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Abbot: H1 results
Abbot Group, an oil services company that provides drilling and related well and facilities, reported a slight decline in operating profits for the half year to June 2005. The company’s main business is providing contract drilling services to the oil industry.
Operating profit for the half year was £13m, down from £13.9m last year mainly due to a weaker result in engineering and other services. Reduced activity in the North Sea has seen operating profits remain flat in the offshore and onshore drilling business (at £11.2m) while profits in engineering and other services dropped to £2.3m (2004: £3.7m). Revenue declined significantly due to lower activity levels, reaching £165m for the half year compared to £188m last year. According to Abbot, the regulatory and fiscal regime governing drilling in the North Sea creates disincentives to further investment.
Abbot was pessimistic on its prospects in the North Sea this year, a view confirmed by these results. Abbot is thus focusing on expansion overseas where it seems to be winning a number of contracts. The company has been awarded medium and long term contracts in excess of $350m this year and intends to invest over $200m over two years in expanding the land drilling fleet.
The company has seen a strengthening in prices and is confident that the new contracts won will drive earnings over the medium term. The medium term outlook for the oil industry is good and the company’s strategy of diversifying away from the stagnant North Sea market put it in a good position to reap the benefits from growing markets elsewhere.
The share trades at 259.5p, on a prospective PE (2006) earnings of 19.2x, at the top end of the sector range. The yield is 2.1%.
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