WOOD Group has increased its exposure to the US shale business with the acquisition of a construction specialist although firms in the sector came under renewed pressure as the crude price hit an 11 year low.
Aberdeen-based Wood Group has agreed to acquire Kelchner, whose services include building the pads that firms operate shale wells from and access roads.
The price of the deal was undisclosed but looks likely to have been $50 million (£33m) or more.
Ohio-based Kelchner is the fifth business working in US shale areas that Wood has acquired since 2012.
It has made the latest expansion move amid increasingly challenging trading conditions for oil services firms in such areas and in the North Sea.
Oil and gas firms have been cutting activity in response to the near 70 per cent fall in the crude price since June last year.
Earlier this month it emerged that Wood Group has shed around 2,000 jobs in the North Sea this year, with 1,000 cut in the last five months.
The outlook for the industry got grimmer yesterday when Brent crude fell around two per cent, to $36.05 per barrel, in morning trading as the rise in global supplies ran well ahead of demand. This is the lowest level recorded since July 2004.
Saudi Arabia has been pumping fast rather than playing its expected role of trying to support prices by limiting output.
Experts believe the Saudis are prepared to live with a lengthy period of low oil prices to put pressure on US shale producers, which powered dramatic increases in production in the US in recent years.
In its interim results announcement in August Wood noted that activity had dropped onshore the US this year. The company shed 3,000 jobs in the Americas in the first half.
However, it has chosen to buy a business whose fortunes will be linked to the number of wells drilled in the US.
Wood noted the Kelchner deal would take it into the Marcellus and Utica shale areas. It entered other shale areas including the Bakken and Eagle Ford through previous acquisitions.
The deal appears to represent an affirmation of the strategy followed by Wood Group under outgoing chief executive Bob Keiller.
He identified shale as a market in which Wood could achieve significant growth given how much oil and gas firms were investing in it and used acquisitions to build scale quickly.
The biggest deal was probably the acquisition of Elkhorn in 2013, for around £125m.
Wood agreed to pay up to around £113m for Mitchells in 2012. With 375 employees, Kelchner looks to be similar in size to Mitchells, which had 365 staff when Wood bought the business.
The Kelchner deal may be the last announced by Wood under the leadership of Mr Keiller, who will retire from the group on 31 December. He will be succeeded by Robin Watson, former head of the Wood Group PSN maintenance arm, through which the group does much of its shale work.
Wood appears to be betting on oil prices eventually recovering and activity picking up.
Brent fetched $115/bbl in June last year.
But market watchers warned prices could remain under pressure some time based on current supply and demand trends.
“Really, I wouldn’t like to be in the shoes of an oil exporter getting into 2016. It's not exactly looking as if there is light at the end of the tunnel any time soon," Saxo Bank senior manager Ole Hansen told Reuters.
Wood has used other recent acquisitions to reduce its dependence on the upstream oil and gas exploration and production business.
Earlier this month Wood Group bought the Texas-based Infinity Group for up to around £130m, giving it an entry to US refining markets.
In September it bought the Bedfordshire-based Automated Technology Group to help it move into new areas such as car manufacturing.
Kelchner generated around $93 million sales in 2014, when Wood Group had total revenues of $7.6bn.
Shares in Wood Group closed up 0.5p at 587.5p.
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