KCA Deutag Alpha Limited ( KCA Deutag or the Group ) Results for the three months ended 30 June 2015

Transcription

1 For immediate release 20 August 2015 KCA Deutag Alpha Limited ( KCA Deutag or the Group ) Results for the three months ended 30 June 2015 KCA Deutag, one of the world s leading drilling and engineering contractors, is pleased to announce its results for the three months ended 30 June 2015, reporting EBITDA of $65.2m. Highlights o Year to date revenues of $874.3m (2014: $1,054.7m) o Group YTD EBITDA of $141.3m (2014: $169.8m) o Contract backlog of $7.6bn across a blue chip customer base o A further new build rig spudded ahead of schedule in Russia on 16 April making it four rigs successfully spudded so far this year; the first three in quarter one for the Khazzan project in Oman. Two remaining rigs for Khazzan, and a new rig for Brunei, remain on track for delivery in 2015 completing our new rig delivery programme o $129m of available liquidity at 30 June $50m of committed funding from KCAD Holdings I limited shareholders still available for draw down if required o Cost reduction programme continues to deliver an ongoing benefit to the bottom line o As part of our continuing review of the business further initiatives to improve efficiency and reduce costs are being implemented, we continue to track activity and manage the business accordingly Commenting on the results Norrie McKay, KCA Deutag s Chief Executive Officer said: The group delivered EBITDA of $65.2m in the second quarter which was satisfactory considering the strong headwinds facing the industry. In our Land Drilling operations we are seeing differing levels of impact depending upon the market. Our operations in Oman, Algeria and Russia are performing well, but in other areas such as Europe, Nigeria and more recently Kurdistan the market environment is weak. However, the impact of this weakness on our results is being offset by the start-up of our new build land rigs on long term contracts. We have now delivered five of the eight new build land rigs for customers in Oman and Russia with the remaining three rigs on schedule for delivery to Oman and Brunei before the year end. Bentec continues to be busy following the contract awards for four new rigs and an order for 13 top drives in the first quarter. The team are working hard on adding to this backlog which will keep them fully occupied until the end of the year. There are fewer opportunities in this 1

2 environment but the quality of the Bentec product portfolio continues to position us well for those contracts being awarded. Offshore, our Platform Services operation performed steadily despite the prevailing market conditions. However, RDS workload has continued to reduce as a result of lower levels of investment in new greenfield projects by E&P companies. Across the group we have been responding quickly and scaling back our cost base in line with any revenue reductions. Looking forward we expect global markets to remain extremely challenging for the foreseeable future and will continue to adapt our business accordingly. Whilst we look for ways to improve the group s efficiency, we will also remain focused on managing the top line through operational execution and delivering best in class service to our customers. Business Review KCA Deutag reports that Adjusted EBITDA for the second quarter of 2015 was $65.2m, compared to $89.0m for Q2, 2014 and $76.1m for Q1, Year to date EBITDA of $141.3m compares to $169.8m for the same period in Revenue and EBITDA Revenue from business units ,099 Consolidation adjustments (34) (42) (38) (76) (44) Total Revenue ,055 EBITDA from business units Consolidation adjustments 0 (1) (1) (1) (1) Exchange (1) (2) 1 (3) 0 Corporate costs (4) (6) (5) (10) (12) Total EBITDA Business conditions during the second quarter have continued to be challenging across each of our business units, and in line with the rest of the industry we are experiencing cost pressures from our customers, changes in activity levels and general uncertainty around our customer s future plans. In this environment we continue to focus on the quality of our service delivery to our customers and managing those aspects of our business which we are able to control. Managing our costs is a high priority for the group and, whilst the cost reduction programme announced earlier this year has delivered substantial savings, we have carried out a further review of our global operations as the current market conditions look set to continue for some time. We have concluded that there are additional ways we can improve the efficiency of our business to better position it in this new oil price environment, whilst ensuring we continue to offer the quality of service which our customers demand. We expect these changes will start to deliver significant additional savings from the end of the fourth quarter and throughout 2016 although there will be associated reorganisation costs towards the end of We are currently developing detailed plans around these changes so will provide additional information on the impact later in the year. In April our Land drilling operation successfully spudded a new build rig in Russia. This follows on from the delivery of the three new build land rigs in Oman during the first quarter. Our core operations in Algeria, Russia and Oman continue to perform well with good levels of utilisation. However, we have seen some weakening of utilisation in other markets, 2

3 particularly Europe, Nigeria and Kurdistan. Our remaining three new build rigs are on schedule and should be delivered to our clients before the end of the year which will then complete our new build rig programme. We are also currently mobilising 5 of our existing rigs to new contracts so all of this will have a positive impact on utilisation in the fourth quarter. Bentec continues to have a reasonable backlog which will ensure that our manufacturing facilities have a good level of utilisation through to the end of the year. As we previously announced we were awarded three multi-million dollar contracts earlier this year. The first is for Bentec to build its first complete drilling rig for offshore operations in Azerbaijan. The second is for the manufacture of three cluster slider rigs for a new customer in Russia and the third, an order for 13 top drives, also for a customer in Russia. Our Platform Services business continues to operate reasonably strongly despite the difficult market conditions. However, there has been some erosion in profitability as a result of the cost reduction measures we have so far agreed with our customers. RDS continues to see a significant reduction in activity which is primarily driven by a lack of new greenfield opportunities and existing projects being completed. We continue to manage down our costs as these projects reduce in size. There is limited visibility of significant new projects being sanctioned at this time although brownfield activity is impacted to a lesser degree. Our MODU business has delivered an improved performance over Q1 when the Ben Loyal jack up was off day rate for a period following damage to one of its legs. This has now been repaired and the rig is currently working under a short-term contract extension in Mexico at a reduced day rate. The Ben Rinnes continues to operate offshore Angola. Managing our liquidity remains a key area of management focus. At the end of the second quarter we had available liquidity under undrawn facilities of $129m. As noted during our Q1 earnings release the shareholders of KCAD Holdings I Limited agreed to make available to the Company up to $100m of funding via a rights issue at the parent company level and the first $50m was drawn down in Q1. This was immediately pushed down into the KCA Deutag Alpha Limited group as an advance for the purchase of new rigs currently under construction but the remaining $50m remains undrawn and committed to the Company. Land Drilling The Land Drilling business unit reported EBITDA of $34.6m compared to $37.8m in Q1, 2015 and $45.6m in Q2, Land Drilling Revenue EBITDA Land Drilling experienced lower EBITDA than both Q1, 2015 and Q2, 2014 reflecting the tightening market conditions, particularly when compared to the same period in 2014, and taking into account the impact of the mobilisation of the first three BP Khazzan rigs in Q1, We continue to make good progress on completing the manufacture and delivery of our eight new build rigs for which we were awarded contracts in Five of these rigs are now in operation in Russia and Oman respectively and are generating EBITDA and cash flows for the Group. The two remaining rigs for the Khazzan project in Oman, plus a new build rig for 3

4 a client in Brunei, remain on track for delivery before the end of 2015 and all are secure under long term contracts. We have no further new build rigs in the pipeline. Russia Our Russian operations have continued to have good levels of utilisation with Q2, 2015 showing higher levels of EBITDA than both Q1, 2015 and Q2, Year to date EBITDA is significantly higher than the same period in A large part of the year to date increase is due to the two new build rigs which commenced drilling operations at the start of Q4, 2014 and in early Q2, 2015 respectively. Overall activity on our other rigs in Russia has also continued at a high level. The weakening of the Rouble compared to Q2, 2014 has contributed to lower overhead costs as the majority of our staff in Russia are local Russian employees. We continue to maintain a mix of Rouble and US Dollar denominated contracts as a method of managing our FX position. Europe/Kazakhstan Our single rig operation in Kazakhstan delivered improved EBITDA compared to both Q1, 2015 and Q2, This was largely due to a strong operational performance and a retrospective day rate increase. We have experienced a significant reduction in activity in Europe both year on year and compared to the prior quarter. This is caused by very difficult market conditions and consequent reductions in the levels of utilisation. We have moved one of our rigs out of Europe to Algeria following the award of a contract which will start in October Middle East In the Middle East there was a reduction in EBITDA compared to Q1, 2015 but an increase compared to Q2, Our largest operation in the Middle East is Oman which benefited in Q1 from the mobilisation and spud of the first three rigs for the Khazzan project where we earned a fee for delivery and mobilisation of the rigs. All three rigs were operational during Q2, 2015 and this underpins the improvement in earnings over the same period last year and in year to date EBITDA. In Kurdistan we had lower activity than in Q2, 2014 but a slight improvement in EBITDA compared to Q1, At the end of Q2, 2015 we only had one rig operating in Kurdistan compared to three rigs in Q2, We are in the process of redeploying one of the two idle rigs to South Iraq for a newly awarded three year contract starting in September During the second quarter we also started a new three year contract for our existing rig in South Iraq. Activity in Pakistan has remained at similar levels to Q1, 2015 but with an improvement in EBITDA over Q2, 2014 where we incurred one off costs associated with the redeployment of a rig from Libya to Pakistan. Brunei performance remains at similar levels to both Q1, 2015 and Q2, In the UAE we continue to complete the upgrade/refurbishment work of another rig moved out of Libya and this rig is due to start a new contract later this month. 4

5 Africa In Africa we experienced similar levels of EBITDA to Q1, 2015 but these were lower than Q2, Algeria remains our strongest market in Africa with Nigeria continuing to be extremely difficult as local operators struggle to fund operations in this environment. Algeria has growth in EBITDA compared to both Q1, 2015 and Q2, During the quarter we had six rigs operating, representing full utilisation, with a further rig being moved to Algeria from Europe as we have already mentioned. In Nigeria we had a significant reduction in EBITDA compared to Q2, 2014 and Q1, We have experienced low levels of utilisation as a result of the oil price depressing activity. In Gabon the contract for our single rig operation which was due to run for the remainder of the year was cancelled by the client. We are in the process of exiting the Gabon market. Bentec The Bentec business segment reported EBITDA of $4.2m compared to $10.8m in Q1, 2015 and $6.2m in Q2, Bentec Revenue EBITDA Bentec delivered a satisfactory quarter following an exceptionally strong result in Q1. During the first half of 2015 Bentec largely completed the manufacture of the seven rig contract for Enafor in Algeria as well as working on completing rigs for the land business unit. Rig component revenues and EBITDA were slightly higher in the second quarter than in Q1, As previously announced Bentec has been successful in securing a number of new contracts which will mean that our manufacturing facilities have a good level of utilisation through to the end of Platform Services The Platforms Services business segment reported EBITDA of $19.9m compared to $22.7m in Q1, 2015 and $23.7m in Q2, Platforms Revenue EBITDA Platform Services continues to perform relatively strongly despite the difficult market conditions. During the first half of the year we worked through cost reduction initiatives with most of our customers. As a result of the pass through nature of many of our Platforms contracts there has been some erosion in profitability and year to date EBITDA of $42.6m compares to $46.9m in the same period in

6 In Angola our revenue and EBITDA levels have remained relatively flat both quarter on quarter and year on year. We continue to operate both the Benguela Belize platform rig and the Kizomba contract. In Azerbaijan we experienced lower EBITDA in Q2, 2015 than in Q1, This contract is due to expire at the end of the year, and we are actively involved in its retendering, awaiting feedback at this stage. In Norway we had an increase in EBITDA from the first quarter largely due to stronger equipment rental activity. Underlying activity in the Norwegian market, however, is lower than it was in 2014 with reduced revenues and EBITDA year to date compared to the prior year. We also experienced a reduction in activity in the UK compared to both Q1, 2015 and Q2, This is due to down manning of platform drilling activities by one of our clients together with a move across the industry to new offshore rotas resulting in the need for reduced personnel. Sakhalin had slightly lower EBITDA than both Q1, 2015 and Q2, 2014 largely due to cost saving initiatives agreed with our client. Our operations in Asia have remained relatively steady quarter on quarter and year on year whilst our activities to support the start-up of the Hebron platform in Canada continued at similar levels to Q1, There was lower activity on this contract in Q2, RDS The RDS business segment reported EBITDA of $4.6m compared to $8.3m in Q1, 2015 and $14.4m in Q2, RDS Revenue EBITDA RDS continues to experience reducing levels of activity as existing greenfield projects come to completion and therefore reduce manning levels, and with limited prospects for new projects being sanctioned by our customers in the current market environment of low oil prices. We have reacted to this new reality by significantly reducing our headcount, many of whom were contractors hired on a project by project basis. Compared to Q2, 2014 there has been a significant reduction in both revenue and EBITDA principally due to reduced workload on larger greenfield projects. Smaller brownfield work has not suffered the same levels of decline but is under pressure both in terms of pricing and volume as customers scale back on non-essential work. Compared to Q1, 2015 we had a reduction in EBITDA as a result of lower greenfield project activity through our London office offset by a slightly higher contribution from the Hebron project in Canada. We had lower brownfield activity in the UK, Norway and Caspian during the second quarter compared to both Q1, 2015 and Q2, MODUs The MODU business segment reported EBITDA of $7.2m compared to $5.1m in Q1, 2015 and $4.8m in Q2,

7 MODUs Revenue EBITDA MODUs consists of our two jack up rigs; the Ben Loyal in the Gulf of Mexico and the Ben Rinnes operating offshore Angola. Compared to Q1, 2015 we had a higher level of EBITDA as in the first quarter the Ben Loyal was negatively impacted as a result of damage it received to one of its legs on 11 February. This required the rig to be towed to port for repairs and hence was off day rate until 4 April Our contract for the Ben Loyal ended on 16 April but was extended for several months, albeit at a lower day rate more in line with current market rates. The Ben Rinnes had improved EBITDA performance in Q2 from the prior quarter largely as a result of reduced operating costs. The rig continues to work in Angola under a contract that runs to the middle of Compared to Q2, 2014 there was an improved level of EBITDA due to an increased contribution from the Ben Rinnes which moved between contracts in Q2, 2014 prior to starting its current work in Angola. This was partially offset by reduced profitability from the Ben Loyal because of day rate reductions in Q2, Q2, 2014 also included a contribution from the self erect tender barges which were sold in the second half of Corporate Costs/Other Corporate costs have shown a reduction from both Q1, 2015 and Q2, 2014 reflecting various cost reduction initiatives put in place during the first quarter of Overall the YTD corporate costs are down 15% versus the prior year. In Q2, 2015 we incurred an exchange loss of $0.8m compared to an exchange loss of $1.9m in Q1, The loss in Q2 was principally against the Kwanza in Angola. Cashflow Cash flow from operating activities Cash flow from investing activities (21) (70) (63) (91) (80) Interest paid (50) (13) (50) (62) (55) Foreign exchange (10) 6 (5) (5) (6) Net cash flow before debt repayment 3 (11) (76) (8) (17) Draw down (repayment) of debt (4) (12) (81) (17) (82) (net of issuance costs and exchange movement on debt) Net cash flow (1) (23) (157) (25) (99) Operating cash flow in Q2, 2015 was $84m compared to $66m in Q1, 2015 and $42m in Q2, There was an improvement in the working capital position during the second quarter as a result of collections by Bentec for the rigs delivered to Enafor in Algeria as well as the favourable working capital impact of lower levels of activity. There was a reduction in payables in the quarter principally due to the utilisation of $24m of the $50m advance 7

8 payment for the purchase of two of the new build rigs. As described last quarter this advance payment was made into the Alpha Group in Q1, 2015 following the rights issue at parent company level. Cash flow from investing activities was $21m in Q2, 2015 compared to $70m in Q1, 2015 and $63m in Q2, During the quarter we spent $24.5m on capital expenditure which is lower than both Q1, 2015 and Q2, However, this capital expenditure amount has been reduced by the utilisation of the advance payment described above so would otherwise have been $48.5m. Interest paid of $50m in Q2, 2015 was the same as the comparable period last year but higher than the $13m in Q1, 2015 due to the six monthly phasing of interest payments on our debt. Overall net cash flow before draw down or repayment of debt was $3m in Q2, 2015 compared to an out flow of $11m in Q1, 2015 and an outflow of $76m in Q2,