By Ross Kelly
SYDNEY--WorleyParsons Ltd. (WOR.AU) shares plunged after the
Australian engineering contractor warned on profits, citing delays
to the rollout of new energy projects by key customers like Total
SA (TOT) and Suncor Energy Inc. (SU.T).
More than US$1 billion of WorleyParsons's market value was
erased Wednesday after its second earnings downgrade this year. The
company blamed the latest profit warning in large part on the
deferral of Canadian oil-sands projects, which are under pressure
from a glut of cheap competing supplies of natural gas and oil
produced from U.S. shale rock.
WorleyParsons, based in Perth, said it expected annual net
profit of between 260 million Australian dollars (US$246 million)
and A$300 million, where previous guidance was for a figure higher
than the prior year's A$322 million. Its shares fell 26% in Sydney
after the company said earnings in the first half of the fiscal
year through June may be as low as A$90 million--inviting
scepticism as to whether it would reach even the downgraded annual
target.
"The market's saying we don't believe you and we're going to
take you to the cleaners until you release your first-half
results," said Brad King, a Melbourne-based fund manager at
Armytage Capital, which sold down its entire interest in
WorleyParsons earlier this year. "Certainly, they've been out in
the dog box and they're not coming out for a while."
Oil sands, an unconventional fuel source commonly found in
Canada, contain a thick and sticky form of oil that can be
difficult and expensive to extract compared with other types like
U.S. shale gas, which is growing in popularity because of its
relative cheapness to consumers. Earlier this year, WorleyParsons
won contracts for Canadian oil-sands projects such as MacKay River,
Joslyn North and Fort Hills from companies including Suncor and
Total.
"The Canadian business continues to be impacted by major project
deferrals," WorleyParsons said in a statement, adding that its
Australian business would also suffer from a slowdown in
energy-sector investment in the country's coal-rich Queensland
state.
WorleyParsons has faced further pressure from a broader slowdown
in mining investment as Australia's decadelong resources boom
cools.
Chief Executive Andrew Wood told reporters Wednesday that the
contractor expected some of the stalled oil-sands projects to be
revived next year.
"We've had a number of contract wins and we expect they will
support the outlook in the second half and beyond, but they haven't
ramped up as fast as we'd expected," Mr. Wood said.
He pointed to Suncor's decision last month to start work on its
long-delayed Fort Hills mine. Also last month, Royal Dutch Shell
PLC (RDSA) said it planned to move ahead with its Cameron Creek
project in Canada, a further sign that the oil-sands industry is
still seen as viable.
In May, WorleyParsons downgraded its profit guidance for the
financial year just ended, saying it was caught off guard by the
slowdown in investment Australia's mining sector.
Revenue has been shielded to some degree because of the
company's far greater exposure to the energy industry-which has
been supported by Asia's demand for cleaner-burning fuel such as
liquefied natural gas, or LNG. Still, many Australian LNG producers
are putting expansion plans on hold too amid growing competition
from North America supplies.
-Write to Ross Kelly at ross.kelly@wsj.com
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