Hello. Welcome to Company Focus. My name is Aamer Nawid. I'm an Analyst at Fat Prophets. This week we're going to be taking a look at energy support services company John Wood Group.

With the average price of crude oil in 2009 being 60 per cent below 2008 it was no surprise that capital expenditure last year across the oil and gas industry was contracted by around about 50 per cent. This year though the situation is different. As you can see from the chart, the price of crude oil has rallied significantly and in my view, this will translate across to confidence in terms of development and investment in the industry and should see capital expenditure return to greatest levels. So good news then for the likes of John Wood Group and its contemporaries.

Looking at the year-to-date performance, John Wood Group versus the broader market, it is clear to see the investors tuning into the fact that the company is very adept at renewing its existing contracts and adding new ones. Last month, the company produced a robust set of full year results for 2009 which basically show that they managed to contain the fall in top line to 6 per cent with revenue coming in at just under $5bn. Okay, a fall in underlying earnings of 19 per cent due to margin contraction is not great, but given the year that 2009 was, these were a resilient set of results in my view.

So what does 2010 hold for John Wood Group? Well a lot depends on the price of oil. Oil demand is set to more than offset the falls in 2008 and 2009 in this coming year alone. What's more, the International Energy Agency have also been ramping up their expectation of emerging markets demand which shows that the price of oil has numerous underpinning struts.

Earlier this week oil jumped above $87 per barrel which put the commodity at an 18-month high and from where I can sit, the momentum and signals are all suggesting that a return to triple digits is on the agenda sooner rather than later. A rising price of oil is good news for John Wood Group.

The key unit, the key business unit, to keep an eye on is its exploration and production facilities division which accounts for approximately two-thirds of earnings and revenue last year.

Now last year revenue remained steady but earnings fell due to a margin contraction. What basically happened was oil companies weren't so confident in pursuing or developing these projects.

Now development spending is a high margin area for Wood Group. A higher oil price will see a reverse of this trend and see this higher margin play more of a role in bottom line over the coming months and years and this will obviously result in a boost to profits.

So how John Wood Group stack up against its peers? I suppose the first company to look at is Petrofac. Petrofac was the feature of the first Company Focus of 2010. As I suggested then, share price has rocketed and sort of kept pace with John Wood Group in the early part of this year. Despite the reductions in capital expenditure that I've been talking about, Petrofac managed to increase its order backlog to over $8m, doubling last year, so a pretty resolute performance there.

The key feature about Petrofac is that it relies on national oil companies for its capital expenditure. National oil companies are companies which are owned by the country in which they operate, an example being Saudi Aramco, a Saudi Arabia based largest oil company in the world.

Now these guys tend to have deep pockets because the cost of extraction is relatively low, so this has provided Petrofac with a good deal of income security. It goes someway to explaining why the share price has actually quadrupled since December 2008 versus John Wood Group's doubling over that same period.

The other player I suppose in the space is AMEC. AMEC, as you can see, the share price here has underperformed the other two so far this year mainly due to I suppose management's cautious guidance with regards revenues for this year.

Like Wood Group, AMEC relies on non-national oil company expenditure. Despite this underperformance, I do feel very optimistic with regards AMEC's shares with regards the performance. In the latter half of this year I can see them rallying mainly in anticipation of a return, a significant return, to top line growth in 2011.

The key with AMEC is, once again, they sit on a large cash pile, so plenty of room there to make any earnings accretive acquisitions should management see fit. In addition to this, their client list reads like the who's who of the oil and gas industry, so plenty of reasons to be positive about AMEC also.

I think overall the key feature for these companies is the rising price of crude oil. Crude is on its way up. This is great news for the exploration and production companies, for the likes of Tullow Oil and Cairn Energy.

But it also bodes really well for Wood Group, Petrofac and AMEC. Given the fact that oil is rising, it means that projects with higher capital costs are now becoming economically more viable. Essentially, this is going to basically underpin earnings for the group of companies as a whole.

Thanks for watching. Make sure you tune in again next week.