20/08/2009 - 00:00

Downturn drives drilling deals

20/08/2009 - 00:00


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THE impact of the global financial crisis on the drilling industry was painted in stark relief this week in a flurry of news from key players in the sector.

THE impact of the global financial crisis on the drilling industry was painted in stark relief this week in a flurry of news from key players in the sector.

Perennial drilling and blasting battler Brandrill kicked off the week by agreeing to a friendly $45 million merger offer from Ron Sayers' drilling and mining services group, Ausdrill.

Ausdrill said the proposed merger was logical and compelling and would provide shareholders in both companies with the benefits of greater scope and scale.

In particular, Ausdrill identified Brandrill's significant exposure to the east coast coal industry as a major driver of the deal.

It also identified Brandrill's drilling consumables business as a natural fit with its own Drilling Tools Australia manufacturing business, and said Brandrill's DT Hi-Load truck body business would fit well with the wider Ausdrill business.

However, analysts said the deal also reflected the tough conditions affecting the drilling and blasting sector.

Last month, Brandrill raised $2 million at just four cents per share to shore up its balance sheet and provide extra working capital. The raising followed a warning from managing director Ken Perry that project delays and deferrals would result in a loss for the June 2009 half.

One senior Perth analyst, who declined to be named, said the merger appeared more of a necessity for Brandrill but posed some risk for Ausdrill in the form of higher gearing levels and increased maintenance costs associated with Brandrill's older drilling fleet.

However, access to Brandrill's coal contracts would also enable Ausdrill to deploy otherwise idle rigs, he said.

Meanhwile, debt-laden drilling giant Boart Longyear further highlighted the tough conditions by revealing June half profits had tumbled 80 per cent to just $US5.4 million.

Desperate to retire $US585 million of debt due in April, it also announced a $US635 million capital raising priced at just 27 cents per share, a huge discount to its last trade at 44 cents. Boart is now worth a fraction of the $1.85 price paid by investors during its successful $2.4 billion Australian float at the height of the boom in late 2007.

More bad news followed with local drilling services group Imdex booking a 62 per cent fall in net profit to $12.1 million for 2008-09, although the prior result included one-off gains on the sale of non-core assets.

Nonetheless, there are signs that the worst has passed for the sector.

Brandrill has noted a big rise in activity levels since the start of June, while Boart said it expected revenue to grow 15 per cent in 2010 as rig utilisation rates recovered.

Imdex also said it believed conditions had bottomed in the March 2009 quarter and said signs of recovery had since emerged.

Hartleys analyst Trent Barnett put a 'buy' recommendation on Imdex, primarily due to the earnings growth potential as it rolls out its new oil and gas instrumentation division next year.


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