Woodside, Wood Group, Amec/Kentz and a twist in the tale, and Cairn Energy

WTI $107.03 -43c , Brent $110.44 -84c , B/WTI Diff – $3.41c +47c , Natural Gas $3.46 +10c

Good morning/ afternoon

I’m going to have to cross the international date line to get this out in time!

After yesterday’s mad rush with the Kentz situation, today is even more busy, Wood Group results and meeting this morning, then another meeting and we have just had a run through with Salamander, of which more later. Next week will be even more mad as most of the rest of the service companies are reporting, Petrofac and Kentz on Tuesday, Cape and Hunting on Thursday and possibly Lamprell on Wednesday (unconfirmed).

Oil Price

With markets waiting on hold for the Fed minutes tomorrow, oil has seen a little profit taking after running up in recent days. This afternoon sees the API inventory stats for last week, analysts’ consensus is for a draw of 1.4m barrels of crude oil.

Word has it that Saudi production is over 10m b/d at the moment which comes as no surprise even with exports being quite low. It was last summer that we eventually realised that as much as 3m b/d is being used internally during the summer period for domestic power usage and we also know that the Kingdom is moving ahead swiftly with plans to find and exploit more gas for such usage.

Woodside

After reconsidering the LNG options for Browse, it appears that having ruled out LNG on cost grounds Woodside has gone for FLNG, my spies in the industry tell me that for the moment at least they don’t expect this project to go for the time being.

Wood Group – Comments adjusted post the analysts meeting.

The meeting with management at Wood Group was good but I detected a certain degree of lowering of guidance not obvious from the press release. It is clear that they don’t feel as confident for next year as they did at this time last year for 2013, if that makes any sense. Also, although margins increased in every division there was some intimation that we may be near the peak despite not being at previous highs yet. I think that as to next year, it will probably be ok and it is just the visibility that is worrying them at the moment, with two major projects due to complete at the year-end it’s probably not surprising.

I show the two year chart as I suspect that this is more revealing than the shorter one and whilst todays fall is meaningful it is probably appropriate to put it into context and for the time being I would stay with the shares.

From DFT

Wood Group this morning provided another first class set of figures justifying the high rating and is ‘in line with expectations for the full year’. With revenue up 3% the profit numbers far exceeded that, EBITA is up 18.6%, profits are up 16.6% and EPS is up 19% giving the company scope to increase the dividend 24.6%.

Engineering was as usual, first class, with US onshore pipelines benefitting from the strong activity in the US shale market, this area also provided strong growth for WG PSN. PSN also demonstrated its strong position in the North Sea with ‘multiple contract renewals reinforcing their market leading position’. Wood Group GTS still a very mixed bag, less in power solutions activity, more in maintenance.

All in all the only question is the slight shortfall in the revenue number, all other parameters were good although on such a high rating there is little scope for disappointment, subject to management comments at the meeting we remain positive.

Amec/Kentz

Having commented on the Kentz side of the ‘approaches’ yesterday it is fair to comment on Amec after its expression of interest. I have recently been feeling a bit cautious on Amec, although it remains a highly defensive stock which throws off plenty of cash and therefore to a certain extent can determine its own rating, I think that it might be feeling some margin pain. The move for Kentz also strikes me as a move made from a position of weakness and I don’t have the feeling that Samir will pay up if it comes to a bidding war, they stand by strict hurdle rates and might not get to the valuation the shareholders in Kentz expect.

A twist in the tale- Enter Neil Bruce…………………

There is one interesting angle to this whole episode and it centres around one man, Neil Bruce. You will all know that Neil was COO of Amec before being removed last year when his position was ‘evaporated’ in the corporate shake-up when Samir took back the reins. I always felt that if Amec did something M&A wise that he would be the man to do it and I’m sure he has looked at Kentz before. So as you all know that nowadays Neil is in a very senior position at SNC Lavalin, a global engineering services business based in Montreal and has been more than once mentioned as a potential suitor for Kentz………………………

Cairn Energy from DFT – DY/JS

Cairn’s interims report a loss of US$219m (H1 2012: US$37m profit) due to an exceptional US$22m impairment of oil & gas assets and a US$268m impairment of the company’s interests in Cairn India (CIL). The cash position is, as expected, strong at US$1.5Bn, which rises to US$2.4Bn when the CIL investment is added. Cairn will now commence two drilling programmes in Morocco and Senegal in Q3 2013 and H1 2014, respectively, and the market will watch these campaigns closely to see if the company’s diversification plans can come to fruition after its previously unsuccessful work in Greenland.

There appear to be no real surprises in these results. The cash position remains strong and the valuation of CIL underpins the current market cap. Exploration could see Cairn outperform over the coming months, however cautious investors will wait to see evidence that the frontier work is gaining traction so that the company can overcome the Greenland legacy. If this happens, the company’s model of mature basin development in the UK and Norway supporting high impact exploration further afield could be attractive.

Despite this, Cairn continues to look fairly valued at these levels. Given the lack of appetite for exploration risk, the market will be looking at the drilling programme on a well by well basis and the share price could therefore be volatile. No real drivers to buy this stock today and we expect the market to feel the same.

And finally…

It may be Tuesday but the weekends football hasn’t been forgotten, Chelski and Man City looked frighteningly good and the Gooners started badly, that cheque book has been hidden again hasn’t it!! Maybe they are saving all their firepower to re-sign the cup polisher back from Wigan………Utd looked good as did the Hammers and Villa but they will be laughing round the Midlands seeing the Baggies lose at home to the Saints…And some things never change, Ian Holloway manager of the Eagles has, after only one game, been charged with improper conduct and bringing the game into disrepute by the FA.

See that Tony Parmesan has already left Sussex to go to Essex, nightclubs from Chelmsford to Romford will be supplying their bouncers with umbrellas by tonight…

More comings and goings at Rangers as Charles Green stands down and sells his stake in the club, meanwhile Laxey partners wants to vote out three directors including the CEO and CFO, there won’t be anyone left soon….