Wood Group Sees Profits Decline in Tough Oil & Gas Sector

Researched by Industrial Info Resources (Sugar Land, Texas)--International engineering firm John Wood Group plc (LON:WG) (Aberdeen, Scotland) on Monday reported an 87% decline in profits for the first half of 2017 compared to 2016. Profits fell from $45 million in first-half 2016 to $6 million in the corresponding period of 2017. The company nevertheless maintains that it will see improvements in the second half of the year, due to some projects underway and its planned acquisition of Amec Foster Wheeler plc (London, England). Industrial Info is tracking more than $83.7 billion in projects involving Wood Group.

In a company press release regarding its performance, Wood Group Chief Executive Officer Robin Watson said, "We have seen an increasing focus on efficiency by operators and some evidence of further deferrals in customer spending, which has decreased for a third successive year." Watson said that the company had seen a significant reduction in projects in the North Sea. The reduction in profit was not unexpected, nor is it expected to remain in place for the long term. "The themes identified in December 2016 have played out largely as expected in the first half, and although the market continues to present challenges, we do anticipate a stronger second half performance in 2017," said Watson.

The company's acquisition of Amec Foster Wheeler was approved by shareholders of both companies on June 15 and is expected to close before the end of the year. Wood Group sees the diversification that the acquisition will bring as an improvement to its bottom line. "The broader end-market exposure of the combined group is expected to result in reduced earnings volatility through oil and gas cycles," said Watson.

The company's Projects and Modifications segment accounted for about 30% of the company's revenue, which was down from 2016. Nevertheless, Wood Group is working on some large projects. In North America, one of the company's largest projects is BP plc's (NYSE:BP) (London, England) Mad Dog 2 crude oil platform in the Gulf of Mexico. The semisubmersible, floating production platform will be constructed approximately 190 miles from New Orleans in water depth of 4,400 feet and will produce 140,000 barrels per day (BBL/d) of crude oil. Construction is expected to begin this quarter, with first oil expected in the second quarter of 2020. Wood Group is performing engineering and procurement for the project, which has an estimated total investment value of $9 billion. For more information, see Industrial Info's project report.

Wood Group is performing design-engineering work for another offshore project: Hess Corporation's (NYSE:HES) (New York, New York) Stampede oil and gas production platform in the Gulf of Mexico. The platform and subsea installation are being constructed about 170 miles southeast of New Orleans in water depth of 3,350 feet. The development will have a processing capacity 80,000 BBL/d of oil and 120,000 million cubic feet per day of gas. The field has an estimated recoverable resource estimate of 300 million to 350 million barrels of oil equivalent. Construction began in mid-2015 and is expected to be completed later this year. For more information, see Industrial Info's project reports on the production platform and the subsea installation.

In Texas, both Wood Group and Amec Foster Wheeler are involved in the construction of a grassroot alternative fuels plant in Sierra Blanca. The facility will produce 30,000 BBL/d of low-emission transportation fuel from biomass. The estimated $4.6 billion project includes construction of a 67-megwatt (MW) power island. While the project remains in the planning stages, construction could begin as early as the fourth quarter of this year, for completion in the first half of 2020. For more information, see Industrial Info's project report.

Wood Group's largest project by far is for the Tengiz oil and gas processing plant in Kazakhstan. The $27.1 billion project will process 260,000 BBL/d of crude oil and 960 million cubic feet per day of natural gas. Construction is expected to begin early next year and be completed in the second half of 2022. For more information, see Industrial Info's project report. Wood Group also is involved with the area's drilling program and the facility's 470-MW gas-fired powerhouse addition.

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