£130m wiped off the value of Wellstream
Nov 19 2008 by Peter McCusker, The Journal
ONE of the region’s leading oil and gas industry supply companies lost over £130m in value yesterday after warning the falling oil price may lead to reduced exploration with a knock-on effect on its order book.
Newcastle’s Wellstream, which earlier this year was one of the stock market’s fastest growing companies, saw its share price plummet by one-third in early trading before recovering to finish 27% down.
Six months ago the oil pipeline company’s share price stood at £14.72, valuing the business at £1.3bn, the share price closed last night at £3.67 valuing the company at £365.7m. It had started the day at £5.03.
It’s dramatic share price plummet for a company in a sector which has so far weathered the worst of the credit crunch has mirrored a dramatic fall in global oil prices with oil currently being traded at around $55 per barrel, down from a peak of $147 in July. However Wellstream said demand remains “robust” and revenue was expected to come in ahead of schedule for the year.
And one analyst said he expected to see the share price of oil service companies, such as Wellstream, rise as the market had now factored the falling oil price into equities.
In the trading statement for the period July 1 to November 18 the company said: “The board is pleased to announce that trading continues to be broadly in line with its expectations with revenue for the second half of the year expected to be at, or marginally ahead of, the first half of 2008.
“Demand for our services remains robust and, despite the current volatility seen in the oil price, we continue to have good long term forward visibility on new projects.” Wellstream has a £950m order backlog, which includes a £600m four-year order with Brazilian state-owned oil company Petrobras.
Greig Aitken, an oil and gas analyst with Brewin Dolphin, said there are signs some oil exploration companies are shelving capital expenditure plans, but short term fluctuations in oil prices, would not affect plans of the major companies with these often set out set five years ahead.
“The share prices of oil services companies peaked over the summer and the subsequent falls have been massive, but the variables, such as whether a scheme will get debt finance and the falling price of oil have now been factored into the share price of oil service companies. I believe they are now reasonably cheap.”
In August this year Wellstream said its half-year profits increased fivefold to more than £40m after revenues shot up by over 80%.
