Aggreko says consistent oil price recovery vital for its US business

The world’s largest listed temporary power provider believes oil prices needed to be higher for longer to drive a recovery in its business with North American oil and gas customers, as it posted first-half profits that missed some analysts’ forecasts.

Having reported a 31% drop in profits to à‚£61m as part of its half-year figures Aggreko CEO Chris Weston said, while crude prices have recovered from January lows, North American shale companies were so far largely restarting projects by using power grids rather than the sort of temporary supplies provided by his company.

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“The oil price needs to be a little bit higher and higher for a reasonable period of time, 3-6 months, before you begin to see more drilling and production activity in areas where there is no power and therefore they need our services,” he told reporters on Wednesday.

The company posted a trading profit of à‚£77m for the six months ended June 30, which two analysts said was below the consensus estimate of around à‚£85m.

Aggreko shares fell as much as 15 per cent, the biggest percentage fall on London’s FTSE midcap index.

However Connor Campbell, a senior market analyst at www.spreadex.com told Decentralized Energy, “Aggreko will likely be feeling a bit relieved this Thursday; despite half year profits plunging 31% to à‚£61 million, with a 12% slide in revenue to à‚£661 million, the stock only fell by just over half a per cent. From Spreadex’s perspective clients have tentatively been buying the stock, arguably thanks to the company’s growing presence in Europe and Australia-Pacific.”

Citing North America weakness and geopolitical tensions in other markets, Aggreko reiterated full-year pretax profit before exceptional items would be slightly lower than in 2015. The forecast banks on Aggreko winning extensions on contracts in Argentina, Venezuela and Yemen.

Jefferies analysts said the guidance looked a stretch given it factored in an uptick in North America as well as success on all three contracts.

Aggreko was not expecting to deploy any power for the Olympic Games in Rio de Janeiro this year, Weston said, after it withdrew from the tender process to supply generators in December.

The company also said it had not yet engaged with the UK government over Britain’s potential power needs after Prime Minister Theresa May decided to review plans to build a nuclear plant in southwest England.

“Of course, if the crunch came and if they needed power quickly we would respond,” Weston said.

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