Oilfield services provider Amec Foster Wheeler has endured a torrid time in Thursday’s session, the stock last 18% lower after releasing a hair-raising business update.

The London engineer advised that it agreements have been made to divest three more assets for a combined sum of £100m, as part of the operational review that started in the summer.

Amec Foster Wheeler is having to undertake massive restructuring to soothe its colossal debt pile, and has targeted £500m worth of asset sales by June 2017. And the firm added that it ‘is now in talks to sell the core boiler business and the rest of Global Power Group to separate buyers.’

The commodities-focussed firm said that it expects net debt to clock in at £1.1bn by the year’s end, helped by the proceeds from the three asset sales. However, this is still up from debt of £946m as of the close of 2015.

And investors have been particularly spooked by Amec Foster Wheeler’s comments today that ‘we have not yet concluded our thinking on the right mix of investment and funding options which in aggregate will lead to an appropriate balance sheet and create a strong ongoing business.’

This issue has prompted the business to put its capital markets day back to March 21st from its original date of November 15th.

Demand for Amec Foster Wheeler’s services has tanked in recent times, as oil producers across the globe have taken the red marker to their capex budgets to combat weak crude prices.

And the engineer predicts that conditions will remain difficult in 2017, noting that ‘we continue to expect another year of Oil & Gas decline and for solar activity to reduce significantly from the record levels seen this year.’

On the plus side, however, Amec Foster Wheeler expects conditions to improve in other areas, the firm forecasting ‘continued growth from Environment & Infrastructure, a better performance from Mining and a significant contribution from cost savings.’

Amec Foster Wheeler’s operating review has identified an extra £100m worth of cost savings per year, the company noted today.

But the spectre of enduring weakness for its core Oil & Gas division means that Amec Foster Wheeler remains in a precarious situation.

Norwegian black gold producer Statoil today cut $1bn from its 2016 capex budget, to $11bn, and trimmed its exploration target to $1.5bn from $1.8bn as it struggles to come to terms with weak crude values and mend its battered balance sheet.

Brent prices still remain locked around the $50 per barrel marker, some way from the June 2014 level of $115, and values could continue to struggle for some time yet. A conditional agreement by OPEC nations to freeze output is already threatening to unravel, while US and Russian production is sailing still higher.

Some would argue that a P/E ratio of 9.4 times for 2017 is fair value for Amec Foster Wheeler. But I reckon the company has much, much more room to fall given the enduring problems facing commodities markets.

StockMarketWire.com
Amec Foster Wheeler has agreed an all-share offer from Wood Group.

Amec Foster Wheeler said significant progress on its £100m overhead cost reduction programme in the fourth quarter was offset by ongoing challenging conditions in the oil and gas market and the impact of cost over-runs on a fixed price US government contract in the Pacific in the E&I segment.

Overall, trading margin was 5.8%, 110 basis points lower than 2015.

Revenue in 2016 was £5,440m (2015: £5,455m), down 8% on a like for like basis, as a strong performance in solar and E&I was offset by continuing weakness in the oil and gas market.

Trading profit in 2016 was £318m (2015: £374m).

The order book at the end of December stood at £5.8bn, compared to £6.2bn at the half year.

The group said that since the year end it had seen a number of contract wins and today announced that it had clinched a new agreement, worth £125 million to provide long-term support to EDF Energy Nuclear Generation.

Chairman John Connolly said: "Since the arrival of Jonathan Lewis as CEO, the executive management team has made significant progress towards the transformation of the business.

"This has been achieved through cost reduction initiatives, the disposal of non-core assets and a reorganisation of the business.

"The Board have fully supported the revised strategy and the preparations to deliver the appropriate balance sheet to support its standalone prospects.

"However, the Board believes that a combination with Wood adds to the standalone prospects of the Company, by accelerating the delivery of the future value inherent in the Amec Foster Wheeler business and, at the same time, helps to realise the full potential of each of Amec Foster Wheeler and Wood.

"The all-share structure of the offer allows our shareholders to benefit from the significant synergies and other strategic benefits that are expected to be realised from the combination.

"Amec Foster Wheeler will also be well represented on the Board of the enlarged group, with four of our directors joining Wood's board, including Roy Franklin, who will be appointed Deputy Chairman and Senior Independent Director."

The group said that as a consequence of today's recommended all share offer for the company, it no longer planned to release its full year results and host the investor event on 21 March 2017.

Amec Foster Wheeler has come under investigation by the Serious Fraud Office over its work with consultant Unaoil and possible bribery and corruption offences. The engineer insisted it did not expect the probe to have an impact on its takeover by John Wood Group, which it said was still expected to take place in the fourth quarter of this year.