 10 per cent increase in first half revenues to

£857 million. That allowed the firm to achieve better than expected first half profits of £59m.

On Tuesday fellow Glasgow stalwart Weir said revenues in its oil and gas arm surged by 31% in the first half to £411m. Operating profits in the division almost doubled, from £32m to £63m.

The statements indicate that oil and gas has become a growth market for both firms again after acting as a drag amid the deep downturn triggered by the crude price plunge that started in the summer of 2014.

The recent success of Weir and of Aggreko highlights the extent of the improvement in the US shale market, in which firms can adjust activity levels fairly quickly.

However, Aggreko also reported that conditions have improved in Northern Europe, which includes the North Sea.

Weir boss Jon Stanton noted that oil prices have stabilised at a level that is comfortably above the price required to encourage firms to invest in exploration and production.

That suggests he thinks the outlook for the sector is bright. The view appears to be shared by some deeppocketed private equity investors, who have helped oil and gas firms such as Chrysaor buy big North Sea portfolios in recent months.

Stock market-listed Weir and Aggreko can expect the crude price recovery to provide welcome support for their share prices, which could help reduce the chance of unwelcome interventions by outsiders.

The updates from the firms will be welcomed by many others in Scotland given the number of businesses in the country that rely heavily on the oil and gas sector for work.