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City Site - Majors gain from energy growth

FINANCE

THE GROWING significance of energyrelated markets as a source of new orders for the major contractors is a key theme in the current interim results season.

Last week both Amec and Costain pointed to a rising workload for the energy industry as higher oil prices trigger extra investment in new oil and gas platforms and spending grows on alternatives such as nuclear and wind power. Indeed, Amec chief executive Sir Peter Mason said oil and gas and technical services were now the main engines of the company's profit growth. In the first half Amec's profits from oil and gas rose by 9 per cent to £21.5 million, helped by a first time contribution from Houston-based Paragon, which should be well placed for work following Hurricane Katrina.

But the company also reported a £500 million rise in its oil and gas order book to £1.8 billion, boosted by new platform work and a £280 million contract to replace gas mains for National Grid Transco.

The company said its increasingly services-oriented oil and gas business remains a very strong market and it expects profits and margins (currently 3.5 per cent) to rise.

Amec's oil and gas business is relatively late-cycle and while others may benefit initially from extra spending on oil and gas exploration, the firm's production facilities and support services operations should be kept busy as the sector expands. The firm is also optimistic about its wind energy business and nuclear opportunities.

Meanwhile, Costain's record £1.6 billion order book has been bolstered by a $1.7 billion Iranian gas contract it has won in joint venture. But the firm is also carving out a niche in the £2 billion market for nuclear decommissioning work where it has succeeded by using a similar philosophy to the one it has used in water.

The firm has decommissioning contracts worth £150 million including a five year civils framework contract on the Trawsfynydd Power Station in north Wales, worth £50 million.