Pre-close trading update for the six months to 30 June 2017
In the first half we have seen continued challenges in our core oil & gas market with modest recovery only in certain areas. Robust activity in the West including improved performance in offshore greenfield project engineering and commissioning is being more than offset by weaker activity in the East, where we have seen a further reduction in projects & modifications work, particularly in the North Sea. The impact of the tougher pricing environment in 2016, partially offset by the enduring benefit of structural cost reductions achieved in the last two years, will result in a reduction in first half margin as expected.
First half performance is down on 2016 and weaker than anticipated. We are more cautious on the full year outlook but anticipate a stronger second half.
Asset Life Cycle Solutions
The first half is anticipated to be broadly in line with H1 2016. Improved performance in offshore greenfield activity is offsetting lower onshore activity in Projects & Modifications, with Operations & Maintenance work remaining relatively robust overall.
In Projects and Modifications, increased greenfield engineering activity has been more than offset by a reduction in onshore engineering work. In March, we announced our detailed engineering and procurement scope for Samsung Heavy Industries on BP’s Mad Dog 2 project and the topsides and jacket detailed engineering scope on Noble Leviathan. We secured a multi million dollar engineering, procurement and construction award in Alaska and have recently secured the topsides detailed engineering contract on the Husky White Rose project in Eastern Canada. We remain active on other projects including Statoil Peregrino 2, BP South Pass and our SAGD well pad engineering programme for Suncor. Work in onshore refinery and pipeline projects is down as expected, following completion of a number of significant workscopes in 2016.
In Operations and Maintenance, we are seeing increased activity in the first half from our scope on the Hibernia Platform in Newfoundland. Our work on the Hebron hook up and commissioning contributed to increased activity in H1 but is now coming to an end. Activity in the US onshore shale market has modestly improved since the start of the year. In March we secured one of our largest onshore civil works and infrastructure construction projects with Sofidel in Ohio.
The first half is materially down on H1 2016, principally due to a significant reduction in projects and modifications work, particularly in the North Sea. Operations and Maintenance is also down but is less impacted.
In Projects & Modifications, we have seen a significant reduction in brownfield modifications and upgrade work in the North Sea. In May, we were awarded the modifications work for the Shell Brent decommissioning scope. Work under our General Engineering Services Plus contract in Saudi Arabia is being released at a slower rate than expected and this has led to a reduction in headcount in the region. In May we extended our scope of work under a 5 year contract with SEIC to include drilling upgrade services in addition to engineering, construction support and modifications work.
In Operations & Maintenance we are seeing lower activity together with the impact of competitive pricing 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 and we renewed our $50m contract with Premier Oil for operations and maintenance services on the Balmoral Floating Production Facility. In Asia Pacific, activity levels on our Exxon contract in Papua New Guinea are increasing. We also commenced work on our five year managed services scope from Hess Malaysia for their offshore facilities in the North Malay basin.
Our turbine related operations and maintenance activity is performing in line with H1 2016. Elsewhere, we are making good progress in our pursuit of strategic options for Ethos Energy.
Specialist Technical Solutions
In subsea, although activity has modestly improved during 2017 it will be down on H1 2016. Activity is generally limited to smaller scope, brownfield or early stage work. Current projects include the flowline FEED for Snorre, engineering and project management on Mad Dog 2 and follow on engineering support contract for the subsea pipeline on Woodside’s Greater Western Flank project. The market for larger projects remains weak and is not expected to improve in the second half. Performance in our technology related business including asset integrity solutions and clean energy is relatively robust.
We anticipate automation to be up on H1 2016 and our main automation contracts with Chevron on the Tengiz expansion project and ExxonMobil on the polyethylene plant in Texas are progressing well. In May, we acquired CEC, further enhancing our industrial process & control capabilities in the automotive, aerospace, logistics, water and pharmaceuticals sectors.
Cash flow, balance sheet and dividend
Our balance sheet remains strong. Net debt : EBITDA is at the upper end of our preferred range of 0.5x to 1.5x, reflecting the acquisition of CEC for an initial consideration of $53m in May. Our intention remains to pursue a progressive dividend policy taking into account cash flows and earnings.
Acquisition of Amec Foster Wheeler
On 15 June our shareholders overwhelmingly approved the recommended all-share offer for Amec Foster Wheeler. Our objective is to create a leader in project, engineering and technical services delivery across a broad range of industrial markets, predominantly focused on oil & gas. Our current focus is on integration planning ahead of completion, which is expected in the 4th quarter of 2017 subject to competition approvals.
A telephone conference call for analysts will be held at 8.30am today; participant dial-in details below:
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