Prosperity pours in to busy Wellstream

Aug 29 2008 by Peter McCusker, The Journal

HALF-YEAR profits at the world’s second-biggest offshore oil pipeline supplier have increased fivefold to more than £40m after revenues shot up by over 80%.

Newcastle group Wellstream, valued at £1.2bn and one of the FTSE-250’s fastest-growing companies, says its order book now totals almost £1bn.

There is little sign of a slowdown at the 2006 Journal North East Business Awards Company of the Year, with revenues set to come in at £376m for the year and possibly hit £625m by 2010, according to one City analyst.

Wellstream’s world-leading expertise in subsea oil recovery pipes is fuelling demand as exploration is driven by higher oil and gas prices. Shares responded to yesterday’s results by climbing 4.2% to their highest for weeks at 1220p, but still short of last May’s record 1472. Chief executive Gordon Chapman, who led the buy-out of the company from former US owner Halliburton in 2003, said: “I am pleased to announce a strong set of results, which have been driven by our continuing focus on throughput and capacity expansion. Demand for our services continues to be supported by a solid oil and gas market.”

Last week nebusiness.co.uk reported that Wellstream had landed a four-year contract worth £600m with Brazilian state-owned oil company Petrobras.

Wellstream said its order book, including that deal, was now £940m.

Some of this year’s growth has been driven by a project to increase capacity by one-third at both its Walker site, employing 600 people, and a site in Brazil, employing 400. Output at the Brazil factory rose to 59km of pipe compared with 4kms in the same time last year. This work is to be completed by the first quarter next year and decisions on any more capacity improvements will be made then.

Bosses are excited by a new £11m contract with Petrobras in a recently discovered field off Brazil with reserves of possibly 8bn barrels. The UK North Sea oilfield is 65bn barrels.

Mr Chapman said: “The award of the £11m contract is for the first phase of this world-class field development and is a tremendous achievement for Wellstream.” Chairman John Kennedy said: “We believe that high energy prices, even after recent falls, will continue to support expanding drilling and capital budgets for our key customers and bode well for future activity.”

The one fly in the ointment is the loss-making onshore pipeline arm, worth 5% of turnover.

But Merrill Lynch analysts said: “The outlook for Wellstream looks bright … with robust growth prospects.”

Brewin Dolphin, Newcastle, investment manager Fergus Westwood said: “The tone for the future sounds positive after recent confirmation of a four-year contract with Petrobras and the plans to extend capacity seem on track.”