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.
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