Last week, shares in Mermaid Marine fell 14 per cent to a two year low of 23.5 cents after the oil and gas service provider warned the market and shareholders to expect full year net profit for 2001-02 to be less than $500,000. Last year, Mermaid confidently forecast full year net profit to be $7 million.

Mermaid laid the blame on the slump in vessel business on its decision to develop its own contracting arm for offshore work - part of an attempt to become a leading player in the offshore pipelay and marine engineering sector.

"From a standing start the company performed well, but the negative side effect has been that some Mermaid customers, and potential users of our services, then identified Mermaid as their competitor," the company said in a statement.

One industry insider who spoke to EnergyReview.net said he believed that some of the "potential users" who became worried about Mermaid's foray into contracting included Tamboritha Consultants, McDermott Industries, Kvaerner and Icon Engineering.

Mermaid chairman Alan Birchmore said the company would rethink its contracting strategy. "It isn't working as well as we had hoped," he said.

Last year, the Fremantle-based group announced a net profit of $3.5 million on revenue of $27.1 million however said the revenue range for this financial year would be well off the $50 million it had forecast.

The profit warning comes weeks after one director sold thousands of shares in the group. Stock exchange records showed founder Jim Carver had sold 617,889 shares on 23 May and a further 121,746 on 14 June.

Despite retaining 9.9 million shares in the company, some analysts have questioned whether the sales of the shares were made in a fully informed market.