ADES International Holding Ltd (LON:ADES) has clinched its first deepwater drilling contract with a short-term deal in Egypt for Emirati firm Dana Gas.
The drilling services provider said the contract was to drill one well in the Egyptian Mediterranean basin, expected to take 77 days, but it also had an extension option for another three wells.
The actual drilling will be subcontracted to ADVantage, a joint venture (JV) formed last November between ADES and Vantage Drilling International and carried out using Vantage’s Tungsten Explorer ultra-deepwater drillship and ADES’ workforce.
Operating on a profit-sharing basis, ADES said the contract would generate additional revenue without the “significant capital expenditure” normally associated with deepwater drilling.
The group added that with “significant gas discoveries and prospective drilling programmes” in the region, the contract offered several “attractive commercial opportunities” if there was a long-term extension.
Dr Mohamed Farouk, chief executive of ADES, said the firm continued to see “long-term prospects” for its JV and Vantage’s “high-quality assets” in the ultra-deepwater Egyptian market.
Broker estimates “significant” financial impact
In a note, analysts at the company’s broker Canaccord Genuity said the financial impact of the deal on ADES would be “significant”, adding around US$2mln to its net profit for 2019.
They added that if similar arrangements could be renewed throughout 2020, around US$3.5mln could be added to profits on an annualised basis.
“[The contract] represents two important firsts for ADES. The company has not previously operated in deepwater, and this is also the first time the group has succeeded in winning a contract with its asset-light strategy. Both of these were promises made at the time of IPO and have now been honoured, fulfilling all of the commitments made at that time,” the broker said.
In mid-afternoon trading Friday, ADES shares were steady at US$13.9.
-- Amends headline, adds broker comment and updates share price --