John Wood warns over delays to US contracts

John Wood Group, the Aberdeen-based oil and gas services group which floated last year, warned that delayed offshore drilling projects and continuing turmoil in the US power market meant it would miss profit forecasts for 2003.

Shares in the company fell more than 12 per cent on the news, wiping more than £40m from the value of the 45 per cent stake still held by the Wood family, one of Scotland's wealthiest clans. Wood Group has been struggling to win valuable maintenance contracts for gas turbines from US power stations, which have yet to restart investment spending after the splurge of the late 1990s. The company - which helps design and maintain oil rigs - has vastly expanded its gas turbines business in recent years and said yesterday it is winning market share, but having to sacrifice profit margins to do so.

Sir Ian Wood, the chairman and chief executive, said performance would be held back in 2004, as well. There have been further delays to a number of deepwater drilling projects in the Gulf of Mexico and off the coast of western Africa, where Wood has particular expertise. Oil giants appear to have switched their focus to cheaper exploration opportunities onshore in Russia.

Prospects for 2005 remain encouraging, Sir Ian said. "Our medium-term strategy remains valid and robust, and we continue to gain market share in key target markets. We are obviously disappointed in the slower recovery in US power markets and contract delays in deepwater engineering. However, we believe these are fundamentally strong markets."

Wood Group shares closed down 16.75p at 132.75p, compared with a flotation price of 195p in May 2002. The company will also write off the value of its investment in Asco, a Scottish logistics company in which it is a 30 per cent shareholder as a result of a deal in 1997. Asco is having to be refinanced and Wood Group will take a $15m hit from the write-down.

Thomas Martin, an analyst at CSFB, said: "This is the third consecutive negative revision to guidance from Wood Group: the company previously having reduced guidance for the gas turbine services and engineering divisions. We see no signs of a near-term pick up in the rate of contract awards for deepwater field developments and the continuing weakness in US power markets leads us to reduce our longer term growth assumptions."