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04 Mar, 2008

By Douglas Bence | 1:24:00 PM | Tuesday, March 04, 2008

Anyone looking for a recession-proof industry need look no further than oil and gas exploration as the industry's big operators focus on developing new reserves and extending the lives of existing ones.

The John Wood Group has enjoyed two years of 'very strong growth' and is well set for another with heavy demand for its engineering and production facilities, well support and gas turbine services which work out of 46 countries.

Some of the new oil and gas discoveries are in deep water and harsh environments, says chairman Sir Ian Wood, and from unconventional reserves like shale and the oil sands of Canada.

This suits the group well as it can pass on cost increases instead of being contracted to do a job at a fixed price.

'We did our budgets for 2006 on the basis of that oil would be $67 a barrel and it was higher than that, and at $73 last year and it was higher than that, too. We have no influence on oil and gas prices, but it is more likely to go up this year than down.'

In the year to 31 December 2007 revenue was $4.4 billion, 28% more than 2006's $3.5 billion. Profits before tax rose 42% to $259.9 million against $183.6 million.

The dividend increases from five cents to seven cents a share, up 40%. John Wood shares, initially 11p higher, are currently 401.25p, down 6.75p valuing the Aberdeen-based group at over £2.1 billion.

Sir John admits that the group is benefiting from a prolonged upside to the oil and gas cycle, but says the group is reaping the dividends of a well thought-out strategy, the market leading positions it has developed and its good customer relations.

While the group might have made its name in the North Sea, 70% of its revenue now comes from outside Europe and 80% of its profit.

In particular Sir John mentioned pipelines and downstream work in North America, its progress in Algeria, Equatorial Guinea and Trinidad plus Russia, China, Mexico and Saudi Arabia.

'The fastest growth in our business over the next few years is likely to be seen in the eastern hemisphere,' he added.

'Future growth will not be achieved without risks and challenges. The global oil and gas industry needs to develop reserves in harsher locations, and geopolitical uncertainty in some of the world's key oil and gas provinces is a fact of life'.

The group continues its policy of making bolt on acquisitions worth between $20-30 million. But it doesn't rule out bigger deals: the last one, for IMV, was $120 million.

'We have had no takeover approaches in the last two to three years, and certainly not in the last six months which is why it's mildly irritating that there has been so much speculation,' added Sir John.

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