Weir warns on profit due to weak Middle East oil markets

The statement sent shares in the firm, which makes valves and pumps for the energy and mining industries in more than 70 countries and is one of Scotland’s biggest employers, down as much as 6.5 percent.

While a statement from the firm explained that “there are signs in the group’s third quarter performance that our core markets have started to improve,” it also said increased competition in the Middle East combined with lower prices in North America had hurt trading in its oil and gas unit.

Engineering and oilfield services companies have seen revenues plunge as miners and energy exploration and production companies cut spending to weather weak oil and commodity prices.

Weir noted that orders at its Oil & Gas division slumped 10 per cent year-on-year between July and September,

This compares with a 16 percent first-half fall.

Original equipment orders fell almost a quarter and aftermarket orders by 6 per cent.

Unexpected weakness in the Middle East hit Weir’s oil and gas unit and overshadowed some higher activity in North America where rig counts have risen.

It said that in the critical North American market “volume growth was offset by sustained pricing pressure which, combined with the division’s focus on reducing inventory and maximising cash generation, restricted flow through to profits.”

Middle East accounted for about 15 percent of the company’s revenue last year.

The oil services company said it now expected oil and gas unit to break even in the fourth quarter, rather than return to profitability over the period as it had previously forecast.

Crude is still trading below the $50 per barrel mark that most producers say is their breakeven price.