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Weir’s profit warning ‘may signal end to US shale boom’

Jon Stanton

Jon Stanton: ‘cash preservation’

A profit warning from Weir Group is being seen as a signal that the US “fracking” shale boom could be coming to an end.

The Glasgow-based FTSE 250 firm said orders for its oil and gas division were down 32% in the third quarter, blaming “intensified” capital constraints in its North American market.

Profitability is expected to fall further for the remainder of the financial year.

Jon Stanton, chief executive, commented: “Our project pipeline in mining remains encouraging but in the third quarter we saw some project approvals deferred due to negative macro sentiment. 

“In North American oil and gas markets, demand was impacted by an intensified focus on cash preservation in the quarter.  In response we have undertaken a c.£30m cost reduction programme in this division to support competitiveness in the short-term.

“Looking forward, we now expect 2019 full year operating profits in the Oil & Gas division to be below our previous range with guidance for both Minerals and ESCO divisions unchanged.”

Weir’s woes followed a similar warning from rival Hunting, says the financial website Proactive Investors, which notes that it also warned investors that full-year profits would be pushed to the lower end of market expectations because of a continuing decline in US onshore drilling.

The slowdown in investment by oil companies is having a knock-on effect on oilfield services. Attention will now turn to fellow mid-cap oil services company Wood which will deliver a trading update in January.

Intense activity in shale between 2010 and 2015 has been followed by a maturing of the sector with investors wanting less production and more cash flow.

A report from consultancy KPMG said oilfield service providers had recorded their lowest level of transactions in five years.

The market is also seeing a cutback in investment as a result of global uncertainties such as the US-China trade war, though recent signs of a deal may help reverse that sentiment.

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