Engineering and services firm Weir Group (WG.) says it will “significantly enhance” its earnings stability by selling off its oil and gas division. Caterpillar, mainly known for its heavy equipment business, has agreed to pay $405m (£313m) for the division, which made an adjusted operating loss of £4.4m in the first half.
Weir chief executive Jon Stanton said that this was the latest move to lock in the company’s mining focus.
The company’s shareholders need to back the sale. Given that its shares climbed by 16 per cent on the news, this seems unlikely to be an issue.
In the first half, the division saw a 48 per cent drop in revenue. The aforementioned operating loss came from onshore US producers cutting production, while the oil-price crash also saw projects elsewhere delayed.
The sale comes after 350 workers were let go in an effort to “right-size” the division for current conditions. Orders were down by a half in the first six months of the year, compared to 2019, at £170m.
Even before the price crash, a weaker US onshore industry saw the oil and gas division’s share of Weir's overall sales fall from 32 per cent in 2018 to 23 per cent in 2019.
Weir’s focus on that market means a quick recovery for the division won't be forthcoming. Consultancy Rystad Energy said last week that it expected production to fall again in September after improving through the summer months. “A gradual decline in [lower 48 states] output may nevertheless set in from September as onshore drilling remains below the level required to maintain production in nearly all US oil basins,” Rystad said.
