Oil Prices

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This is a warning to service support players as their principals get leaner and stronger in the face of tough global mkt conditions:

M&A worsening WorleyParsons’ plight, says MD

• THE AUSTRALIAN
  
• OCTOBER 28, 2015 12:00AM
  

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Paul Garvey
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Resources Reporter
Perth

Andrew Main
[Image: andrew_main.png]
Senior Business Reporter
Sydney

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Andrew Wood says M&A could come at the expense of new developments Source: News Corp Australia
[b]The wave of merger and acquisition activity sweeping through the oil and gas sector is likely to exacerbate the short-term headwinds facing WorleyParsons, the engineering group’s managing director has warned.[/b]
After the company’s annual general meeting yesterday, Andrew Wood said most of the company’s big oil and gas customers were using the low price environment to hunt for consolidation opportunities. That focus on acquisitions could come at the expense of investment in the new developments that form the core of Worley’s business in the short-term.
“While that activity is occurring, what tends to happen is it just slows activity levels a little as they reshape the business,” Mr Wood said.
“But in the end it means a stronger industry and better projects going forward.”
Australia’s oil and gas industry has been a particularly lively in terms of M&A in recent weeks, with local leader Woodside Petroleum making an approach to Oil Search and Adelaide’s Santos fielding a $7.14 billion cash offer from private equity group.
Worley has been among the many service providers hit hard by the downturns in both the oil and gas and mining industries. Its shares have fallen by 64 per cent since July last year, and the company has shed thousands of jobs in response to the weak conditions in its core industries.
The company yesterday flagged that more redundancies were likely in the months ahead, with Mr Wood saying it would incur another $20 million-$30m in redundancy costs in the current half.
“We have to have a business that is appropriately shaped for where we are today and how we position for the future,” Mr Wood said.
“That has to involve reshaping the business from the top to the bottom.”
Mr Wood acknowledged that the already challenging outlook for Worley had become more complicated in recent months as oil prices continued to remain at low levels.
“Talking to our major customers, there was some building of momentum in the market just prior to our results (in August), where there was some expectation that oil prices would recover,” he said.
“I think that dip in oil prices we had a little while ago has put our customers back on the back foot a little.”
Chairman John Grill faced inevitable shareholder unhappiness during the meeting over the falling share price and reliance on a specialisation that’s under serious pressure from low commodity prices, but noted that “we know that the market will recover”, if not in this financial year.