Wellstream lands £600m Brazil deal

Aug 20 2008 by Peter McCusker, The Journal

FAST-GROWING North East oilpipe company Wellstream has landed its biggest ever contract which will bring it £600m over the next four years.

The deal to supply 700km of pipelines to the Brazilian state-owned oil company Petrobras is well-above the projected turnover for this year of £370m and will guarantee work for the firm’s 1,000 employees in Brazil and Newcastle. Wellstream, based at Walker, is the world’s second-largest designer and manufacturer of offshore flexible pipeline systems.

The company’s shares which had fallen 30% in recent weeks rallied, finishing up 70p ( 6.73%) over the business day to finish at £11.10. The deal highlights the strength of the region’s oil and gas companies many of whom are world leaders in providing the technology needed to extract oil from previously hard-to-get underwater reserves.

A company spokesman said the agreement was another “significant milestone” in its development.

Chief executive Gordon Chapman said: “This contract demonstrates the continued confidence of Petrobras in Wellstream as a preferred supplier and development partner. The contract also underpins our expansion plans for the Niteroi plant and allows us to support the growth ambitions of our customers in Brazil.”

The Niteroi plant in Brazil was commissioned in May, 2007, and will be operating at full capacity by the end of the first quarter of 2009. The huge deal comes just one week before the company is set to announce its half-year results for 2008.

Wellstream said earlier this year that it expects to deliver a pre-tax profit growth for this year of 85%, at around £77m, up from £41.7m last year. Sales are expected to grow 38% to £370m from £266.8m last time.

Wellstream was floated on the Stock Market in April last year at 320p and its rise since then has been stellar. It share price peaked at £14.72 in May this year, although it subsequently fell back after the price of oil peaked and some in the City expressed concerns it was not performing as well as it should.

Prior to yesterday’s announcement Wellstream had an order book worth £300m. Andrew Miller, regional office head at Barclays Wealth, said: “This is a good contract and the share price has moved ahead on the back of it.

“Long term contracts like this should make a great difference to profits going forward.”

The four-year agreement for 700km of flowlines (pipes that run along the ocean floor) and risers (pipes that bring oil to the surface) runs between 2009 and 2012. The pipes will be supplied from both the Brazilian base and the Newcastle base, which employs 600 people, and is similarly undergoing a multi-million pound expansion due to complete early next year.

Find out more about the rise of Wellstream online at nebusiness.co.uk