Oil services companyPetrofac (LSE: PFC) has had a surprisingly positiveyear, given the oil sector slump and the fact that it ended 2014 byposting twoprofit warnings. Investors entered2015 fretting over scrapped projects, work backlogs and rising debts and they would have been even more worried if they knew what the yearhad in store for the oil industry.
That Petrofac emotion
Yet Petrofacs share price is actually up 7.5% over12 months, while so many oil stocks are down 40% or 50%. This is even more surprising when you consider its Shetland shenanigans, where it incurred losses totallingnearly $263m on theLaggan-Tormore gas plant site, due to high labour costs, industrial action and harshNorth Sea weather. The delayed project is now reaching completion.
Happily, Petrofacs main focus is on warmer climes in the Middle East and Africa, where demand for its services has been rising as Opec producers ramp up production to maintain market share. Its group backlog stood at $21.6bn on30 November, up from$18.9bn at the start of the year, giving it a secure flow offorward revenues. Its success in winning new contracts and extending existing projects is particularly impressive given the oil investment slowdown.
Petrofac also boasts a robust pipeline of bidding opportunities and withnet debt broadly flat at around $1bn, there are few worries on this score.What it really needs, naturally, is a spike in the oil price. Whensentiment briefly rose last week, it leapt more than7% in a day as investors reckoned it would be ripeto benefit from any recovery. Withforecast earnings per share (EPS) growth of 174% this year, Petrofaccould be a relatively safe way to play the fightback, especially at its current valuation of just 6.3 times earnings. Its 6.1% yield also tempts.
Weir Group (LSE: WEIR) has had a far tougher time, its share price down50% in 12 months. The Glasgow-based engineer has been hit hard by the slowdown in shale. US drillers have been resilient but are showing increasing signs of strain as their pricing hedges run out. Weir grew strongly on driller demand for its pumps and crushersand has nowbeen sunk by the slowdown as miners cutinvestments, buyfewerconsumables and mothball higher-cost mines.
When oil trading was at $50 last NovemberWeir was predictingfurther declines in upstream oil and gas activity, so you can imagine the damage $30 oil is inflicting. Its aftermarket has also been hit. Management has been slashing jobs and costs to cope while continuing to invest in products and technology, as it still believes in thelong-term potential of its markets and business model. Shale activity could quickly revive if oil hits $50, but confidence has been hit hard.
Weir now trades at a temptingly lowsix times earnings. But be warned, revenues and profits are both forecast to decline slightly this year, while EPS mayrise just 1%. Some may consider this a recovery play but Weir has a long andbumpyroad ahead of it.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Petrofac. The Motley Fool UK has recommended Weir. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.