Wood Group reassures with 35 percent profit jump, outlook

LONDON Tue Mar 5, 2013 10:24am GMT

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LONDON (Reuters) - British energy services company John Wood Group (WG.L) reassured investors with a 35 percent jump in earnings on Tuesday buoyed by a boom in U.S. shale gas and a reassuring outlook bucking the trend of its peers.

The group, which is set to leave the FTSE 100 due to weakness in the energy services sector, forecasts growth across all its units in 2013 due to more spending from oil and gas companies.

"Overall we see growth prospects in all three divisions, when you combine that all together, you're probably looking at an EBITA for 2013...probably around or just above 15 percent," Wood Group's Chief Executive Bob Keiller told journalists, which he noted was in line with the consensus.

Oil companies are increasingly reliant on service companies as they are forced to extract hydrocarbons from more difficult environments.

However increased competition in the sector, particularly from Asia, is squeezing margins and profits.

"We're certainly not expecting the trajectory from the last two years to continue, but we do see continued growth prospects driven by strong underlying fundamentals," he added.

A surprise profit warning in January from Saipem (SPMI.MI), Europe's biggest company in the industry, sent shockwaves through what was seen as a buoyant sector.

A vague outlook forecast from peer Petrofac (PFC.L) last week also weighed on the sector.

"(Shares in) Wood Group have been unfairly hit by both of those things. This is an opportunity for them to say 'everything's fine'," said Sanjeev Bahl at Numis Securities, which upgraded its recommendation to 'add' from 'hold'.

"That should be quite reassuring," he said, adding that the group is less impacted by Asian competition and cost inflation.

The company, which designs, builds and maintains oil and gas facilities and pipelines, said its 2012 earnings before interest, tax and amortisation (EBITA) for continuing operations rose 35 percent to $461.1 million (303.9 million pounds), meeting expectations.

Its engineering division, which posted a 36 percent rise in EBITA and is forecast to grow by 15 percent this year, expanded in areas such as the Gulf of Mexico and the Middle East during the year, where it expects further growth this year.

An improvement on a difficult Oman project is on the cards this year, after it confirmed that losses in Oman were $20 million (13 million pounds) in 2012, at the top end of guidance.

The Aberdeen-based group is also targeting further growth from its shale activities after snapping up firms Mitchell's Oil Field Services and Duval last year which give it exposure to the oil rich shale regions in the United States.

"Given that the geology exists elsewhere in the world, I think it's inconceivable that the shale development won't take place in other places," added Keiller.

Shares in Wood Group, which hiked its full-year dividend by 26 percent to 17 cents, were up over 5 percent in early trading, outperforming the wider market.

(Reporting by Lorraine Turner; editing by Rosalba O'Brien and Jason Neely)

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