Rivals circle Wood and Amec assets
Oilfield service companies eye opportunities in overlap from £2.2bn merger
Rival oilfield service companies are circling Wood Group and Amec Foster Wheeler with the aim of picking up assets and contracts likely to be shed by the UK pair as a result of their £2.2bn merger.
SNC-Lavalin of Canada and Petrofac of the UK are among those eyeing opportunities among the fallout from last week’s agreed deal to bring together the two biggest service providers to oil and gas companies in the North Sea.
Wood and Amec may be forced by regulators to sell some overlapping assets to overcome competition concerns, according to industry executives, and some customers served by both companies are likely to look for alternative suppliers to limit dependence on the merged group.
“They are the number one and two North Sea players so there will be competition issues,” said one industry leader, adding that his oilfield service company had already been approached by two large international oil groups keen to diversify their supply chain beyond Wood and Amec.
“Regulators may force them to sell assets but customers will not wait for someone in Brussels to tell them who they can do business with,” said the executive. “They will make up their own minds about how much business they want with one company.”
Wood and Amec provide services such as construction and engineering of oil and gas infrastructure and maintenance of existing facilities, and Amec also has wider operations in nuclear power, infrastructure and mining.
Like all oilfield service providers, both groups have been hit hard by the downturn in investment by oil and gas companies since crude prices crashed in 2014.
Montreal-based SNC has a similar range of businesses to Amec and is run by Neil Bruce, who was chief operating officer of the UK company before moving to Canada in 2015. This connection has raised questions over whether SNC might launch a counterbid for Amec against Wood’s recommended all-share offer.
People with knowledge of its thinking said the group was not interested in buying all of Amec but was on the lookout for assets that might be sold by the UK company before or after it is absorbed by Wood. In particular, SNC is interested in the nuclear business that Amec had already put up for sale before agreeing its deal with Wood.
Petrofac, which is set to be usurped by the enlarged Wood as the biggest UK-listed oilfield services group by revenue, declined to comment on whether it might be tempted to launch a rival bid for Amec. Analysts said the chances of a counter-offer looked slim.
“I don’t think Petrofac has got the firepower . . .[and] it has a raft of its own issues,” said Ashley Kelty, analyst at Cenkos Securities. “Would you expect Halliburton or Schlumberger to come in? Possibly, but I think probably unlikely for competition reasons.”
Wood and Amec both have operations around the world but there is a particular overlap in the North Sea. Société Générale believes the combined group would command 50-60 per cent of the maintenance, modifications and operations market in the region.
One person close to the deal said Wood Group may have to sell its North Sea business, or that of Amec, to alleviate competition concerns. But another source suggested there could be a “managed migration” of contracts to alternative providers.
Wood offered 0.75 of new shares for each Amec share, which were valued at £5.64 each — a premium of 15.3 per cent to the closing price before the deal’s announcement. Wood ended last week down more than 4 per cent at 721p while Amec shares were 1.5 per cent higher on the week at 496.6p. Analysts at Exane BNP Paribas said the proposed takeover had “diluted or overturned” the appeal of Wood for shareholders who favoured its traditionally “conservative” strategy.
Wood Group declined to comment.