News Column

UK Firm Sees Opportunity in Shaky Shale Market

Aug. 6, 2012

Roger Baird

shale

The collapse of prices on the US shale gas market has led to big writedowns for major players such as BHP Billiton and BP but for oil and gas services firm Wood Group this has presented opportunities.

The Aberdeen-based business, which rents equipment and provides consultancy to the natural resources industry, bought a small US rival Duval which provides services to the Eagle Ford shale gas and oil region in Texas.

The British firm said: 'The acquisition of Duval provides us with a robust platform for growth in the Eagle Ford shale region and increases our overall exposure to the US onshore unconventional oil and gas markets.'

Analysts at Oriel reiterated their 'add' recommendation and said that the deal 'increases Wood's exposure to the strong US shale activity'. Shares in Wood Group, which have risen almost 30pc over the past year, closed up 12p at 786p.

Duval serves producers in the Eagle Ford field, which covers 400 miles in east Texas with 550 gas wells and 370 oil prospects.

Shale gas is controversially extracted by tapping gas from shale rock using a process called hydraulic fracturing, or fracking, which is thought to have caused minor earthquakes and has also been linked to water supply contamination.

However, the US government backs this process as part of a general policy of becoming less dependent on imported energy. But this boosted activity has led to a collapse in the shale gas market as huge gluts have forced down the price from around pounds sterling 2.90 per million British thermal unit (Btu) last year, to around pounds sterling 1.90 Btu.

This forced BHP, which is big on the US shale scene, to announce a pounds sterling 1.8bn writedown on the value of its shale assets yesterday. BP wrote down the value of its shale gas assets by pounds sterling 1.4bn last week. But as production of shale gas slows down, the demand for oil in the east Texas field has picked up. Analysts conclude, whether it is gas or oil, a large company such as Wood Group is well placed to service whatever is in demand.

Sir Ian Wood may have stepped down as Wood Group chairman last month after almost 50 years at the helm, but the current management seem able to plot a steady path through the volatile energy markets.

The FTSE 100 closed up 124.98 points at 5,787.28, as better-than-expected US non-farm payrolls helped markets recover their appetite for risk.

Investors were underwhelmed at the lack of stimulus measures shown by European Central Bank president Mario Draghi earlier in the week.

However, they were cheered by the US employment data that showed a rise of 163,000 jobs in July, beating expectations by more than 50pc.

The news comes after the US non-farm payrolls had undershot expectations for a number of months.



Source: (c)2012 Daily Mail (London) Distributed by MCT Information Services