Annual General Meeting Statement
The oil & gas market has continued to present challenges and as expected, year to date performance is down on 2016. Improved activity levels in offshore greenfield project engineering and commissioning in the West, have been more than offset by weaker activity elsewhere including further reductions in North Sea Projects & Modifications work in the East. Our Industrial Services business has performed robustly and Automation activity has increased.
Overall, year to date performance has been weaker than anticipated. However, recent awards and renewals demonstrate good customer support and we are seeing the enduring benefit of structural cost reductions achieved in 2016. We anticipate stronger performance in the second half of the year and as a result, management’s expectations of full year trading performance are broadly unchanged.
Asset Life Cycle Solutions
In Operations and Maintenance, activity is broadly in line with the prior year overall. In East Canada we are seeing increased activity from work on the Hebron hook up and commissioning and our scope on the Hibernia Platform in Newfoundland. Activity in the US onshore shale market has modestly improved since the start of the year but is down on 2016. Some weather related delays have been encountered. We are encouraged by rig count increases, bidding activity and contract awards. In March we secured one of our largest onshore civil works and infrastructure construction projects with Sofidel in Ohio.
In Projects and Modifications, increased greenfield engineering activity has been more than offset by a reduction in onshore project work. We secured a number of detailed offshore engineering awards in 2017. In March, we announced our $80m detailed engineering and procurement scope for Samsung Heavy Industries on BP’s Mad Dog 2 project and the $95m topsides and jacket detailed engineering scope on Noble Leviathan. We also secured a multi million dollar engineering, procurement and construction award in Alaska. We remain active on other projects including Statoil Peregrino 2, BP South Pass and our SAGD well pad engineering programme for Suncor. Work in refinery and pipeline projects is down as expected, following completion of a number of significant workscopes in 2016.
In Operations & Maintenance, activity is down on 2016. In the North Sea, our duty holder scope operating the CATS pipeline and terminal for Antin Infrastructure and our operating partner scope for Ancala on their midstream assets are both progressing well. In March we also renewed our $50m contract with Premier Oil for operations and maintenance services on the Balmoral Floating Production Facility. However, overall we are seeing lower activity and the impact of competitive pricing on contracts renewed over the last 18 months. Our industrial services offering is performing robustly. Asia Pacific is performing robustly. Activity levels have increased on our Exxon contracts in Papua New Guinea, and in Australia we recently renewed our contract with Melbourne Water. We also commenced work on our five year managed services scope from Hess Malaysia for their offshore facilities in the North Malay basin. In our turbine related activity, we continue to pursue our strategic options for Ethos Energy.
In Projects & Modifications, we have seen a further reduction in brownfield modifications and upgrade work in the North Sea but have good visibility on a number of opportunities in the second half of the year. In April we were awarded the FEED work for the Tolmount offshore field development in the Southern North Sea. Work under our General Engineering Services Plus contract in Saudi Arabia is being released at a slower rate than expected although this is anticipated to accelerate in the remainder of the year. The pace of activity on our contracts with Exxon in Iraq and BP in Azerbaijan is also slower than anticipated.
Specialist Technical Solutions
In subsea, we are working on a number of early stage, tie back and verification scopes. Under our master service agreement with Statoil, we secured the FEED for the subsea flow line system on the Snorre Expansion Project in April. We were also awarded a $5m contract for subsea engineering and project management services on the Mad Dog 2 project.The market remains subdued for larger projects and we continue to expect subsea activity overall to be down in 2017. Performance in our technology related business including asset integrity solutions and clean energy remains robust.
Automation is up on 2016 and our main automation contractor scopes for Chevron on the Tengiz expansion project and for ExxonMobil on the polyethylene plant in Texas are progressing well. In April we also secured the $8m automation engineering work for TPC Group for their manufacturing facilities in Texas.
Update on acquisition of Amec Foster Wheeler
On 13 March, we announced our all share offer to acquire Amec Foster Wheeler as recommended to shareholders by the Boards of both companies. The combination will create a global leader in project, engineering and technical services delivery across a diverse range of industrial sectors, primarily focussed on oil & gas. On 5 April, as a result of further work and integration planning, the expected level of pre-tax cost annual synergies arising from the transaction was increased by 36% to at least £150m by the end of the third year following completion. It is anticipated that the circular and prospectus documents seeking shareholder approval for the offer and the listing of shares to effect the acquisition will be posted in May 2017. Subject to shareholder and regulatory approval, we currently expect the transaction to close in the second half of 2017.
Financing and dividend
Our balance sheet remains strong with net debt to EBITDA within our preferred range of 0.5x to 1.5x. There is no change to our intention to pursue a progressive dividend policy taking into account cash flows and earnings.
A trading update for the first half of the year will be provided on 29 June 2017.
Company compiled publicly available consensus 2017 EBITA on a proportionally consolidated basis is $339m and AEPS is 59.6c, last updated on 20 March 2017.
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