ADES CEO sees higher demand for drilling services

Mohamed Abdul Khaleq CEO ADES Holding Co.

ADES Holding Co.’s CEO Mohamed Abdul Khaleq the current market conditions suggest increasing demand for drilling services, as utilization rates for offshore drilling rigs have reached 95% given the limited number of new platforms.

He told Argaam that the movement of rigs to the Middle East in recent years created a gap in a number of attractive markets, including those of Southeast Asia, where the company was keen to grow its presence in light of its recent contracts in India and Indonesia.

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These developments, along with the expected demand from some GCC countries, are likely to help balance and largely offset any increase in supply in the Saudi market after these recent developments, the top executive added.

He stated that ADES is witnessing the impact of the transformations that are reflected in its new project awards and the renewal of existing ones at higher daily rental rates across various markets — a trend poised to continue in the medium term.

There are no changes to date regarding the current activities of ADES’ contractual fleet in the Kingdom, said the CEO, adding that the diversity and flexibility of the company’s fleet of jack-up drilling rigs in Saudi Arabia enhances its confidence in the stability of its activities and ensures limited vulnerability to fluctuations, if any, as a result of recent developments.

He pointed out that the weighted average duration of the remaining contracts with ADES in the Kingdom reached 5.74 years at the end of 2023, allowing for the provision of a long-term vision and a chance to predict future cash flows.

In 2023, the group's contract backlog gained SAR 152.1 million, or 0.60%, to SAR 27.54 billion as of Dec. 31, 2023, compared to SAR 27.39 billion in 2022, according to the CEO.

Abdul Khaleq explained that despite recording revenues of SAR 4.33 billion in the same year, this was reflected in additional backlog worth SAR 4.48 billion. He indicated that the growth in backlog reflects the company’s focus on achieving long-term sustainable growth.

Speaking of the company’s financials, the Q4 2023 net profit fell year-on-year (YoY). However, this does not reflect the real growth of net profit for this quarter, given the impact of the high base year on the background of one-off net expenses and revenues, the CEO underlined.

He added that the audited net profit increased by 84.2% YoY in 2023, driven by the significant growth in revenues and improved earnings before interest, taxes, depreciation, and amortization (EBITDA) margin.

Abdul Khaleq explained that the top-line growth by country was attributed to several factors. In Saudi Arabia, 14 out of 19 rigs within Aramco's mega project contributed to Q4 2023 revenues, against only two drilling rigs in Q4 2022.

Meanwhile in India, the fourth quarter revenues were represented in the contribution of two rigs that began operating in the last quarter of the year, out of a total of three rigs that were contracted.

On the other hand, the growth in Algeria’s revenues was due to the contribution of two rigs within the new contracts, in addition to the increase in utilization rates. As for Kuwait, Q4 2023 revenues advanced YoY on the operation of four rigs out of a total of six contracts awarded to the group.

He pointed out that the high utilization rates in Saudi Arabia and Egypt, coupled with the high daily rental rates, boosted revenue growth.

The number of the group's rigs rose to 87 by the end of 2023, compared to 85 in 2022. Further, the total number of rigs operating in the period ended Dec. 31, 2023, increased from 48 to 67, growing by about 40% YoY, according to the CEO.

He added that the ratio of revenues from the GCC countries Saudi Arabia, Kuwait, and Qatar to the total represented about 86% of Q4 2023 revenues. The remaining 14% accounted for revenues from other countries, Egypt, Algeria, Tunisia, and India.

The CEO also pointed out that the group provides oil and gas services in the Kingdom through 33 and 14 offshore and onshore drilling rigs, respectively. He highlighted that the value of ADES’ contract backlog in Saudi Arabia represented 78% of total contracts by the end of 2023.

Furthermore, revenues from the Saudi Arabia constituted 66% of the group’s total revenues in 2023. In addition, the company’s fleet of 14 onshore rigs in Kuwait, which provides oil and gas exploration services, accounted for 11% and 9% of revenues and backlog in 2023, respectively, Abdul Khaleq added.

He expected the company’s EBITDA to range between SAR 2.89-3.04 billion in 2024, a growth of 35-42%. This is on the backdrop of continued operational growth and increased operating pace for the company’s recent expansions, coupled with market conditions for jack-up offshore drilling rigs that see sluggish supply and high demand.

According to the data available in Argaam, ADES’ profit (before minority initerest) rose to SAR 452 million in 2023, compared to SAR 398 million in 2022.