The oil & gas sector has rarely had a quiet week since the start of 2011, with a slew of corporate activity already hitting the headlines.
Probably the most important news revelation, and one which is having the greatest impact locally, is the disposal announcement by Wood Group of its well support division. The deal, valued at $2.8billion in cash, is a big move for General Electric’s (GE) energy business, coming hot on the heals of its acquisition of Wellstream for approximately £800million.
The price paid by GE is certainly a full one, with analysts estimating the deal to be worth around 14 times 2011 EBITDA (earnings before interest tax, depreciation and amortisation). The current premium in the sector is estimated at around 10-11 times, with the likes of Halliburton, Weatherford and Baker Hughes all having supposedly been part of the bidding process for the division.
John Jrenicki Jnr, GE vice-chairman and head of its energy business, noted that the company is unlikely to make any further acquisitions in the short to medium term, but didn’t rule out enhancing the energy division further if opportunities present themselves. However, it will be intriguing to see what other assets may take GE’s fancy, and whether any oil & gas supply chain companies local to the Scottish north-east might be among them.
Wood Group intends to use part of the proceeds of the deal to pay down debt, specifically that incurred following the recently-announced acquisition of PSN. At least $1.7billion of the sale proceeds is to be returned to shareholders following a general meeting, with the exact details of the cash return yet to be announced to the market.
The market gave a welcoming response to the deal, marking the shares up around 79.5p on Valentine’s Day when the deal was announced, a significant boost for Wood Group’s shareholders, staff, directors and, of course, Sir Ian Wood and his family.
Another positive market mover has been Amec’s acquisition of niche oil and gas services company qedi. Global engineering and project management giant Amec has not only strengthened its financial profile but bolstered its project delivery capability by adding qedi to its portfolio of businesses.
Aberdeen-headquartered qedi specialises in oil and gas commissioning and technology, and through joining forces with Amec, both companies will make for a powerful industry combination. Amec acquired qedi from its owner-managers for a total cash consideration of £33million, with £29million paid at closing and the balance, subject to retention, to be paid over the next two years.
Since last month’s Energy and despite the Libya crisis, Egypt has continued to capture headlines, with former president Hosni Mubarak stepping down in early February, following several weeks of protests and unrest in the region.
Oil & gas companies with operations in the region include BP, BG, Eni and Apache. Although it would appear that their operations are unlikely to be affected by developments in Egypt, continued political uncertainty in the Middle East/North Africa diaspora – especially in Libya – could still lead to disruption of energy supplies.
Although not a large oil producer – around 740,000 barrels per day – Egypt has become an important gas exporter in recent years, with significant potential and undeveloped resources in the Nile Delta region.
To develop this however, large capex is required with many multinational oil & gas companies likely to be unwilling to commit significant funds at this stage, until such time as the political environment sees some improvement.
Finally, Xcite Energy, a stock which we have mentioned in this column before, announced on February 14 that it had entered a binding drilling contract with British American Offshore Limited for the new Rowan Norway rig.
The rig is to be used for first-stage production at the significant Bentley field and is due to be delivered during Q4 this year.
Many eyes await the updated Competent Person’s Report (CPR) due in early March, with the share price likely to remain volatile for some time to come yet.
David Barclay is a divisional director at investment management and financial planning specialists Brewin Dolphin. Past performance of shares is not a guide to future performance. The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin Ltd. No Director, representative or employee of Brewin Dolphin Ltd accepts liability for any direct or consequential loss arising from the use of this document or its contents