Wood Group expects higher cost savings in Amec Foster Wheeler buy

Oil services company Wood Group expects for its cost savings stemming from a deal to acquire its compatriot rival Amec Foster Wheeler to be 36 percent higher than previously estimated.

UK’s Wood Group made the offer to buy Amec Foster Wheeler for approximately £2.225 billion ($2.768 billion at current exchange rate) in mid-March.

The oil services company said on Wednesday that, as a result of further ongoing analysis, it has been able to increase the expected level of pre-tax cost synergies from at least £110m per year to at least £150m per year by the end of the third year following completion of the combination.

According to the company, this is an increase of 36 percent compared with the anticipated synergies set out when announcing the deal in March, which would be achieved through operating, corporate, and administration efficiencies.

Wood Group said that 50 percent of “quantified cost synergies” would come from operating efficiencies coming from “economies of scale in addressable operating cost, efficiencies in operational procurement spend and the reduction of duplicate costs across country and regional leadership.”

The corporate efficiencies will contribute 20 percent through reduction of duplicate costs across the board and executive leadership teams.

Administration efficiencies (30%) are expected to be generated from the consolidation of overlapping office locations, the elimination of duplicated IT systems and the reduction of duplicate costs across central support functions.

The company has said that realization of of these synergies would give rise to one-off costs of approximately £190 million (US$231 million) incurred in the first three years post-completion of the combination.

Unions worried

If we’ve learned anything from the mergers and acquisitions in the oil and gas business, it is that “synergies and efficiencies” usually mean job cuts.

This is exactly what Unite, the UK’s largest workers’ union is worried about.

Following the announcement of the offer by Wood Group to take over Amec Foster Wheeler, the union has asked for a full disclosure on any employment plans that are part of the planned takeover.

The Union has expressed concern about the news and said it was “disappointing that the first our members are hearing about this takeover, which affects their future employment, is through the media.”

“Yet again share prices are put first and the employees last,” John Bolland, Unite’s regional manager said last month.

Bolland said: “Unite is clear – we will make sure the rights of our members are protected during any transfer of employment, and we will fight to defend their jobs and pay.

“We also have concerns that two of the largest employers in the North Sea are going to merge, and the impact this will have on opportunities for employment in a struggling North Sea.”

Offshore Energy Today has reached out to Wood Group, seeking specifics on the potential job cuts.

This is what the company said in an emailed response: “We are not able to comment on any expected cuts at this at this time as we are still undertaking our assessment of the potential integration but there will be some operational and administrative restructuring required.  However both businesses are people businesses, we therefore attach great importance to the skills, capabilities and experience of our workforce as they are the key to our success. The purpose of the deal is to target growth and new markets which in the longer term is an employment creator.”

Offshore Energy Today Staff