Integra Group Reports Unaudited Financial and Operating Highlights for the 9M 2007

Transcription

1 Integra Group Reports Unaudited Financial and Operating Highlights for the MOSCOW, December 19, Integra Group (LSE: INTE), a leading Russian oilfield service provider, released today its preliminary unaudited financial and operating highlights for the nine month period ended 30 September. The financial data is based on interim management assessment only and has not been reviewed by external auditors. Financial Highlights Sales increased by 147.2% to US$ million (vs. US$ million during 2006) Adjusted EBITDA 1 rose by 137.8% to US$ million (vs. US$ 54.5 million during 9М 2006) o Adjusted EBITDA margin was 16.1% (vs. 16.8% during 2006) o Adjusted EBITDA margin by segment 2 was : Drilling, Workover, IPM and Technology Services segment 3 : 21.0% (vs. 21.1% during 2006) Formation Evaluation segment: 27.9% (vs. 21.0% during 2006) Equipment Manufacturing segment: 16.4% (vs. 27.2% during 2006) Capital expenditures for the first nine months of were US$ million (vs. US 91.5 million in 2006) Gearing 4 was 21.6% at the end of (vs. 61.6% at the end of 2006) Operating Highlights 5 347,000 meters drilled (vs. 342,883 meters during 2006) Average revenue of US $525 per meter drilled (vs. US $422 per meter drilled during 2006) 163 wells completed (vs. 123 wells during 2006) 727 workover operations conducted (vs. 718 workover operations during 2006) Revenue of US $171 per workover crew hour (vs. US $131 per workover crew hour in 2006) 15.1 thousand km of two-dimensional (2D) seismic surveys carried out (vs thousand km of 2D seismic surveys during 2006) 5.3 thousand sq. km of three-dimensional (3D) seismic surveys carried out (vs. 5.1 thousand sq. km of 3D seismic surveys during 2006) 13.8 thousand logging operations conducted (vs thousand during 2006) Number of heavy drilling rigs in production increased to 21 rigs (vs. 9 in production at the end of 2006) 1 Adjusted EBITDA represents profit (loss) before interest income (expenses), exchange gains (losses), income taxes, gain on acquisition of subsidiaries, gain (loss) on disposal of property, plant and equipment, depreciation and amortization, share-based compensation, share of results of associates and minority interest. 2 Segment results exclude corporate management expenses, restated segment margins for preceding periods are provided later in the text. 3 Segment previously referred to as Drilling, Workover and IPM. Change in name does not constitute a change in the consolidation methodology for the segment. 4 Gearing defined as: (short-term debt + long-term debt) / (short-term debt + long-term debt + equity). 5 Operating results for 2006 are presented on a pro-forma basis including results of acquired companies from the beginning of the period.

2 Felix Lubashevsky, Integra s Chief Executive Officer, commented, Our nine month and third quarter results demonstrate substantial growth in our business. We are pleased to see that nearly half of our incremental EBITDA in the nine months is now coming from organic expansion which was achieved by capturing lucrative market opportunities, investing proactively and delivering new product lines, specifically in our Technology Services operations. We saw a substantial pick-up in activity in the third quarter of, in line with seasonal trends of this industry, and we will continue to take advantage of this seasonal trend in the fourth quarter, historically the strongest in the year. The pick-up in activity was coupled with a healthy increase in the Group s EBITDA margin in the third quarter (17.2%) relative to the first half of (15.4%). Our focus going forward will be to demonstrate a material improvement in profitability relative to We already see positive developments in the outlook for 2008, as our order book is being filled at a faster pace than at this time in We are also pleased to see the share of long-term contracts in our order book steadily increase. Demonstrated organic growth and opportunities, which we see emerging from new acquisitions and the execution of our restructuring programs, give us confidence in a much stronger performance going forward. Conference Call Dial-In Details Date: Wednesday, 19 December Time Moscow / London / New York Title: Integra Group 9 Month Trading Statement Call reference: UK local rate tel: UK international tel: +44 (0) US tel: There will also be a playback facility available until 1 January. The details are: UK local rate tel: UK international tel: +44 (0) US tel: Access code: #

3 Market update Integra continues to benefit from favorable market conditions. In particular we have been supported by a strong upward trend in the capital expenditure budgets of our key customers - oil and gas companies - which is coupled with a shortage of quality oilfield services on offer. As a result, we have experienced substantial growth in pricing and volumes across all of our business divisions. There were no material changes to pricing trends in the third quarter relative to the first six months of the year but all of our segments continue to enjoy double digit increases in prices relative to the same period in These increases are primarily driven by strong demand for drilling and seismic capacity as well as higher value-added services such as IPM and technology services (i.e. directional drilling, packer and drill bit services, coring and well completions). We also see a continuous trend towards longer-term contracts which became more visible during the third quarter of, as our major customers commenced their 2008 tendering campaigns. Discussion of Group s Financial Performance Consolidated sales during increased by 147.2% to US$ million compared to US$ million during Of the total increase in our sales of US$ million, the share of organic growth was US$ million, or 66%, while the non-organic contribution to growth in sales was US$ million, or 34%. Management estimates that nearly 65% of the expected order book had been delivered to the customer as products and services during, in 2006 some 59% of the full year revenue was earned in the This indicates that the largest part of our revenue is generated in the last quarter of the year and that execution of the order book in is in line with seasonal patterns. Adjusted EBITDA increased US$ 75.1 million, of which organic growth represented US$ 38.3 million, or 51% and the non-organic component was US$ 36.8 million, or 49%. For the, the year-on-year organic increase in adjusted EBITDA was 41.9%. This organic growth was primarily attributable to favorable pricing conditions, higher capacity utilization and resulting increases in volumes of services offered. Adjusted EBITDA margin declined immaterially to 16.1% in from 16.8% in Reduced margins in the manufacturing segment due to increased levels of outsourcing, increased overhead in the corporate center related to the public status of the company and transitional costs in our drilling operations due to restructuring process, have prevented the Group s consolidated EBITDA margin from exceeding last year s level. On a consecutive basis, there was an expected pick-up in margin in to 17.2% compared to 15.4% in 1H. Management expects this positive trend in profitability to continue into 4Q, historically the strongest quarter of the year. Our positive outlook for 2008 is driven by Management s better visibility and predictability of the business, reduced build-up of corporate overhead and margin expansion, specifically in our drilling operations as a result of the conclusion of our restructuring program.

4 Discussion of Segment Financial Performance Sales by segment (in US $ million): 2006 % chg 2006 % chg Drilling, Workover, IPM and Technology Services % % Formation Evaluation % % Manufacturing % % Other eliminations (5.2) (0.1) - (0.5) - - Total sales % % Adjusted EBITDA by segment (in US $ million) : 2006 % chg 2006 % chg Drilling, Workover, IPM and Technology Services % % Formation Evaluation % % Manufacturing % % Other (corporate) (44.5) (18.0) 147% (16.6) (8.6) 93% Total adj. EBITDA % % Adjusted EBITDA margin by segment (%) 6 : H 8 1H Drilling, Workover, IPM 21.0% 21.1% 20.8% 27.4% 21.1% 15.0% and Technology Services Formation Evaluation 27.9% 21.0% 32.5% 31.6% 26.0% 15.6% Manufacturing 16.4% 27.2% 19.3% 17.2% 12.9% 36.4% Group adjusted EBITDA margin 16.1% 16.8% 17.2% 20.1% 15.4% 14.0% 6 Management reclassified the segment margins to exclude corporate expenses, Group s EBITDA margin is not affected by this reclassification. 7 Margins previously disclosed for 2006 were 19.9%, 21.0%, 24.5% and 16.8 % respectively. 8 Margins previously disclosed for 1H were 15.8%, 20.6%,10.5%, and 15.4% respectively. 9 Margins previously disclosed for 1H2006 were 14.0%, 15.1%, 36.5%, and 14.0% respectively.

5 In the Drilling, Workover, IPM and Technology Services segment, the and results show substantial growth in revenue, while the adjusted EBITDA margin was generally flat year-on-year. Growth in segment profitability was challenged by ongoing restructuring and integration, specifically in our drilling operations. Our restructuring efforts, rationalization of our rig fleet, and personnel reassignments, exposed our drilling operations to one-time expenses as well as an increase in down time during the transition period. These factors squeezed the margins of our drilling operations in the. The weakness in drilling margins was offset by a very encouraging result from our IPM, Technology Services and Drilling Tools operations, which continue to demonstrate substantial growth in revenue and robust profitability expansion. Management maintains a positive outlook on the segment s margins going forward and believes these transitional issues mask the strong upside that should emerge once we are past the peak of the restructuring process. The results also underpin Management s strategy of diversification within the segment in favour of higher value-added services. Our Formation Evaluation segment showed significant growth in the, both an absolute increase in cash earnings and in terms of margin expansion. This was driven by stronger pricing trends, gains in operational efficiency and a continued commitment to invest in upgrading our seismic equipment. Our Kazakhstan operations experienced encouraging results by posting a healthy pickup in profitability which was one of the key contributors to the efficiency improvement for the whole segment. With further investment in technology and continued restructuring of our Russian operations, Management sees further upside potential in the segment. In the Manufacturing segment, the significant increase in sales reflects our landmark contracts with Gazprom and Rosneft. In we saw an expected decline in margins versus last year specifically driven by our continuous need to out-source more production related to the Gazprom contract due to constraints on our in-house production capacity. Management expects that the push to expand the in-house capacity and focus on creating state-of-the-art engineering capability, along with improved procurement capabilities for critical components such as top drives, will provide upside opportunities in this segment. On a consecutive basis, segment margins in improved to 19.3% compared to 12.9% in 1H, as full-scale production was launched on the Gazprom contract. Management expects to maintain this level of profitability going forward.

6 Operational update During the first nine months of, all of our segments demonstrated good organic performance, which was reflected in our operational results. Our Drilling, Workover, IPM and Technology Services segment drilled 347,000 meters (vs. 342,883 meters during 2006). A total of 163 wells (vs. 123 wells during 2006) were constructed, and 727 workover operations conducted (vs. 718 workover operations during 2006). The overall increase in volumes was mainly attributable to a higher capacity utilization of our drilling and workover assets. A relatively low absolute increase in meters drilled is explained by a continuous shift in drilling volumes from lower-priced vertical drilling towards horizontal and deviated drilling, which translated into 24% increase in the average price per drilled meter. Our Formation Evaluation segment carried out 15.1 thousand km of two-dimensional (2D) seismic surveys (vs thousand km of surveys during 2006) and 5.3 thousand sq. km of threedimensional (3D) seismic surveys (vs. 5.1 thousand sq. km of surveys during 2006). Volumes of 2D seismic were roughly in line with the previous years whilst primary focus was to enhance our 3D seismic activities. Our well geophysics units carried out 13.8 thousand logging operations (16.8 thousand operations during 2006), the decline in volumes was primarily at our associates. During the first nine months of, our Equipment Manufacturing segment significantly increased the number of heavy drilling rigs in production to 21 rigs (vs. 9 rigs in production at the end of 2006). M&A Update In August we acquired Geotechsystem, a leading provider of geological and geophysical data processing and interpretation services. Combining unique technological solutions in seismic data processing and interpretation of Geotechsytem with the scale of our existing operations, provides a powerful platform for margin expansion in this line of services. We believe this acquisition will contribute over US$ 2 million of additional adjusted EBITDA in FY2008. In October, we completed the acquisition of Obnefteremont (ONR), a company specializing in well workovers. The total consideration for the transaction was US$ 80 million. Management anticipates the ONR acquisition will lead to additional adjusted EBITDA of approximately US$ 9.0 million in FY2008 due to increasing the number of working hours per rig, higher average prices charged per crew hour, and improving overall workover productivity.

7 Outlook for 4Q and 2008 The outlook for the remainder of remains positive, as fourth quarter is historically the strongest quarter in the year contributing 30-40% of the annual result. Management expects the positive profitability trend demonstrated in to be maintained in 4Q and onwards. As of December 18,, Integra Group had signed contracts for over US$ 1,058 million in revenue for services and equipment to be delivered to customers in. Order Book US$ million Tenders won, Contracts signed contracts not signed Total Order Book Oilfield services Equipment manufacturing TOTAL 1, ,235 - of which associates The contracting period for 2008 has been launched, and we have materially better visibility and predictability of the business relative to the same period a year ago. As of December 18,, Integra Group had signed contracts for about US$ 416 million in revenue for services and equipment to be delivered to customers in Order Book US$ million Tenders won, Contracts signed contracts not signed Total Order Book Oilfield services Equipment manufacturing TOTAL of which associates

8 Contacts Integra Group Andrei Machanskis Alla Sapun Head of Investor Relations Press Secretary Tel Tel Financial Dynamics Jonathon Brill, Edward Westropp, Ekaterina Alferova London Tel Anna Shumaylova Moscow Tel Notes to editors: Integra Group: Integra Group is a leading Russian independent provider of onshore oilfield services and is also a leading manufacturer in the Russian Federation of drilling rigs with heavy lifting capacity, cementing equipment and certain specialized equipment used in the exploration, development and production of oil and gas. Integra Group operates in the drilling, workover, seismic and geophysics sectors and manufactures oilfield services equipment. Integra has oilfield services operations in all major oil and gas producing regions in Russia and in many other CIS countries. The company s customer base includes major Russian and international oil and gas companies operating in Russia and CIS. Established in March 2004, Integra Group has, through 16 strategic acquisitions, become one of the leading companies in the oilfield services and equipment manufacturing sectors of the Russian market and employs over people. Since February 27, Integra Group has been traded on the London Stock Exchange (symbol: INTE). - END- Forward looking statements: These materials contain statements about future events and expectations that are forward-looking in nature. Any statement in these materials that is not a statement of historical fact is a forward-looking statement that involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements expressed or implied by such forward-looking statements to differ. We assume no obligations to update the forward-looking statements contained herein to reflect actual results, changes in assumptions or changes in factors affecting these statements.