Why John Wood Group plc could be a better buy than Petrofac Limited right now

Shares in energy services company John Wood Group(LSE: WG) fell over 2% in early trading this morning as the company released a rather downbeat trading update to the market. With the price of black gold remaining volatile as supply continues to outpace demand, does it make sense to even consider buying the £2.5bn cap's shares at the current time?

Cautious outlook

Initial impressions aren't great. Over the six months to the end of June, the company has continued to experience challenging conditions in its core oil and gas market. It would appear that decent business in the Western Hemisphere has been "more than offset" by a fall in project and modifications work in the East, especially in the North Sea.

As a result of this, the company declared that first-half performance had been "weaker than anticipated" and worse than that achieved over the same period in 2016. Consequently, the Aberdeen-based business is now "more cautious" on its outlook for the full year while still anticipating stronger trading in H2.

These are clearly tough times for any company with connections to the oil industry. Nevertheless, for those brave enough to consider investing, I'm inclined to think that there are far worse options available than Wood Group, even if -- at 15 times earnings -- the shares are still too dear for my liking.

The balance sheet "remains strong", at least according to the company, even if its net debt-to-EBITDA ratio is at the "upper end" of its preferred range of 0.5 times to 1.5 times. The progressive dividend policy also remains in place for now with a forecast yield of almost 4% pencilled-in for 2017.

Importantly the company is still winning business. Only today, it announced that it had secured a multi-million dollar contract to complete engineering, construction and procurement work for Husky Energy, one of Canada's largest energy companies, on the latter's White Rose project. Let's not forget that the company's acquisition of Amec Foster Wheeler -- due for completion in Q4 of 2017 -- should also give it huge clout in the markets in which it operates.

Too much baggage?

While the fortunes (and share prices) of those offering services in the oil and gas industry ultimately depend on something they can't control, industry peer Petrofac(LSE: PFC) also has to contend with far bigger problems thanks to the ongoing investigation into corruption by the Serious Fraud Office.

Let's say the outcome isn't favourable. If this turns out to be the case, the company could be hit by a huge regulatory fine that would surely necessitate the suspension of its chunky dividend. Given the attraction of the latter to income investors over recent years, that's going to leave a lot of disappointed holders. In such a situation, I can see many deciding to move their money elsewhere, prompting a further fall in Petrofac's share price.

Even if the outcome isn't as bad as expected, one must surely consider the time needed to rebuild Petrofac's reputation with prospective clients as a result of this whole episode. Ask yourself: would you think twice about engaging with a company while the memory of such accusations remains strong? I know I would.

While a 27% rise in its share price over the last couple of weeks suggests many contrarians sense opportunity, I -- for one - won't be joining them.

Quit the rat race

Regardless of which stocks they choose to invest in, many investors have the one same dream: financial independence. The good news is that this is far more achievable than you might think. To find out why, simply read this BRAND NEW report from the analysts at the Motley Fool.

The Foolish Guide to Financial Independence is available completely FREE of charge and without obligation. Just click here and it's yours.

Paul Summers has no position in any shares mentioned. The Motley Fool UK owns shares of Petrofac. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

///>