As the price of oil has fluctuated in recent months, so has the share price of John Wood Group, the oil services company. Yesterday’s drop in the share price, despite an impressive set of results, proves, if proof were needed, how closely it is linked to the overall performance of the oil and gas industry in the market.

Wood unveiled pre-tax profits of $181.3 million (£98.3 million) in the six months to June 30 – a rise of 46 per cent and its best performance for many years. Management are confident that they will see continuing growth next year, a belief that explains the 10 per cent growth in the workforce.

Sceptics will point out that these achievements come at a time when the Brent oil price averaged a staggering $109.30 per barrel and that Wood is hugely reliant on the price of oil continuing to scale new heights.

Wood, like other oil services businesses, is benefiting from high expenditure by oil companies during a time of high oil prices, rising demand for hydrocarbons from emerging economies and slow capacity growth in the industry.

However, although oil is unlikely to rise to $147 a barrel again in the immediate future, it seems pretty much a racing certainty that it will remain at more than $100 a barrel for the next few years. And even if the incredibly unlikely does occur and the price per barrel falls to $60, most of the projects that Wood is working on will still be carried out because they involve either necessary repairs or new pipelines needed to deliver oil and gas.

Energy companies factor in the possibility of gas and oil prices falling before deciding to go ahead with investments, and it is difficult to back out once construction of a pipeline or a turbine has started.

Projects such as the 600-kilometre pipeline that Wood is designing and managing for Gazprom to transport gas from the Arctic to northern Russia will help to keep profits flaring for years.

The Aberdeen-based company has expanded outside the North Sea, where it started, with about a third of revenue from production facilities now arising further afield. It remains strong in its heartland where it still performs a healthy amount of refinery upgrade work for operators such as BP and Shell.

On the down side, Wood’s gas turbine business did not perform as well as expected, with no revenue growth. Also, the company has done little to develop turbines for nonhydrocarbon fuels, which could help to insulate the business against turbulence in oil and gas markets. This may not have any impact on it at present, but in another decade it will be of much more interest to shareholders and it would be reassuring to see management at least addressing the subject.

Any fall from yesterday’s 434p should encourage investors to buy.

CRH

Difficult times lie ahead at CRH, the Irish-based building materials company. Liam O’Mahony, the chief executive who steered his company through 15 consecutive years of growth in profit and earnings, will retire at the end of this year after reporting his first fall in profits.

Yesterday’s interim results revealed that the company is the latest victim of the post-credit crunch slowdown in construction, as profits before tax fell 10 per cent to €606 million (£483 million).

Operating profit at its American business, for years the jewel in its crown, fell 29 per cent as construction slowed and the dollar weakened. Its exposure to the Irish housing market, where the slowdown has been longer and more drastic than in Britain is also of concern.

Mr O’Mahony’s successor, Myles Lee, the company’s finance director, has a tough task ahead of him, therefore. The business in its present form has never really been tested through tough times, which undoubtedly have arrived.

For years, CRH has looked like a good investment. It pegged its expansion strategy on acquisitions, recently dipping its toes into both China and India. A recent share buyback programme was calculated to retain shareholder loyalty.

However, if its cash pile diminishes as profits slide, building through acquisition will become more tricky.

A solid track record gives hope that the good times will return. Hold.

CoAL

For a company that has not yet produced any coal, Coal of Africa Limited (CoAL) is doing rather well.

Since it changed its name from GVM Metals and switched its focus from nickel and magnesium to coking coal – used in the production of steel – its market value has increased from £3 million to almost £600 million in three years. The AIM-listed miner said yesterday that it had secured long-term allocations from several South African ports that would allow it to export coal and thermal coal from Limpopo Province. The management says that its first mine will be ready for production later in the year.

However, CoAL is still rather at the mercy of South Africa’s overloaded rail and port infrastructure, where cancelled trains led to a decline in coal exports last year, despite the sky-high coal prices.

After a rally in world coal prices and some market speculation that it could be a bid target, CoAL’s shares shot up in the first half of this year. Since peaking at 223p in June, the stock has dropped by a third, however, hit by the subsequent falls in the global coal price.

Nevertheless, with coking coal in short supply, a rebound is on the cards when production – finally – begins. For those who fancy a flutter and are prepared for the risk, the shares are a buy.

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