ADES sees lucrative opportunities in offshore rigs markets, stronger demand: CEO

Mohamed Farouk, CEO of ADES Holding Co.

ADES Holding Co. continues to see lucrative opportunities in offshore rigs markets to bridge the gap in markets suffering supply shortages and weaker activity at newly-built rigs reaching historical lows, by continuing to integrate offshore assets, CEO Mohamed Farouk told Argaam in an interview.

The company’s acquisition of two offshore rigs in Southeast Asia is deemed a key step towards consolidating premium rigs, with more to come. This is in a bid to reach a market share of 11% of the total premium rigs and rigs, he added.

For more exclusive interviews

Farouk also stated that, in recent months, the drilling sector has witnessed a supply pick-up in terms of offshore drilling rigs, after the temporary suspension of operating drilling rigs in Saudi Arabia. He pointed to the longing of other markets for drilling rigs such as the Southeast Asian market, which can capitalize on the elevated supply to meet its local needs.

When asked about demand for rigs, he said the market continues to see strong demand with high utilization and daily rental rates. "This reflects the increasing demand for jack-up rigs in supply-constrained markets such as Southeast Asia, where supply and activity rates of newly-built rigs are at historic lows, making the two iconic rigs acquired by ADES particularly valuable," he stated.

The CEO added that the group will continue to focus on securing further contract renewals, while building on its backlog value in existing and new markets. This is by capitalizing on the high demand for its fleet and the global market’s thirst for jack-up rigs.

“We have already witnessed the re-contracting of about 30% of the temporarily idle drilling rigs after the increase in supply in light of the recent developments in Saudi Arabia,” according to the top executive.

“This underpins the positive momentum in light of the increasing demand from GCC countries, in addition to promising opportunities in new markets such as Southeast Asia. We expect this momentum to continue and grow further in the coming months,” he continued.

Moreover, ADES's ability to secure assets at attractive valuations in markets where current utilization rates range around 90% reaffirms the depth of the group’s strategic vision and its commitment to maximizing value for its shareholders, said the CEO.

As for the projected impact of acquiring two offshore rigs in Southeast Asia, Farouk reiterated that the expected annual earnings before interest, taxes, depreciation and amortization (EBITDA) is estimated at SAR 150 million ($40 million).

The stock is currently trading at an EV/EBITDA of 10x for 2024, while the acquisition is at a multiple of 4.7x EBITDA.

Farouk also pointed out that ADES' purchase of the aforementioned offshore rigs underscores its disciplined approach to growth, with the average acquisition price per rig being $95 million. This aligns with the company’s track record of acquiring contracted rigs in periods when market utilization rates are averaging 80%.

The group will work to maximize the value of these two new rigs, which will help strengthen its regional position in Southeast Asia and India, in line with its long-term growth strategy. This buyout is under its contract acquisition model as part of its strategy to reduce risks by acquiring contracted assets, thus boosting the value of the group's contractual backlog, according to the top executive.

He also pointed out that the company’s backlog amounted to SAR 28.05 billion as of June 30, 2024. He expected the volume of contracts to increase following the rigs’ acquisition once all related conditions are met in the next three months.

According to Argaam's data, ADES, through its subsidiary ADES International Holding Ltd, announced earlier today agreeing to acquire two contracted premium jack-up rigs in the Southeast Asia region from Vantage Drilling International Ltd for $190 million (SAR 712.5 million).