Wood Group, the UK oilfield services company, has cautioned the market will continue to “present challenges” in 2017, despite the recent stabilisation of oil prices and a recovery in the US shale industry.

Spending by exploration and production companies fell for a second consecutive year in 2016 and was down 20 per cent from 2015 levels, Wood Group said as it reported a 52 per cent drop in annual pre-tax profit to $66m.

Total revenue in the year to December 31 fell 15.7 per cent to $4.9bn, while the company’s Ebitda margin edged back by 0.6 per cent to 7.4 per cent as oilfield services companies continue to be squeezed on pricing.

While there may be a “modest” increase in spending by oil companies this year, Wood Group said it is remaining cautious in the near-term given the lag between any rise in oil producers’ budgets and when that filters through to the profitability of oilfield services groups.

“Overall, the oil & gas market continues to present challenges in 2017. We anticipate modest recovery only in markets such as US onshore and greenfield offshore projects,” the company said on Tuesday.

“2017 performance will reflect the current pricing environment for work which remains competitive, although we believe our cumulative overhead cost savings since 2015 will be sustainable in 2017.”

Despite the sharp drop in profits, Wood Group’s total dividend payout is 10 per cent higher than in 2015 at 33.3 cents.

US oilfield services companies such as Halliburton have reported an improvement in the prices they have been able to charge in North America after two painful years for the industry but analysts are skeptical that improvement will filter through this year to other parts of the industry.

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