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* Cuts earnings guidance for engineering division
* Canada's $6 bln pipeline project mired in controversy
* Shares down 7.9 pct (adds analysts comment, background, updates shares)
By Andrew Callus
LONDON, Aug 20 (Reuters) - Energy services company John WoodGroup expects weakening Canadian demand to restrictearnings growth for its oil and gas engineering division thisyear and into 2014.
The British company has been a strong performer in theEuropean oil services sector while others have suffered fromproject delays this year. But delivering first-half profitgrowth broadly in line with analysts' expectations, ChiefExecutive Bob Keiller said it was "not immune" to that trend.
"We have seen some reduction in western Canada ... whereuncertainty over oil export routes is causing some of ourcustomers to rethink their investment options and to delayprojects," he said on Tuesday.
Much of the uncertainty surrounds the Northern Gatewayproject to reduce Canada's dependency on demand from the UnitedStates, which is developing more of its own shale deposits.
The plan is for a $6 billion pipeline from the inland tarsands province of Alberta to the west coast to allow export toChina, but the project has become mired in political andenvironmental controversy.
Wood Group downgraded the outlook for 2013 growth in itsengineering division's earnings before interest, tax andamortisation (EBITA) to 10-15 percent, from 15 percentpreviously, and said there are "challenges to growth in 2014".
The division, which provides equipment and pipelines as wellas performing work on oil-well integrity and corrosionmanagement, accounts for about half the company's profit.
"With muted outlook commentary, we see risk to consensusestimates for 2014/15," said Credit Suisse analyst David Thomasin a research note that cut his earnings-per-share forecast for2013/14/15 by 3, 8 and 9 percent respectively.
Wood Group shares fell 7.9 percent by 1120 GMT, making itthe biggest faller among European oil stocks.
Group-wide EBITA was $243.2 million, up 18.6 percent from ayear earlier, driven by a strong performance in its oilfieldservices arm, PSN, and in the engineering division, whichtogether account for more than three quarters of its business.
The Gulf of Mexico is another area suffering from projectdelays, the company said, but its main concern is furtherweakness in Canada. "We do not expect it to recover during2014," it added.
PROJECT DELAYS
Wood Group, which ranks eighth by market value amongcompanies in the European oil and gas services sector, has beenpartially shielded from project delays that have resulted mainlyfrom a weakening outlook for oil prices.
The company's wide range of small, medium and largecontracts has had a smoothing effect, while some rivals havesuffered heavy bumps to cashflow.
Profit warnings have been common in the sector this year,though second-quarter results from Subsea 7 andTechnip have suggested the worst may be over.
Keiller said that Wood Group is making good progress withcollaboration across its three divisions: engineering, PSN andGTS. PSN works on modification, enhancement and abandonment ofmature oilfields, while GTS builds, operates and maintains gasturbines and other rotating equipment.
"Activity levels generally remain healthy and we believe thegroup is well positioned for future growth," Keiller said.
The company raised its interim dividend by 24.6 percent to7.1 cents.
At Monday's close, Wood Group shares were trading at a levelthat assumes a five-year compound annual growth rate (CAGR) forearnings per share of 6.8 percent, against only 0.2 percent forthe European energy services sector, according to ThomsonReuters Starmine data.
Similar-sized British rival AMEC and smaller Petrofac were trading at a five-year CAGR of 2.2 and 0.6percent respectively, while sector heavyweight Technip was at7.2 percent. Italy's Saipem, suffering from financialscandal as well as profit warnings, was on minus 14.2 percent.
AMEC brought the sector to life this week with news that ithad made a bid approach to smaller British group Kentz.
(Additional reporting by Simon Jessop; Editing by ChristineMurray and David Goodman)
