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 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’.
The group has just completed the acquisition of three jack-up rigs from US firm Nabors, further strengthening its position when oil activity does recover.
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 with Alinma Bank, a Saudi-based financial institution, will allow 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.
Turnover in the first three months was US$41.2mln, down 15% on this time a year ago but 7% higher quarter-on-quarter.
Rig utilisation rates were 77% with a contract backlog of US$396mln.
“The build-up of our backlog is one of our main pillars for growth, which we are delivering by developing long-term relationships with our existing clients as well as actively participating in tendering activity to acquire new ones,” said Farouk.
At 13.75p, ADES is valued at £439mln.