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07 September 2004
The Herald
Abbot to spend 28m expanding drilling fleet

Alasdair Locke, the executive chairman of Abbot Group, is planning to splash out more than 28m expanding the oil services firm's drilling fleet over the next two years as he contemplates the best outlook for the sector he has known.
With strong demand likely to keep oil prices high while production declines in regions like the North Sea, Locke expects major petroleum companies to mount a big push to develop new fields in emerging areas including Russia, which Abbot has targeted recently.
Locke, who masterminded the 134m acquisition of KCA Deutag three years ago, wants to increase Abbot's fleet of onshore rigs by 60% to 54 by 2008 to cash in on the resulting opportunities. He is also is willing to sanction a big increase in debt to finance it.
Despite a slowdown in North Sea activity which contributed to a fall in interim turnover and profits, the order-book has been filling up in other areas leaving Locke confident of a satisfactory full-year result.
With opportunities set to grow rapidly in other areas, he is untroubled by the prospect of a relative decline in the North Sea business. This will probably account for around 35% of sales this year but only 15% to 20% next year.
"North Sea business is substantially less profitable than it was and has been in significant decline. (However,) as we've been repositioning the business since some time ago it's really not an issue.
If I had maintained 90% of the business in the North Sea, I would have been looking a bit silly now," said Locke, who claims the tax regime in the North Sea is a disincentive to investment in the area.
Nonetheless, Locke said Abbot, which cut its staffing in the North Sea in response to reduced activity earlier this year, remained committed to the province.
The company has a number of good contracts with producers including Encana on which its staff use kit owned by field operators meaning it does not have to invest lots of capital.
Speaking after announcing a 2.5% fall in interim operating profits on continuing operations, to 11.6m, Locke said: "The outlook for the provision of oil drilling services is as good as I have seen in my whole career."
Turnover on continuing operations fell 1.8% to 188.4m in the six months to end June. Net debt at June 30 was 8.5m, compared with 37m last June, giving Abbot plenty of scope to increase borrowing.
Locke said he would be happy if debt increased to 30m at the year end to support growth.
He said that he had no desire to gear the company up to fund a management buy-out.
He has already drawn up plans to acquire expensive equipment worth 28m for use on contracts in Russia, Libya and the Far East while he scours the market for other drilling assets or companies that own them which might come up for sale.
 



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