Monday, September 27, 2021

Weirs woes signal the end for the US shale boom

A profit warning on Tuesday from Weir Group PLC (LON:WEIR) seems to be signalling the end of the boom in US ..

By admin , in England , at November 6, 2019

A profit warning on Tuesday from Weir Group PLC (LON:WEIR) seems to be signalling the end of the boom in US shale that has driven recent strong performances for oil services firms.

The FTSE 250 firm said orders for its oil and gas division were down 32% in the third quarter, which the company blamed on “intensified” capital constraints in its North American market, with profitability expected to head further south for the remainder of its current financial year.

READ: Weir Group lowers full-year guidance for its oil & gas businesses following tough third quarter[hhmc]

Weirs woes followed a similar warning from rival Hunting PLC (LON:HTG) in late-October when the group said its full-year profits would be pushed to the lower end of market expectations because of a continuing decline in US onshore drilling.

According to an analyst at a City investment bank, the downturn for Weir is the result of a “slowdown in investment” by oil companies, which in turn reduces demand for oilfield services.

This reduction follows the US shale boom, a period between 2010 and 2015 that saw substantial increases in oil and gas production through the use of fracking, a method of using high-pressure water and chemicals to break open rock underground and releasing natural resources.

This boom, in turn, drove interest in both onshore and offshore oil and gas projects, however, the analyst says that US shale market has since "matured" and “investors are [now] wanting less production and more cash flow”.

READ: Hunting warns profits under pressure from US drilling slowdown[hhmc]

The idea that the USs shale revolution is coming to an end is corroborated by a September report from consultancy KPMG which said oilfield service providers had recorded their lowest level of transactions in five years.

Alan Kennedy, lead partner for oilfield services at KPMG, says that while there had been a huge boom in investment over the last decade or so, investors and companies were “getting far more cautious” in terms of backing new ventures.

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