TIDMGDL
RNS Number : 9819A
Greka Drilling Limited
10 April 2012
10 April 2012
Greka Drilling Limited
("Greka Drilling" or "the Company")
Annual results for the year ended December 2011
Revenue increases 80%
FINANCIAL HIGHLIGHTS
-- Revenue of US$43.8m, an 80% increase over same period last year of US$24.3m
-- Net profit of US$2.8m, compared with US$2.0m last year, 39% increase year-on-year
-- EPS US$0.006, compared with US$0.005 in same period last year
-- Cash and cash equivalents of US$6.6m
-- Unused US$12.5m revolving working capital facility
CORPORATE HIGHLIGHTS
-- Personnel grew from 216 to 520, an increase of 141% year-on-year
-- Newly constructed Site Camp of 9,760 square meters with capacity for 1,000personnel
-- Fleet increased from 7 rigs to 16 rigsover the period, an increase of 129% year-on-year
-- Newly established directional drilling and maintenance and logistics divisions
-- Admitted to the London Stock Exchange AIM market in March 2011
-- Successful 100% demerger from Green Dragon Gas
OPERATIONAL HIGHLIGHTS
-- 88,224 metres drilled, compared to 59,807 metresdrilled in 2010, a 48% increase
-- Vertical wells averaging 37 drilling days
-- Horizontal wells averaging 51 drilling days
Randeep Grewal, Chairman and Chief Executive of Greka Drilling,
commented:
"It has been an exciting and rewarding journey for shareholders
and employees alike. The rate of our expansion has been at times
challenging following the move from being the in-house driller of
Green Dragon Gas to being the largest independent and specialised
unconventional gas driller in China. The pace of our growth is
underpinned by a methodology of drilling within Chinese coal seams
and is driven by our goal of matching the pent up demand that
exists for this expertise. Our pioneering ability to 'crack the
code' of one of the most challenging geology's globally was built
through knowledge, experience and tenure. No other Company in China
has advanced the aspirations of the Country to deliver its
unconventional gas resource as we have. Today we can truly claim
the mantle of a pioneer. Indeed, China is beginning to acknowledge
the problems we have faced, with the heavily faulted coal seams
being frequently referred to in the public domain as an impediment
to the commercialisation of unconventional gas. The 12(th) five
year plan lays out specific targets for unconventional gas
production in China. With our methodology deploying at a fast pace
at Green Dragon Gas' Shizhuang South block, the scene is set for
deployment across other locations throughout China, and for
multiple customers. We believe that third party contracts are
imminent. The Company is scalable, skilled and staffed. We expect
to be able to fund the future growth of the Company in part with
debt from Chinese banks as we continue to take deliveries of our
new Greka Drillmec rigs."
For further information on Greka Drilling, please refer to the
website at www.grekadrilling.com or contact:
Stephen Hill, VP Corporate Communications
Greka Drilling Limited +852 3710 0108
Dr Azhic Basirov / David Jones
Smith & Williamson - Nomad +44 20 7131 4000
Paul Connolly / John Dwyer /
Steve Baldwin
Macquarie Capital (Europe) -
Broker +44 20 3037 2000
James Henderson / Rollo Crichton-Stuart
Pelham Bell Pottinger - Investor
relations +44 20 7861 3800
CHAIRMAN'S STATEMENT
I am pleased to report that net profits for the year to December
2011 were US$2.8m on revenues which increased by 80% to
US$43.8m.
In our first year as an independently listed and managed company
following the successful demerger from Green Dragon Gas in March
2011, the Company has focussed on the commissioning of its 'state
of the art' rig fleet and the development of its senior management,
engineers and crew. The Lined Faulted Brittle Coals ("LiFaBriC")
drilling methodology is an environmentally progressive
game-changer, as this method avoids the need for fracking the coals
to stimulate desorption to produce methane. The new fleet was
ordered in the summer of 2011. The drilling rig manufacturer was
assisted in the design and specification of the purpose-built fleet
by the Company's senior management and engineers. The tight
delivery schedule for 25 new rigs has been accompanied by a
significant increase in senior personnel and staff headcount.
During this month, the first entrants into the purposely built Site
Camp for 25 drilling crews and supervisors at Shizhuang South in
Shanxi Province arrived. The Site Camp currently comprises 8
buildings covering a floor space of 9,760 square meters with the
capacity to accommodate 1,000 personnel as well as warehouse and
workshops.
The Company has been introducing up to 4 new rigs a month into
its fleet and has established an Operations Control Centre,
enabling live monitoring of the drilling operations 24/7, 365 days
a year. This has enhanced operational efficiency and HSE (health,
safety and environment) vigilance.
The pattern of drilling has radically changed. Crews are 18 per
rig (working in shifts) and operate around the clock. A rig manager
oversees 5 rigs and his fleet moves in formations to new locations
led by the manager. The production drilling fleet is monitored via
digital feeds to the Company's Operations Control Centre in
Zhengzhou, where the skilled supervision team monitors and controls
execution and performance. Unit efficiencies are expected to be
realised later this year, as the initial aggressive growth is
absorbed.
Greka Drilling has a significant first mover advantage in the
application of specialist LiFaBriC horizontal drilling methodology
in the exploitation of CBM in China. Our focus on the
unconventional gas niche, complemented by a purpose built new rig
fleet, has established a solid foundation for us to achieve
exponential growth for years to come.
FINANCIALS
Earnings per share increased to US$0.006 from US$0.005 in the
previous year. Greka Drilling remains well-positioned financially,
with US$6.6m of cash and a US$12.5m unused working capital
facility.
OUTLOOK
The Company has set its sights firmly on third party contracts
both in China and further afield. To this end, we are recruiting
management with strong regional expertise and adding divisions
within the business to enable the Company to capture the enormous
opportunities in the market. We expect to build a significant level
of third party business while continuing to service Green Dragon's
expanding operations. The decision on the strategy concerning the
international market will be made during the coming year. Our focus
on the Company's balance sheet remains, with conservative levels of
debt being added to fund expansion. The 125 rig option that we have
to expand the current 32 rig fleet further, is being concurrently
evaluated in the context of our anticipated addition of new
customers.
Randeep S. Grewal
Chairman and CEO
10 April 2012
BUSINESS REVIEW
Greka Drilling Limited is one of the largest independent and
specialized unconventional gas drillers in China. In 2011 - the
year of Rabbit and of the Company's independence from its creator,
Green Dragon Gas - the Company placed one of the largest CBM
drilling rig contracts globally and witnessed a metamorphosis in
its operating business environment. As with previous years, the
drilling contract between the Company and its key client Green
Dragon Gas was concluded on an arm's length basis. The company
signed a 25 rig purchase contract with Drillmec with an option to
increase the number of rigs by a further 125. Management was
strengthened in tandem with the task of rapidly growing and leading
the business to capture the enormous demand for unconventional gas
resource drilling.
Overview
Our 2011 financial and operating results include:
-- Net profit US$2.8m, compared with US$2.0m last year, a 39% increase year-on-year
-- EPS US$0.006, compared with US$0.005 in same period last year
-- Metres drilled increased by 48% from 59,807 for 2010 to 88,224 for 2011
-- Total rigs grew to 16 from 7 in the previous year
Rig Fleet
-- Of the 7 rig fleet size in 2010, 5 were originally equipped
for drilling vertical wells. These were converted and equipped to
drill LiFaBriC directional wells to join the 2 existing directional
rigs
-- Greka Drilling signed a contract with Drillmec to purchase 25
new GD-75 rigs. By the end of December 2011, 9 new rigs had arrived
on site and related accessory drilling equipment for these 9 rigs
was also purchased. The total order of 25 new rigs is expected to
be on site by the end of April 2012
-- In order to further improve efficiency, 5 new rigs will be
treated as one team, each with a team manager. All rigs are capable
of drilling directional and/or vertical wells
Personnel
-- During 2011, we recruited 9 new drilling teams in connection
with the expansion of the number of rigs; our aim is for the rigs
to operate 24 hours a day, 365 days a year subject to adequate
downtime for maintenance
-- Reduced every drilling team from 25 staff to 18 staff
-- In order to meet our planned drilling business expansion ,
the Company revised and augmented its organisation by adding the
Directional Department, the HSE Department, the OCC which
supervises the drilling activity, and the Maintenance and Logistics
Department
Site Camp
-- Obtained 23,000m(2) land for camp construction at Shizhuang South
-- Started construction of 8 buildings on a total land area of
9,760 square meters to accommodate 1,000 employees
-- The buildings include management and staff accommodation,
workshops, warehouse, offices, canteen and crew recreational
facility
Directional Drilling
-- The application of innovative solutions starts with Greka
Drilling's growing Engineering Department which houses Directional
Drilling and Engineering divisions. With a key focus on improving
productivity, these divisions develop and implement our in-house
directional drilling techniques. Greka Drilling ensures its team
members deliver the consistent application of specialized in-house
techniques and methodologies
-- Perfected the utilisation of RMRS (Rotating Magnet Ranging
System) technologies which significantly enhances the drilling
precision
-- The LiFaBriC method continues to deliver consistent and
reliable results. Greka Drilling combines cutting edge drilling
technology with a program of continuous development to deliver an
enhanced CBM completions technique. Together with developments in
applying enhanced geo-steering techniques through MWD (Measurement
While Drilling) and LWD (Logging While Drilling) technologies,
Greka Drilling has been able to continue to improve upon the
success of the LiFaBriC methodology
Maintenance
-- Maintenance and Logistics Department established in June
2011. Following the theoretical and operational training, engineers
and mechanics are able to troubleshoot and repair the mechanical,
hydraulic and electrical failures on the rigs in-house
In total 7 Italian-Chinese speaking engineers were sent to
Drillmec in Italy for training and concurrently ensured quality
control during the construction of the new 25 GD-75 rigs
FINANCIAL REVIEW
RESULTS FOR THE YEAR
The Group recorded revenue of US$43.8m (2010: US$24.3m) and a
profit attributable to equity holders of US$2.8m (2010: US$1.8m)
for the year ended 31 December 2011. The general and administrative
expenses amounted to US$5.6m (2010: US$2.8m). Earnings per share
were US$0.006 (2010: US$0.005).
LIQUIDITY AND CAPITAL RESOURCES
As at 31 December 2011, the Group has total assets of US$88.4m
(2010: US$53.2m) and current liabilities, non-current liabilities
and equity holders' equity of US$11.3m, US$0m and US$77.1m
respectively (2010: US$56.9m, US$0m and US$(3.7)m
respectively).
As at 31 December 2011, the Group's cash and cash equivalents
was US$6.6m (2010: US$6.4m) and total borrowings of US$2.0m (2010:
US$1.5m), a bank loan secured via the mortgage of the Company's
office building. This bank loan has a one year term from 9 December
2011 to 9 December 2012 with a 7.544% interest rate.
Consolidated Statement of Comprehensive Income
Year ended Year ended
31 December 31 December
2011 2010
Note US$'000 US$'000
---------------- ------------
Revenue 2 43,834 24,317
Cost of sales (34,235) (19,430)
---------------- ------------
Gross profit 9,599 4,887
Foreign exchange (losses)/gains 671 959
Administrative expenses (5,581) (2,829)
----------------------------------------- ----- ---------------- ------------
Total administrative expenses (4,910) (1,870)
---------------- ------------
Profit from operations 3 4,689 3,017
Finance income 4 12 3
Finance costs 5 (85) (266)
---------------- ------------
Profit before income tax 4,616 2,754
Income tax charge 7 (1,812) (732)
---------------- ------------
Profit for the year 2,804 2,022
Other comprehensive income:
Exchange differences on translation
of foreign operations 825 154
---------------- ------------
Total comprehensive income for the
year 3,629 2,176
Profit for the period attributable
to:
- Owners of the company 2,790 1,826
- Non-controlling interests 14 196
---------------- ------------
2,804 2,022
Total comprehensive income attributable
to:
- Owners of the company 3,627 2,136
- Non-controlling interests 2 40
---------------- ------------
3,629 2,176
Earnings per share
- Basic and diluted (in US dollar) 8 0.006 0.005
================ ============
Consolidated Statement of Financial Position
As at As at
31 December 31 December
2011 2010
Note US$'000 US$'000
Assets
Non-current assets
Property, plant and equipment 43,219 16,738
Intangible assets 524 181
Deferred tax asset - -
------------ ------------
43,743 16,919
Current assets
Inventories 9,155 4,354
Trade and other receivables 28,930 25,534
Cash and cash equivalents 6,559 6,383
------------ ------------
44,644 36,271
------------ ------------
Total assets 88,387 53,190
------------ ------------
Liabilities
Current liabilities
Trade and other payables 8,994 54,967
Loans and borrowings 1,984 1,480
Current tax liabilities 283 436
------------ ------------
11,261 56,883
------------ ------------
Total net assets / (liabilities) 77,126 (3,693)
------------ ------------
Capital and reserves
Share capital 4 -
Reserves 77,511 -
------------ ------------
Equity attributable to owners of the
Company 77,515 (1,389)
Non-controlling interests (389) (2,304)
------------ ------------
Total equity / (deficiency) 77,126 (3,693)
============ ============
Consolidated Statement of Changes in Equity
Equity
attributable
Foreign to owners
Share Share Invested Reserve exchange Accumulated of the Non-controlling
capital premium capital* fund reserve losses Company interests Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
At 1 January
2010 - - (1,533) - 209 (2,201) (3,525) (2,344) (5,869)
Profit for the
year - - - - - 1,826 1,826 196 2,022
Other
comprehensive
income:
- Exchange
difference
on
translation
of foreign
operations - - - - 310 - 310 (156) 154
-------- -------- --------- -------- --------- ------------ ------------- ---------------- --------
Total
comprehensive
income
for the year - - - - 310 1,826 2,136 40 2,176
Transfer of
reserve fund - - - 102 - (102) - - -
-------- -------- --------- -------- --------- ------------ ------------- ---------------- --------
At 31 December
2010 - - (1,533) 102 519 (477) (1,389) (2,304) (3,693)
Profit for the
year - - - - - 2,790 2,790 14 2,804
Other
comprehensive
income:
- Exchange
difference
on
translation
of foreign
operations - - - - 837 - 837 (12) 825
Total
comprehensive
income
for the year - - - - 837 2,790 3,627 2 3,629
Adjustments
arising upon
acquisition
of
additional
interests in
subsidiaries - - - - 243 (2,156) (1,913) 1,913 -
Transfer of
reserve fund - - - 493 - (493) - - -
-------- -------- --------- -------- --------- ------------ ------------- ---------------- --------
New issue of
ordinary
shares 4 49,996 - - - - 50,000 - 50,000
Capital
contribution 27,190 - - - - 27,190 - 27,190
At 31 December
2011 4 77,186 (1,533) 595 1,599 (336) 77,515 (389) 77,126
======== ======== ========= ======== ========= ============ ============= ================ ========
* Invested capital represents the difference between the nominal
value of theCompany's share of the paid-up capital of the
subsidiaries acquired and the Company's cost of acquisition of the
subsidiaries under common control.
Consolidated Statement of Cash Flows
Year ended Year ended
31 December 31 December
2011 2010
Note US$'000 US$'000
Operating activities
Profit before income tax 4,616 2,754
Adjustments for:
Depreciation 2,941 2,083
Amortization of other intangible assets 37 18
Loss on disposal of property, plant and
equipment 10 491
Finance income (12) (3)
Finance costs 85 266
------------ ------------
Operating cash flows before changes in working
capital 7,677 5,609
Increase in inventories (4,801) (2,208)
Increase in trade and other receivables (3,396) (18,632)
(Decrease)/increase in trade and other payables (18,783) 22,747
------------ ------------
Cash (used in)/generated from operations (19,303) 7,516
Income tax payment (1,976) (5)
------------ ------------
Net cash (used in)/from operating activities (21,279) 7,511
------------ ------------
Investing activities
Payments for purchase of property, plant
and equipment (28,671) (3,108)
Payments for intangible assets (363) (38)
Proceeds from disposal of property, plant 16 -
and equipment
Interest received 12 3
------------ ------------
Net cash from/(used in) investing activities (29,006) (3,143)
------------ ------------
Financing activities
Proceeds from the issue of share, net of 50,000 -
issue costs
Proceeds of short term loan 1,984 1,480
Repayment of short term loan (1,555) (1,171)
Finance costs paid (85) (266)
Net cash from financing activities 50,344 43
------------ ------------
Net (decrease)/increase in cash and cash
equivalents 59 4,411
Cash and cash equivalents at the beginning
of the year 6,383 2,261
------------ ------------
6,442 6,672
Effect of foreign exchange rate changes 117 (289)
------------ ------------
Cash and cash equivalents at end of year 6,559 6,383
============ ============
Abridged notes to the financial information for the year ended
31 December 2011
1. BASIS OF PREPARATION
Greka Drilling Ltd. ("the Company") is incorporated in the
Cayman Islands. The financial statements have been prepared in
accordance with IFRSs as adopted by the European Union, that are
effective for accounting periods beginning on or after 1 January
2011. The principal accounting policies adopted in the preparation
of the financial statements are disclosed in the Group's full
annual report and accounts for the year ended 31 December 2011.
2. REVENUE AND SEGMENT INFORMATION
The Group determines its operating segment based on the reports
reviewed by the chief operating decision-makers ("CODMs") that are
used to make strategic decisions.
The Group reports its operations as a single reportable segment:
the provision of contract drilling services in the People's
Republic of China (the "PRC"). The consolidation of our contract
drilling operations into one reportable segment is attributable to
how the CODMs manage the business.
We evaluate the performance of our operating segment based on
revenues from external customers and segment profit.
Drilling services revenue and management services revenue
represents the net invoiced value of contract drilling services and
management services provided to one customer. The amounts of each
significant category of revenue recognised during the year are as
follows:
2011 2010
US$'000 US$'000
Drilling services 43,102 23,727
Management services 732 590
-------- --------
43,834 24,317
======== ========
3. PROFIT FROM OPERATIONS
Profit from operations is stated after charging/(crediting):
2011 2010
US$'000 US$'000
Cost of inventories recognized as an
expense
Staff costs (note 6) 7,931 4,791
Depreciation of property, plant and equipment 2,941 2,083
Operating lease expense (property) 132 58
Amortization of intangible assets 37 18
Loss on disposal of property, plant and
equipment 10 491
Foreign exchange losses (671) (959)
4. FINANCE INCOME
2011 2010
US$'000 US$'000
Bank interest 12 3
======== ========
5. FINANCE COSTS
2011 2010
US$'000 US$'000
Interest expense on short term loans 85 67
Interest expense on loans from a related
company - 199
85 266
======== ========
6. STAFF COSTS
2011 2010
US$'000 US$'000
Staff costs (including directors' remuneration)
comprise:
Wages and salaries 6,756 3,949
Employer's national social security contributions 912 441
Other benefits 263 401
-------- --------
7,931 4,791
======== ========
7. TAXATION
2011 2010
US$'000 US$'000
Current tax
- Charges for current year 1,812 431
Deferred tax
- (Credit)/charge for the year - 301
-------- --------
Income tax charge 1,812 732
======== ========
The reasons for the difference between the actual tax charge for
the years and the standard rate of corporation tax in the Cayman
Islands applied to the profit for the year are as follows:
2011 2010
US$'000 US$'000
Profit before income tax 4,615 2,754
Expected tax charge based on the standard - -
rate of corporation tax in the Cayman
Islands of 0% (2010: 0%)
Effect of:
Different tax rates applied in overseas
jurisdictions 1,154 689
Tax effect of revenue not taxable for
tax purposes (71) (233)
Tax effect of expenses not deductible
for tax purposes 56 276
Tax losses not recognized 574 -
Under/(over) provision in respect of 99 -
prior year
-------- --------
Income tax charge 1,812 732
======== ========
Taxation for the Group's operations in the PRC is provided at
the applicable current tax rate of 25% on the estimated assessable
profits for the year.
8. EARNINGS PER SHARE
The calculation of the basic and diluted loss per share
attributable to the owners of the Company is based on the following
data:
2011 2010
US$'000 US$'000
Profit for the year 2,790 1,826
Number of shares 431,359,038 398,245,758
Weighted average number of ordinary shares
for the purposes of basic earnings per
share (thousands) 431,359 368,423
Weighted average number of ordinary shares
for the purposes of diluted earnings
per share (thousands) 431,359 368,423
================== ==================
Basic earnings per share (US$) 0.006 0.005
================== ==================
Diluted earnings per share (US$) 0.006 0.005
================== ==================
There are no potentially dilutive instruments.
9. DIVIDENDS
No dividend has been paid or declared by the Company during the
year (2010: Nil).
10. PUBLICATION OF NON-STATUTORY ACCOUNTS
The financial information for the years ended 31 December 2011
and 31 December 2010 set out in this announcement does not
constitute the Group's statutory financial information but is
extracted from the Company's audited financial statements for those
years. The auditors have reported on the full financial information
for both periods and their reports were unqualified and did not
include references to any matters to which the auditors drew
attention by way of emphasis without qualifying their reports.
11. ANNUAL REPORT
The Company's Annual Report and copies of this announcement will
be available in due course on the Company's website at
www.grekadrilling.com and from the office of the Company's
nominated adviser, Smith & Williamson Corporate Finance Limited
at 25 Moorgate, London EC2R 6AY, United Kingdom.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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