Profit hit at North East oil and gas company

May 13 2009 by Peter McCusker, The Journal

OIL pipeline maker Wellstream has told shareholders its order book remains strong but a temporary problem in its Newcastle factory in the first four months of this year will dent annual profits by about £8m.

The Walker company’s agm took place in London yesterday and chairman John Kennedy said performance so far this year was “encouraging against a backdrop of challenging trading conditions and some volatility in input costs”.

The company is on track to boost turnover by 10% to more than £400m this year with profits expected to come in at £70m, although this is less than initially expected.

Mr Kennedy said: “There has been some disruption in the supply chain and attendant materials processing issues, which are now largely resolved, but these have adversely affected profitability by some £7m to £8m in the period.”

Because of some defects in its production processes the company has had to reconfigure the specifications of some of the steel wire it uses in manufacturing its more complex pipes.

But Mr Kennedy went on to say this problem had now been resolved and the group’s order book remained strong, with 85% of this year’s revenues already secured from its longstanding contract with Brazilian state-owned oil company Petrobras.

Divisional director of Brewin Dolphin in Newcastle, Gary Fawcett, said: “The company’s performance is robust despite the disappointing problems with its pipe manufacturing.

“The rise in the price of oil will help Wellstream and as oil companies increase the search from some of the harder-to-reach reserves its niche products, which help recover oil from difficult, often subsea, environments, will benefit the company in the long term.”

In the calendar year 2008 Wellstream announced an 85.6% leap in annual pre-tax profits to £77.5m, with revenues rising by 39% to £369.9m.

Last year it axed 75 jobs in its Walker operation, leaving it with 550 staff on Tyneside and about the same number in Brazil.