Oversupply in US shale market is proving "challenging" for the group
Engineering firm Weir Group has reported a 29 per cent rise in first-half revenues and 27 per cent rise in pre-tax profits.
The Glasgow-based company said total revenues for the first half of the 2012 year were £1.3 billion against £1 billion last year and pre-tax profits were £226 million, up from £166.8 million a year ago.
However, the group warned an oversupply of shale gas in the US market, where Weir has been focusing much of its acquisition activity in the past year, has led to a pump overcapacity which Weir expects will put downward pressure on original equipment orders well into 2013.
Revenue from the oil and gas division rose 49 per cent to £492 million, despite a seven per cent drop in orders in pressure pumping equipment.
Weir had announced in May, the pressure on margins for US shale gas producers had led to a £46 million pump order placed last year being cancelled.
As a result, second half performance in the groups oil and gas division is expected to come in “lower than previous guidance”.
Weir acquired Houston-based shale fracking wellhead specialist Seaboard Holdings in a $675 million (£431 million) all cash deal last November.
Then in January of this year, Weir Dallas-based Novatech in a £113 million deal which it said was part of wider strategy to expand in US 'fracking' industry.
A 2008 white paper published by the US oil and gas giant Halliburton estimated conservatively that current recoverable reserves of shale gas in the US are between 500 and 1,000 trillion cubic feet.
The rush by developers to move into shale gas extraction has seen wholesale prices plummet as a result.
Weir chief executive, Keith Cochrane, said the company expects to see an improvement in demand in the pressure pumping aftermarket in the second-half, but added guidance for the full-year would be largely dependent upon the timing of an improvement in that market.
Group overall performance was lifted by strong growth in the mineral and power and industrial divisions helped to offset “challenging” conditions in the oil and gas division.
Cochrane said: "These results bear out the strength of our well-diversified group."