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Capital Drilling Ltd Q&A: Q3 Trading Update (LON:CAPD)

Capital Drilling Ltd (LON:CAPD) Chief Executive Officer Jamie Boyton caught up with DirectorsTalk for an exclusive interview to discuss their Q3 trading update.

 

Q1: Today’s Q3 update shows Capital Drilling to be on track for its FY18 earnings guidance of between $105 million and $115 million, with increased revenues for the period compared to Q2 of 2018 and Q3 of 2017. What’s behind this success?

A1: The main part that’s behind the success is we relocated a lot of rigs to West Africa, so we really spent the better part of Q4 of last year and Q1 of this year relocating rigs into the West African region and we finished the September quarter with 31 rigs in the region.

As a result of putting rigs over there, we managed to secure a number of contracts which led to high utilisation and a very strong September quarter where we did $30 million in revenue.

So, when you look at that run-rate on an annualised basis, we’re obviously beyond the top end of the range but we had a softer Q1 as we were in the process of moving rigs whereas Q3 really reflects the rigs being on the ground and the revenue has flowed through. So, very pleased.

 

Q2: What’s driving your improved utilisation rate?

A2: The utilisation rate is a function of securing some contracts wins in Tanzania; we won our first exploration contract there in 2 years, exploration contract wins in Botswana and then the balance of it again is West Africa, the more significant being a 3-rig delineation contract with Hummingbird Resources in Mali.

So, when you add of those rigs together, that’s where the utilisation growth came from.

 

Q3: I noticed that the fleet size has shrunk by two, is this a trend that we can expect to see going forward?

A3: No, it’s not a trend. The group is always very actively managing the assets that we have and we’re currently sitting with an average fleet age of approximately 5 years of age which is probably the youngest scale fleet in the industry. So, in the September quarter, we actually sold two of our rigs in Ethiopia and we decommissioned two of our older rigs in Mauritania.

So, we’ll continue to decommission the older rigs, but it won’t be a significant number and we won’t see a significant reduction in rig numbers.

 

Q4: How is the move to West Africa going? Do you remain optimistic about the region?

A4: I do. We’re just emerging from the wet season which obviously curtails activity, particularly in places like Mali, Burkina and Ivory Coast.

I’m very optimistic, it was a strategic decision made by the Board in Q4 of last year, we’ve had a lot of early success, we’re picking up contracts and we’re on tender lists so looks very optimistic.

We’ve historically operated in Tanzania and Egypt predominantly and when you look across those two countries, you’re talking 5 producing gold mines, move into West Africa and you’re talking north of 30 producing gold mines. So, it’s a much larger market so we’re very optimistic that we’re going to secure more work in the future.

 

Q5: I also see that you were awarded the ISO Certification in August of 2018, what is Capital Drilling doing to achieve these excellent health and safety requirements?

A5: This really is part of the embedded culture of the company since inception back in 2005, we’ve always had a very high level of focus on health and safety. That is being reflected in the customer base that is being attracted to us, the likes of the Kinross’ of the world where you really have to have the highest standards of health and safety.

So, the ISO award is very pleasing, they are just part of the ongoing process of continuous improvement across health and safety and will continue to be a very strong focus for the company moving forward.