Arabian Drilling, Saudi Arabia’s national drilling champion, is seeing an all-time high record backlog of SR12.7 billion ($3.4 billion) and a solid 18% YoY increase in nine-month (9M) adjusted net income to SR422 million.  

 

Arabian Drilling closed Q3’23 with a consolidated revenue of SR920 million, representing a 16% increase sequentially mainly due to the start-up of three additional offshore rigs (AD130, AD140 and AD150) on 5-year contracts. 

 

YTD, Arabian Drilling achieved consolidated revenue of SR2,490 million, representing a 27% increase YoY, mainly driven by higher rig activity and higher prices, more specifically in the Offshore Segment.  

 

EBITDA rises

Q3’23 EBITDA was SR392 million, with a margin of 42.6%, representing a 20 bps increase QoQ. YTD EBITDA of SR1,050 million was 26% higher YoY, with a profitability of 42.2%, slightly lower than that of previous year, mainly due to additional employee benefits costs.  

 

Q3’23 Net Income remained flat QoQ, with the increase in Operating Profit mostly offset by higher finance costs. Previously in Q2’23, SR20 million of finance costs were capitalised as part of the new offshore rigs capex programme. This capitalisation of finance cost did not reoccur in Q3’23 due to the rigs start-up, resulting in higher finance cost in the current period.  

 

Net cash flow from operating activities of SR98 million was 72% lower QoQ mainly due to unfavourable changes in working capital, partially offset by mobilisation revenues received in relation to the new offshore rigs. Excluding changes in working capital and mobilisation revenues, adjusted cash generated from operating activities was SR357 million representing a normalised sequential increase of 36%. 

 

Working capital

The unfavourable change in working capital was mostly driven by delayed clients’ collections, which were subsequently received just after end of Q3’23. Consequently, as of September 30, 2023, net working capital of SR674 million was unusually high when compared to previous quarters, at 21% of the Last Twelve-Months [LTM] trailing revenue. 

 

Q3’23 Capex spending of SR568 million included c. SR375 million related to the construction of the recently awarded 10 unconventional land rigs. YTD Capex of SR1.35 billion was 46% higher YoY. In the previous year, 9M’22 Capex of SR926 million included the acquisition costs of offshore rigs AD130 and AD140 for approximately SR570 million. 

 

The company’s cash position as of September 30, 2023 was c. SR1.3 billion and included SR875 million in short-term investments.   

 

The net debt position of SR1.393 billion as of September 30, 2023 increased by more than 50% compared QoQ as the available cash continues to be deployed to finance the building of the 10 new unconventional land rigs. Accordingly, the Leverage Ratio (Net Debt/ LTM-EBITDA) also increased as expected from 0.7 in Q2’23 to 1.0 in Q3’23. 

 

Operational highlights 

At the end of September 30, 2023, Arabian Drilling reported a fleet utilisation rate of 94% (47 active rigs out of a total available fleet of 50 units). During the quarter, three offshore rigs were added to the fleet and started their 5-year contract in July 2023.  

 

 

The offshore segment utilisation rate was 100%, with all twelve rigs fully operational. The land segment utilisation was 92% with 35 rigs out of 38 rigs operating, unchanged from the previous quarter.  

 

Aramco’s Rig Efficiency Index (REI) based on a 36-month rolling average remained strong and in line with Q2’23.  

 

During Q3’23, the company completed 49 land rig moves, with an average net saving of 0.7 days per rig move, compared to an average net saving of 1.3 day per rig move in the previous quarter.  

 

Backlog addition

As of September 30, 2023, the company’s backlog reached an all-time high of SR12.7 billion with an average remaining contract tenure of 2.5 years per rig for the active rigs. Backlog net addition of SR5.1 billion represents SR6 billion of firm contracts already announced, less c. SR900 million of revenue recognised during Q3’23. 

 

Contracts already announced include an award for 10 new unconventional rigs as well as multiple Aramco contract extensions, including a 10-year extension for an already operational offshore rig. The ratio of the current backlog to the LTM Revenue (Book-to-Bill ratio) was 3.9x at the end of the Quarter.  

 

As of September 30, 2023, the 12-month rolling average of the total recordable incident frequency (TRIF) was 0.91 vs. 0.75 in Q2’23. Q3’23 TRIF is about 3.5x lower than the industry average of 3.22, according to the latest report from the International Association of Drilling Contractors (“IADC”) for H1’23. Arabian Drilling continues to put the prevention of injuries across all its work locations at the heart of day-to-day operations.   

 

Guidance

FY’23 Revenue guidance remains unchanged and is expected to be in the range of SR3.3 billion to SR3.5 billion.  

 

FY’23 Capex guidance remains unchanged and is expected to be in the range of SR2.2 billion to SR2.4 billion.  

 

Ghassan Mirdad, Chief Executive Officer of Arabian Drilling, commented: “As previously announced, we currently have a record high backlog following multiple contract awards and extensions which gives us good visibility in terms of revenue and margin growth for the next few years.  

 

“We are also pleased to have delivered all our five offshore rigs on time in accordance with the contract’s ambitious schedule, positioning Arabian Drilling as a reliable partner of choice.  

 

New 10-rig unconventional package

"We are now focusing on delivering the new 10-rig unconventional package over the next few quarters. In parallel, we keep looking at the next phase of our growth through opportunities to expand further, both organically and acquisitively.” 

 

Hubert Lafeuille, Chief Financial Officer of Arabian Drilling, commented: “As previously indicated, we expect our EBITDA profitability level to remain stable as we incur start-up costs on the 10 new unconventional rigs and face continuous cost pressures in a demanding labor market within the overall inflationary context.  

 

“As the excess cash continues to be invested in our growth, we expect the leverage ratio will continue to increase over the next quarters.    

 

“Finally, we look forward to executing our first cash dividend payment by returning SR225 million to our shareholders in the coming days.”--TradeArabia News Service