Oil services companies have been doing brisk business of late, as the roll-out of new oil and gas and offshore wind projects gathers pace in the North Sea and elsewhere. The clamour for specialist services within the industry is not only pushing up capital expenditure costs, but it has also exposed the extent to which the need to secure external financing will define the sector over the coming year.
A brace of high-profile deals over the past week have given us an indication of how the sector is likely to play out. US conglomerate General Electric has been intent on increasing its exposure to oil services for some time, and has succeeded at the third attempt with its £791m offer for Newcastle-based Wellstream Holdings. The US giant, which also , has bid 780p and promised a special dividend worth £6m.
Subject to shareholder approval, Wellstream’s manufacturing facilities will form part of GE’s oil & gas division, which produces surface and sub-sea drilling systems, but perhaps the principle incentive in GE's pursuit of Wellstream lay in the latter’s exposure to the Brazilian oil & gas sector through its contract with OGX, and framework agreement with Brazilian state oil company Petrobras. On the other side of the coin, Wellstream will gain access to GE’s subsea monitoring and proprietary technologies, in addition to its existing customer base, supply chain and financial resources.
In the other major deal, shares in John Wood Group rose by 8 per cent following news that it had agreed to buy PSN Ltd, an Aberdeen-based oil services rival, for $955m (£609m). The deal also entails Wood Group taking on debt liabilities amounting to $325m. The deal is pencilled in for completion during the second-quarter of 2011, thus creating the world’s largest brownfield production services provider - Wood Group PSN. While gearing will rise to between 40-50 per cent, the acquisition is expected to boost profits and cash flow from day one. Also, cost-cutting is not the primary motivation; Wood Group has given assurances that staff numbers should grow over the coming year as global projects come on-stream.
