WorleyParsons CEO Eyes US Oil Sector Turnaround -- Update

   By Rhiannon Hoyle 
 

SYDNEY-Steps taken by President Donald Trump to revive stalled oil pipeline projects and ease regulations on new infrastructure are helping to fuel improving confidence in the oil-and-gas industry as it emerges from a two-year-long price slump, according to the chief executive of energy contractor WorleyParsons Ltd.

While conditions remain tough for companies that provide services to the world's top oil producers, there's an increasingly "clear message" from energy companies that the market has hit bottom and should improve in future, Andrew Wood said in an interview on Monday. Oil companies cut US$1 trillion from their planned global spending on exploration and production for the period between 2015 and 2020 in response to the downturn, according to a 2016 report by consultancy Wood Mackenzie.

A turnaround couldn't come soon enough for WorleyParsons, which on Monday reported a loss for the six months through December. The company was hit by restructuring costs as it grappled with what has been falling demand from resources producers. Shares were recently down 16%.

"There is a sense there is a greater opportunity to get projects moving" again, Mr. Wood said of the industry on which WorleyParsons relies for the bulk of its profits.

Mr. Trump has recently taken steps to revive two controversial oil pipeline projects--the Keystone XL and Dakota Access projects--that had been rejected by the Obama administration. If completed, Keystone would send up to 830,000 barrels of oil a day, mostly from Canada's oil sands to Steele City, Neb., where it would link to existing pipelines to Gulf Coast refineries. The Dakota Access project would carry up to 570,000 barrels of oil a day from North Dakota to Illinois.

"Certainly the message from the new President was that he was going to reduce red tape and allow things to develop faster, and he appears to be holding true to that philosophy," said Mr. Wood.

The rhetoric of the new Trump administration isn't wholly responsible for the turnaround in sentiment, Mr. Wood said. He believed the primary driver of increasing confidence has been a recovery in oil prices, which hit a one-and-a-half-year high in early January and has encouraged some companies to start to wade back into big-ticket projects once again.

"You can't hold off investment forever in a depleted industry," said Mr. Wood.

BP PLC recently approved plans for a major deepwater project to expand production from the Mad Dog oil field off the coast of Louisiana.

"The low point in the profit cycle looks in sight," Citigroup Inc. analysts said of the contractor's earnings in a Feb. 16 note.

On Monday, Macquarie said Mr. Wood's remarks on the outlook for the industry were more positive than anticipated, although earnings in its recent fiscal half disappointed. Australia-listed WorleyParsons said aggregated revenue from the hydrocarbons sector fell by 33% during the period, and that earnings before interest and tax from that sector was down 20%.

While resources producers continue to rein in spending--BP expects the Mad Dog project to cost closer to US$9 billion, down from a 2013 estimate of US$20 billion--Mr. Wood said there's still plenty of cash to be made by contractors.

"We are not fearful of that," he said, citing an expansion in first-half margins from hydrocarbons work to 9.3% from 7.7% despite falling revenue. "Our customers understand that in a sustainable industry, we all need to make a reasonable return," he said.

WorleyParsons said it aims to "defend and strengthen" its position in the onshore conventional, offshore and heavy oil and oil sands industries this fiscal year, while also pursuing opportunities to expand in chemicals, new energy and renewables. It is also investing in Saudi Arabia and China, which it described as prospective markets, and has opened new offices in Azerbaijan and Germany.

Write to Rhiannon Hoyle at [e-mail]

(END) Dow Jones Newswires

February 20, 2017 00:08 ET (05:08 GMT)

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