Mohamed Farouk, oil driller ADES International’s (LON:ADES) chief executive, makes his business sound very straightforward.
“Our business model relies largely on legacy offshore assets that we purchase and refurbish.”
To give an idea of the cost difference, he says on average it costs about US$30mln to buy and refurbish a mothballed rig compared to the new build cost of about US$200mln.
And it is not as if these are tired pieces of kit. Far from it. Most are in excellent condition, he says, and require just a few adjustments to fit in with ADES’s plans.
Top five driller
ADES is currently in the top five of drill contractors in the Middle East and North Africa region (MENA), which he says puts it in a happy middle ground between the giants and local operators – ‘the culture is of a multinational but the service like a local firm’.
Fleet boosted by Weatherford acquisition
Based in Egypt, ADES has just made another significant addition to its fleet with the acquisition of 31 onshore drilling rigs located in MENA from drilling services powerhouse Weatherford International.
At present, twenty of the rigs are under contract with the rest to be used as inventory and for tenders.
Revenues from the Weatherford rigs are expected to be US$150mln a year and they will add US$750mln to ADES’ order backlog.
The purchase price is US$287.5mln to be paid from cash and debt facilities.
Farouk said he was ‘truly delighted’ with the deal.
Describing it as a landmark transaction, Farouk added it will significantly expand ADES total fleet and more than doubles its operational fleet.
The new assets will also reinforce the company’s position in the Saudi Arabian and Algerian markets and mark the expansion of its regional footprint into Kuwait and Southern Iraq.
ADES will have 34 onshore rigs in the Middle East/ North Africa region on completion.
The acquisition follows the acquisition of three jack-up rigs from US firm Nabors, further strengthening its position when oil activity recovers.
At that point, if history is a guide, prices for contracts will bounce sharply higher as drill contracting is a notoriously feast or famine business.
And it may not be too far away.
In a trading update in June, ADES said it expects the recent rally in oil prices to feed through into “a marked improvement in global supply-demand dynamics and a resulting upward trajectory in day rates and tendering activity”.
Crude prices have doubled over the past two years and oil and gas companies have dusted down exploration programmes mothballed during the three-year crude slump.
ADES’s fleet comprises jack-up offshore drilling rigs, onshore drilling rigs, a jack-up barge, and a mobile offshore production unit.
A US$140 ln loan facility was arranged with Alinma Bank, a Saudi-based financial institution, toallow it to buy more rigs to operate in the Kingdom.
The credit line is in addition to a US$450mln facility arranged by Bank of America Merrill Lynch and the European Bank for Reconstruction and Development.
The Nabors rigs will take the number of Jack-Ups to thirteen and Farouk expects the new rigs to add to revenues in the second half of 2018.
At US$15.20, up 15% on the Weatherford deal, ADES is valued at US$644mln.