The Worleyparsons Limited (ASX: WOR) share price has more than doubled from lows of $3.00 reached in mid-January this year, following a bounce in oil prices. That includes a 7.4% gain today to reach $6.36.
Worleyparsons provides contracting, consulting and engineering services to the resources and energy sectors, and has been particularly hard hit by falling commodity prices in recent years.
Five years ago, the company's share price was heading above $30, but instead, has seen a 79% decline in value since. But all that has changed since January 18, when Brent crude oil hit US$28.55 a barrel, and has rebounded to currently trade at around US$39.25 a barrel, including a 5% jump on Friday.
Worleyparsons depends heavily on the oil and gas industry – roughly 72% of revenues comes from that sector, with 12% from resources and the remaining 16% from infrastructure projects.
And the result of that dependence has been showing up in the company's financial results. For the six months to end of December 2015, Worleyparsons reported a 29% fall in underlying net profit, although the company was forced to take a number of one-off expenses including for redundancies, onerous lease contracts and engineering software licences.
However, given the frequency of the company's claims of one off items, some of the above occur on a far-too-frequent basis, and some cynics might consider them to be 'normal' operating expenses.
But as well as facing falling revenues and earnings, Worleyparsons is also in the predicament of having far too much debt – having made multiple acquisitions over the years. While the company's net debt sits at around $1 billion, total debt stands at $1.4 billion – nearly equal to its current market cap of $1.6 billion.
In early February, the company was even forced to issue a statement that it was not planning an equity raising – instead announcing a few weeks later that it was scrapping its dividend, target an additional $180 million of savings in the next 18 months and looking to sell some selected non-core assets.
But some analysts say the company is still at risk due to the time lag between oil prices and the effect on Worleyparsons' revenues, and could breach its net debt to EBITDA covenants.
Foolish takeaway
There's no doubt it has been an amazing recovery in the share price, but the company is far from being out of the fire. If oil prices turn south, Worleyparsons' share price could sink once again. Foolish investors might want to give this one a miss.
