Wood boss sees no North Sea upturn

Head of oil services giant flags continued pressure on supply chain

WOOD Group chief executive Robin Watson has said he still sees no sign of a recovery in the North Sea and underlined the benefits of the planned £2.2 billion acquisition of Amec Foster Wheeler. This will reduce the oil services giant’s reliance on the area.

While there have been encouraging updates on the North Sea from the likes of BP in recent weeks, Mr Watson poured cold water on hopes an improvement may be under way following a devastating downturn.

He noted the rise in the oil price from the 12-year low recorded early last year has been accompanied by welcome signs of increased activity in oil and gas markets in places like Asia Pacific and Middle East.

However, conditions in the North Sea are as bad as they have been since the crude price plunge started in 2014.

If anything, activity levels were lower in the first quarter of this year than in the same period of 2016. Prices are under pressure.

“We think the North Sea market is really challenged,” said Mr Watson, who added: “From what we see as Wood Group there is no sign of activity increasing.”

Speaking after Aberdeen-based Wood’s annual general meeting, Mr Watson provided a bleak assessment of the state of the North Sea industry as cuts in spending by the firms that operate fields cause fresh pain across the supply chain.

With budgets for anything other than essential maintenance cut to the bone, the implications for the future of the area are concerning.

“There is a lack of exploration activity, there is a definite lack of drilling activity,” said Mr Watson. “If you’re doing less work offshore it affects the catering crews, it affects the support framework you need.”

Mr Watson noted employment numbers had increased across the group by 1,800 in the first four months but none of the new jobs created were in Scotland.

As workforce numbers are directly related to activity levels, further North Sea job cuts cannot be ruled out at Wood, which has axed more than 2,000 posts in the UK since 2014. Wood clashed with trades unions last year over moves to cut pay and allowances for some staff working offshore.

There will be concern in Aberdeen about the implications of the recommended all-share offer for London-based Amec Foster Wheeler. Both firms run big North Sea operations from offices in the Granite City.

Wood expects to achieve £150m savings annually following the takeover, partly by removing areas of duplication. Mr Watson said this will involve head count reduction but it is too early to say where.

However, Wood had no plans to close any offices in Aberdeen if the takeover goes ahead. “The one thing we have decided is that the enlarged company head office will be in Aberdeen,” noted Mr Watson.

While the heavily-indebted AFW posted a 135 per cent increase in annual losses last month, Mr Watson’s enthusiasm for the planned takeover of the business appears undimmed.

Noting AFW’s strong presence in markets such as environmental engineering, Mr Watson said: “We see tremendous opportunities to sell more services across more regions to more customers.”

He added: “It is one transaction that allows us to deliver our strategy that would probably take three, four, five bolt-ons and the time frame that’s involved with that.”

Mr Watson reckons the global oil and gas business will remain in growth mode for years, given likely increases in demand for energy.

But the AFW deal forms part of a plan to position Wood as a provider of wider engineering and technical services.

Wood expects to hold a shareholder vote on the takeover next month.

There was no sign of any unease with strategy at yesterday’s general meeting where there were no questions from the floor.

Mr Watson was re-elected a director by 99.8 per cent of votes cast. The directors’ remuneration report was approved by 96.9 per cent of votes cast.

Wood said its year to date performance has been weaker than anticipated but directors’ expectations of full year trading are broadly unchanged.

BP finance chief Brian Gilvary said last week things boded well for the North Sea. BP has focused on a slimmed down portfolio in the area, where it has shed hundreds of jobs since 2014. SHARES in Parkmead leapt by nearly six per cent after the oil and gas company doubled its stake in a key North Sea area, giving a further shot in the arm to the embattled basin.

Parkmead, led by North Sea veteran Tom Cross, showed its appetite for doing deals at the current crude price by striking a deal to acquire a 50 per cent interest in two blocks in the Southern Gas Basin from Verus Petroleum. The acquisition doubles Parkmead’s equity in the area, which includes the Farne Extension prospect and four further leads, to 100 per cent.

Parkmead, which operates the licence, said the collection of prospects and leads within the area have the potential to contain an initial 175 billion cubic feet of gas.

The deal is the latest boost this week for the North Sea, which has suffered drastically following the plunge in Brent crude prices since the latter part of 2014.

On Wednesday Repsol Sinopec underlined the foreign-owned company’s commitment to the area as the venture started production from the flagship Montrose Area Redevelopment. That came after oil and gas junior Hurricane Energy raised hopes of an oil and gas boom West of Shetland after an export report concluded more than 500 million barrels could be recovered from its Lancaster field.

And last week oil and gas majors Royal Dutch Shell and BP signalled their commitment to the North Sea. Shell said it will continue to invest in the area, though it declined to rule out offloading more UK assets, while BP said the outlook for the North Sea

looks positive amid expectations that the crude price will remain above $50 per barrel.

Mr Cross, who built Dana Petroleum into a £1.9 billion business, is on record as saying the downturn caused by the crude price plunge presented opportunities to buy North Sea assets at attractive prices.

The Verus deal comes shortly after Parkmead bought stakes in three Big North Sea finds from Atlantic Petroleum.

And the Aberdeen-based company reiterated yesterday that it continues to assess further value-adding opportunities, including UK and Netherlands-based acquisitions.

It declared that its strong and debt free balance sheet put it in a good position to take advantage of the improving conditions.

Brent crude was trading just below $50 per barrel at 5pm last night, having dipped to about $27 per barrel at the depths of the downturn last year.

Mr Cross said: “We are delighted to double our stake in this attractive area, which expands Parkmead’s portfolio in the Southern Gas Basin.

“Parkmead has a 100 per cent track record of drilling success in the UK Southern Gas Basin to date, with successful wells drilled at Platypus and Pharos.

“The team at Parkmead is working intensively to evaluate and execute further value-adding acquisitions in our core areas of the UK and Netherlands.”

Shares in Parkmead closed up 2.62p at 48.62p. RETURNING to the Gleneagles Summit, and The Bottom Line is always intrigued by what lengths Entrepreneurial Scotland chairman Chris van de Kuyl, above, will go to for the sake of creativity.

Last year the set was designed like a plane cockpit. This year, with a theme of scaling-up, it was a mountain backdrop, and Mr van de Kuyl opened the summit dressed for Mount Everest, complete with snowboots, full body Himalayan Suit and goggles. “Is it just me, or is it hot in here,” he said. MACFARLANE Group chairman Graeme Bissett showed some nimble footwork at the packaging firm’s annual meeting in Glasgow this week.

Opening the floor to questions for shareholders after the official business had been concluded, Mr Bissett was asked whether the growing using of drones would require Macfarlane to devise a specific packaging solution for retailers looking to make deliveries this way.

Mr Bissett deftly passed the question over to chief executive Peter Atkinson, who quipped: “I’m trying to think of who I can pass this on to?”

For the record, Mr Atkinson replied that, whether a customer is looking for packaging to deliver good by “drone, submarine or driver-less car”, Macfarlane would look to devise a solution. STAFF at Kier Construction Scotland are taking part in a transport challenge for charity.

They’re bidding to travel from its most northerly construction site in Orkney to its most southerly in Cornwall, using green methods of transport only.

It’s part of the 2020 Challenge, so-called because the target is to complete the challenging in 2020 hours, or 12 weeks. The Scottish team began their journey on Kirkwall on Easter Sunday, and will call in at all of Kier’s offices on its way to Truro. They are due to arrive on July 14.