Wood Group’s £2.2bn takeover of rival Amec Foster Wheeler would accelerate its strategy to reduce its heavy reliance on volatile upstream oil and gas markets by “three to four years”, its chief executive said ahead of the deal’s completion on Monday.
The Aberdeen-based oilfield services company’s swoop on struggling Amec in March was considered by some analysts as out of keeping with Wood’s normally conservative approach of doing small bolt-on deals.
In an interview with the Financial Times, Robin Watson, chief executive of Wood Group, insisted the acquisition — the biggest in its history — would significantly reduce its exposure to challenging oil and gas exploration and production markets, upon which about 85 per cent of its business was dependent.
Mr Watson expects conditions to remain difficult in this part of the energy industry as the oil and gas operators companies like Wood serve are likely to keep a tight hold on the purse strings “certainly for 2018 and probably for 2019”, despite recent improvements in crude prices.
Activity might pick up, as operators take advantage of lower prices from services companies to push ahead with select projects, but any margin improvements remain distant, he said. “We are not anticipating any great margin increases through our oil and gas business.”
Following the takeover, Wood’s exposure to oil and gas as a whole will reduce to 50-55 per cent of revenues. “A bit more than half of that is still upstream,” Mr Watson said, but the remainder will be spread across the rest of the oil and gas market, such as downstream petrochemicals and refining activities.
Wood Group — which will drop “group” from its name on Monday — stresses Amec brings key strengths in downstream activities, as well as an environmental and infrastructure services business that operates in an industry that offers “attractive” compound annual growth rates.
Amec’s other units include a strategically important nuclear business, which provides safety and technical advice for the UK’s nuclear submarines.
Wood had been looking to break into environment and infrastructure through bolt-on acquisitions but smaller companies were “overvalued or non-scaleable”, Mr Watson said.
“It would have taken us three to four years to get us this sort of market footprint that we now have [by doing bolt-on acquisitions],” he said.
The Wood-Amec tie-up is just the latest deal in the industry in recent years — other examples include the combination of FMC Technologies and Technip of France and Baker Hughes’ merger with the oil and gas business of General Electric. This consolidation will probably continue, say analysts.
Michael Rae, analyst at Redburn, believes Wood may too “find itself on the receiving end of a bid” in future.
For now, Mr Watson must oversee the integration of Amec and achieve the $170m a year of cost benefits that it has pledged by the fourth quarter of 2020. It also has to sell the bulk of Amec’s North Sea upstream oil and gas business, which was a condition of receiving competition approval in the UK.
Mr Watson admits the deal is not without risks — not least because Amec is under investigation by the UK’s Serious Fraud Office related to the anti-corruption watchdog’s wider probe into Unaoil, a Monaco-based consultancy.
But he insisted: “The risks that we identified before we pulled the prospectus together are the risks that the business holds. It’s not risk free but equally it’s a very attractive proposition for our shareholders.”