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Transfield targets oil and gas services as mining slumps
May 30, 2013 / 10:18 AM / 5 years ago

Transfield targets oil and gas services as mining slumps

* Cost pressures, falling Australian dollar spur spending delays

* Transfield sees mining exploration, drill rig use plummet

* Australian oil and gas business still strong

BRISBANE, May 30 (Reuters) - Australia’s Transfield Services is relying on more work from the oil and gas sector to help offset a sharp decline in its mining business, its chief executive Graeme Hunt said.

Some of its clients had also pushed back capital spending to boost margins, Hunt said, betting that a fall in the Australian dollar next fiscal year would bring down their costs.

Transfield, which provides services for both resource and manufacturing companies, issued a profit warning earler this month blamed on the downturn in commodities.

“No doubt a lot of our clients have been sitting there staring at their fiscal year 2013 results and thinking, what can I do to reduce or deter expenditure,” Hunt told Reuters.

Oil and gas, which accounts for 30 percent of its business, was a bright spot for Transfield, with the company working at full capacity, Hunt said.

Companies in petrochemicals, processing, and manufacturing had also seen their margins squeezed by a strong Australian dollar, causing them to push back spending on maintenance and other services into the 2014 fiscal year, Hunt said.

The local dollar slipped below parity against the U.S. dollar this month for the first time since July 2012 and is currently trading at around 97 cents to the U.S. dollar.

But Hunt said the trend of pushing back spending would not go on forever.

“They’ve delayed it to some extent, but it’s not the kind of thing that you can just not do,” he said.

“It’s more a case of revenue being pushed back as opposed to revenue disappearing.”

The firm has seen the most dramatic cuts in mining exploration.

Transfield’s more than 20 mineral drilling rigs used for mining exploration had seen their usage slide from 80 percent 12-18 months ago to under 10 percent as miners abandon exploration, Hunt said.

Mining production work has also slowed with the company working at around 60 percent capacity versus around 80 percent capacity previously.

Transfield’s shares have dropped from over A$2 per share in mid-February to under A$1 per share.

It has not been the only services firms hit by the mining slowdown. WorleyParsons Ltd, Boart Longyear Ltd , UGL Ltd, Fleetwood Corp and Coffey International Ltd all cut profit forecasts earlier this month.

Mining services make up about 10 percent of Transfield’s business. (Reporting by Rebekah Kebede; Editing by Ed Davies)

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