A few yrs ago Worley Parsons (WOR) was the world's largest...

A few yrs ago Worley Parsons (WOR) was the world's largest consulting engineer with over 44,000 employees. Not bad for a home grown Aussie company. But the mining boom has ended and Worley's wkforce has halved in just over 3 yrs and SP fallen from $50 to $8.

There has been fair degree of correlation between WOR SP and the oil price esp when crude fell to $34 last Nov-Jan. Oil rose 55% to $53 by mid June and then plunged 21% by early August. WOR SP followed oil all the way to its peak in early June but ignored the fall during July and 1st half August. The SP then fell sharply after yr end result but from late Sept to late Oct it recovered well and exceeded $9. This coincided with recovery in oil.

But the last 15 days have see oil dive from $52.50 to this morning's $44.50... a fall of 15%. Wor's SP has closely followed this drop and raises question.... is WOR acting like an oil producer?

WOR has always earned most of its revenue from 'hydrocardon' sector. Oil&gas constitute 70% with resources another 15% in gross revenue. So a high correlation with POO is no surprise.

The mining boom has ended and this is little CAPEX being spent developing new mines apart from gold. WOR won a significant contract in mi July to develop an oil field in Kazakhstan... but nothing since. If oil stays under $65 i doubt much capex will be invested by oil firms. There will always be maintenance but its a fraction the size of new projects.

So while WOR doesn't sell any oil its fortunes are fairly closely linked to the oil price. Oil fell again last night dropping 1.5%. Hence, its likely the share price will weaken again and close below $8 barring no news of a major contract.

In a follow up post I'll explain why SP will keep falling even if POO plateaus and trades in $45 - $55 range i.e. why the correlation will weaken significantly.