7 Sep 2011 07:00
7 September 2011
Greka Drilling Limited
("Greka Drilling" or "the Company")
Interim Results - Revenues More than Double
Greka Drilling Limited (AIM: GDL), the largest independent and specialised unconventional gas driller in China is pleased to announce its results for the half year ended 30 June 2011.
CORPORATE HIGHLIGHTS
·; Successful 100% demerger from Green Dragon Gas
·; Admitted to the London Stock Exchange AIM market on 8 March 2011
·; 25 new drilling rigs ordered with an option for an additional 125
OPERATIONAL HIGHLIGHTS
·; Utilization rate increased to 86%
·; 26,435 meters drilled
·; Average revenue per rig: US$1.47m
·; Average days to drill a vertical well: 26 rig running days
·; Average days to drill a horizontal well: 37 rig running days
·; Average depth per vertical well: 830 meters
·; Average meterage per horizontal well: 2,861 meters
FINANCIAL HIGHLIGHTS
·; Revenue US$17.1m, a 121% increase over same period last year
·; Net profit US$0.9m, compared with US$1.0m loss in same period last year
·; EPS US$0.002, compared with loss per share of US$0.003 in same period last year
·; Cash on hand of US$38.5m
·; Unused US$12.5m revolving working capital facility
OUTLOOK
·; 25 ordered rigs: 1st rig to arrive on site on schedule in September with balance of 24 for delivery at rate of 4 rigs per month on site, beginning November 2011. Committed rig fleet to be 32 with an additional 125 on option
·; Drilling meterage expected to accelerate substantially in second half and beyond with the arrival of the new rig fleet
·; Rig crew numbers to be reduced as new rigs are more automated
·; Skilled personnel to increase rapidly by year end
·; Continued evaluation of third party drilling contracts
·; Evaluating acquisitions to expand beyond China
Randeep Grewal, Chairman and Chief Executive of Greka Drilling, commented:
"China's undisputed vast resource of unconventional gas is the prize, the attainment of which has been thwarted by the lack of specific technology and aptitude to commercially extract this resource. In effect there are today and have been others previously, many 'gold diggers without the right shovels'. Converting the resource into reserves and hence revenue involved the development of the required technology to drill in the very complex, under-saturated, brittle, and heavily faulted coal beds with the world's highest gas content.
It took materially longer than we initially anticipated to unlock the unconventional gas resource potential, but unlock it we did and now our committed fleet expansion from 7 to 32 rigs makes us the largest dedicated unconventional gas driller within China and we have an ambition to be the same across Asia through continued expansion in the future."
For further information on Greka Drilling (including pictures of the Company's first new rig), please refer to the Company's website at www.grekadrilling.com or contact:
Stephen Hill, VP Corporate Communications Greka Drilling
| +852 3170 0108 |
Dr Azhic Basirov / David Jones Nomad Smith & Williamson
| +44 20 7131 4000 |
Tim Redfern / Anu Tayal / Jamie Richards Broker Evolution Securities
| +44 20 7071 4312 |
Paul Connolly / John Dwyer / Steve Baldwin Broker Macquarie Capital (Europe)
| +44 20 3037 2000 |
James Henderson / Nick Lambert / Rollo Crichton-Stuart Investor relations Pelham Bell Pottinger | +44 20 7861 3232 |
Chairman's Statement
This is Greka Drilling's fourth year of operation and the first year as a public Company following the demerger from Green Dragon and listing on 8 March of this year. This demerger was designed to set us apart as a specialised unconventional gas driller capable of utilizing our drilling methodology for third parties as well as for Green Dragon. The Company's demerger was additionally intended to position the Company to capitalize on our first mover advantage and the growing demand for domestic unconventional gas production in China. All of which we believe we have successfully achieved in the first half.
China's undisputed vast resource of unconventional gas is the prize, the attainment of which has been thwarted by the lack of specific technology and aptitude to commercially extract this resource. In effect there are today and have been others previously, many "gold diggers without the right shovels". Hence, the value of this resource is far less reliable and predictable due to a lack of effective ability to convert the resource into reserves and hence revenue. Green Dragon acknowledged this void during its "long march" through the development of the required technology to drill in the very complex, under-saturated, brittle, and heavily faulted coal beds with the world's highest gas content. Our mission was to develop a scalable and repeatable methodology that overcame the geological issues associated with the strata.
It took materially longer than we initially anticipated to unlock the unconventional gas resource potential due to the required technology development, but unlock it we did. Green Dragon initially established its in-house drilling division out of necessity and, once the technology was mature, its need was to achieve gas production rather than to own the drilling services business which accordingly was demerged.
Our committed fleet expansion from 7 to 32 rigs makes us the largest dedicated unconventional gas driller within China and we have an ambition to be the same across Asia through continued expansion in the future.
Operationally, the organization is busy: drilling with all seven rigs running 24/7; hiring an additional 400 staff to man the upcoming new rig deliveries, with the first GD75-1 rig going into service this month and the balance 24 over the coming months; constructing a new staff complex in the field to accommodate up to 1,500 staff; commencing a stringent training program to ready the new staff; and concurrently adding the management and administration capacity required by this growth. It is indeed a very busy time!
Concurrently, discussions with potential third party customers have already begun. The majors in China are spending billions on overseas acquisitions aimed primarily at bringing technologies that will help in unlocking China's vast unconventional gas resource. As Greka Drilling is able to provide this acutely needed technology domestically now, it is unsurprising that unlike any other drilling contractor, we are experiencing significant demand for our drilling services from third parties. We expect that as our fleet expands and capacity becomes available we will selectively offer our services to this broader clientele. In line with the overall demand for energy in China, the demand for our services far exceeds our capacity and I expect this situation to continue for several years to come.
I look forward to leading the Company in this exciting growth with our tireless employees and management eager to achieve an ever higher plateau of operational and financial success. The Company is achieving this exciting growth profitably with a strong balance sheet. A discipline we intend to maintain.
Randeep S. Grewal
Chairman
6 September 2011
Condensed Consolidated Statement of Comprehensive Income
Six months | Six months | Year ended | ||
ended 30 | ended 30 | 31 December | ||
June 2011 | June 2010 | 2010 | ||
Note | US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | ||
Revenue | 3 | 17,076 | 7,722 | 24,317 |
Cost of sales | 3 | (14,099) | (8,016) | (19,430) |
Gross profit | 2,977 | (294) | 4,887 | |
Foreign exchange (losses)/gains | 117 | 330 | 959 | |
Other administrative expenses | (2,027) | (1,212) | (2,829) | |
Total administrative expenses | (1,910) | (882) | (1,870) | |
(Loss)/profit from operations | 1,067 | (1,176) | 3,017 | |
Finance income | 4 | 5 | 2 | 3 |
Finance costs | 5 | (50) | (126) | (266) |
(Loss)/profit before income tax | 1,022 | (1,300) | 2,754 | |
Income tax | 6 | (617) | 401 | (732) |
(Loss)/profit for the period from continuing operations | 405 | (899) | 2,022 | |
Other comprehensive income: | ||||
Exchange differences on translation of foreign operations | 524 ______ | (122) _______ | 154 _______ | |
Total comprehensive (loss)/income for the period | 929 | (1,021) | 2,176 | |
(Loss)/profit for the period attributable to: | ||||
--Owners of the company | 736 | (982) | 1,826 | |
--Non-controlling interests | (331) | 83 | 196 | |
405 | (899) | 2,022 | ||
Total comprehensive (loss)/income attributable to: | ||||
--Owners of the company | 1,269 | (835) | 2,136 | |
--Non -controlling interests | (340) | (186) | 40 | |
929 | (1,021) | 2,176 | ||
Basic and diluted (Loss)/profit per share attributable to equity holders of the parent (US$) | 7 | 0.002 | (0.003) | (0.005) |
Condensed Consolidated Statement of Financial Position
As at | As at | As at | ||
30 June | 30 June | 31 December | ||
2011 | 2010 | 2010 | ||
US$'000 | US$'000 | US$'000 | ||
Note | Unaudited | Unaudited | Audited | |
Assets | ||||
Non-current assets | ||||
Property, plant and equipment | 8 | 17,595 | 14,963 | 16,738 |
Intangible assets | 181 | 147 | 181 | |
Deferred tax asset | 9 | 241 | 603 | -- |
18,017 | 15,713 | 16,919 | ||
Current assets | ||||
Inventories | 10 | 5,963 | 3,433 | 4,354 |
Trade and other receivables | 11 | 20,238 | 770 | 25,534 |
Cash and cash equivalents | 38,545 | 641 | 6,383 | |
64,746 | 4,844 | 36,271 | ||
Total assets | 82,763 | 20,557 | 53,190 | |
Liabilities | ||||
Current liabilities | ||||
Trade and other payables | 12 | 5,592 | 26,040 | 54,967 |
Loans and borrowings | 13 | 1,514 | 1,178 | 1,480 |
Current tax liabilities | 1,231 | 228 | 436 | |
8,337 | 27,446 | 56,883 | ||
Total net assets | 74,426 | (6,889) | (3,693) | |
Capital and reserves | ||||
Capital reserve | 14 | 77,190 | -- | -- |
Merger reserve | (1,533) | (1,533) | (1,533) | |
Reserve fund | 102 | -- | 102 | |
Foreign exchange reserve | 1,052 | 182 | 519 | |
Retained earnings | 259 | (3,009) | (477) | |
Total equity attributable to equity holders of the parent | 77,070 | (4,360) | (1,389) | |
Non-controlling interests | (2,644) | (2,529) | (2,304) | |
74,426 | (6,889) | (3,693) |
Condensed Consolidated Statement of Changes in Equity
Capital reserve | Merger reserve | Reserve fund | Foreign exchange reserve | Retained earnings | Equity attributable to equity holders of the Company | Minority interests | Total | |
US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
At 31 December 2009 | (1,533) | 209 | (2,202) | (3,526) | (2,343) | (5,869) | ||
Total comprehensive income for the period |
|
|
| (27) | (807) | (834) | (186) | (1,020) |
At 30 June 2010 |
| (1,533) |
| 182 | (3,009) | (4,360) | (2,529) | (6,889) |
At 31 December 2009 | (1,533) | 209 | (2,202) | (3,526) | (2,343) | (5,869) | ||
Total comprehensive income for the period | 102 | 310 | 1,725 | 2,137 | 39 | 2,176 | ||
At 31 December 2010 | (1,533) | 102 | 519 | (477) | (1,389) | (2,304) | (3,693) | |
Total comprehensive income for the period | 533 | 736 | 1,269 | (340) | 929 | |||
New issue of ordinary shares | 50,000 | 50,000 | 50,000 | |||||
Capital contribution | 27,190 |
|
|
|
| 27,190 |
| 27,190 |
|
|
|
|
|
|
| ||
At 30 June 2011 (unaudited) | 77,190 | (1,533) | 102 | 1,052 | 259 | 77,070 | (2,644) | 74,426 |
Condensed Consolidated Statement of Cash Flow
Six months | Six months | Year ended | |
ended 30 | ended 30 | 31 December | |
June 2011 | June 2010 | 2010 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Operating activities: | |||
(Loss)/profit before income tax | 1,022 | (1,300) | 2,754 |
Adjustments for: | |||
Depreciation | 1,383 | 866 | 2,083 |
Amortization of other intangible assets | 11 | 8 | 18 |
Loss on disposal of property, plant and equipment | -- | -- | 491 |
Finance income | (5) | (2) | (3) |
Finance costs | 50 | 126 | 266 |
Cash flows before changes in working capital | 2,461 | (302) | 5,609 |
Increase in inventories | (1,609) | (1,286) | (2,208) |
Increase in other receivables | 5,319 | 27,861 | (18,632) |
Increase in trade and other payables | (21,728) | (27,976) | 22,747 |
Cash generated from operations | (15,557) | (1,703) | 7,516 |
Income tax payment | (617) | 401 | (5) |
Net cash from operating activities | (16,174) | _ (1,302) | 7,511 |
Investing activities: | |||
Payments for purchase of property, plant and equipment | (2,165) | (72) | (3,108) |
Payments for intangible assets | (12) | -- | (38) |
Cash acquired with subsidiary undertaking | -- | -- | -- |
Interest received | 5 | 2 | 3 |
Net cash used in investing activities | (2,172) | (70) | (3,143) |
Financing activities | |||
Proceeds from the issue of share capital | 50,000 | -- | -- |
Finance costs paid | (50) | (126) | (266) |
Proceeds of short term loan | -- | -- | 1,480 |
Repayment of short term loan | -- | -- | (1,171) |
Net cash (used in)/from financing activities | 49,950 | (126) | 43 |
Net (decrease)/increase in cash and cash equivalents | 31,604 | (1,498) | 4,411 |
Cash and cash equivalents at the beginning of the period | 6,383 | 2,261 | 2,261 |
37,987 | 763 | 6,672 | |
Effect of foreign exchange rate changes | 558 | (122) | (289) |
Cash and cash equivalents at end of period | 38,545 | 641 | 6,383 |
Notes to Condensed Interim Financial Statements
1. GENERAL INFORMATION
The consolidated unaudited interim financial information set out in this report is based on the consolidated financial statements of Greka Drilling and its subsidiary companies (together referred to as the "Group"). The condensed consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2010, which have been prepared in accordance with International Financial Reporting Standards (IFRS and IFRIC interpretations) issued by the International Accounting Standards Board except for IAS 34. The financial statements of the Group for the 6 months ended 30 June 2011 were approved and authorised for issue by the Audit Committee and the Board on 6 September 2011.
2. ACCOUNTING POLICIES
The condensed financial information for the six months ended 30 June 2011 and 30 June 2010 is unaudited and does not constitute the Group's statutory financial statements for those periods. The comparative financial information for the full year ended 31 December 2010 has, however, been derived from the financial statements for that period which are included in Group's admission document. The auditors' report on those accounts was unqualified.
Basis of preparation
After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly condensed financial statements.
The financial information is presented in United States dollars and all values are rounded to the nearest thousand dollars (US$'000) except when otherwise indicated.
The entities which comprise the Group did not include an overall holding company and did not form a legal group in the periods before 8 March 2011. However they have been under common management and control in those years. The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an invested entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
International Financial Reporting Standards as adopted by the European Union ("IFRSs") do not provide for the preparation of combined financial information and accordingly in preparing the combined financial information certain accounting conventions commonly used for the preparation of historical financial information for inclusion in investment circulars as described in the Annexure to SIR 2000 (Investment Reporting Standard applicable to public reporting engagements on historical financial information) issued by the UK Auditing Practices Board have been applied. The application of these conventions results in the following material departures from IFRSs. In other respects IFRSs have been applied.
The combined financial information has been prepared by aggregating the assets, liabilities, results share capital and reserves of the relevant entities, after eliminating intercompany transactions, balances and unrealised gains on transactions between the combined entities. Consequently it is not meaningful for the Company to present share capital. Instead "Capital reserve" is presented which represents the aggregated share capital and share premiums and capital reserves of the companies making up the Group.
The combined financial information has been prepared in accordance with the requirements of the AIM Rules for Companies and in accordance with this basis of preparation. The basis of preparation describes how the financial information has been prepared in accordance with IFRSs except as described above.
Except as described above, the financial information has been prepared in accordance with IFRSs as adopted by the European Union, that are effective for accounting periods beginning on or after 1 January 2010. The principal accounting policies adopted in the preparation of the financial information are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.
The preparation of financial information in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity or areas where assumptions and estimates are significant to the financial information are disclosed in note 2 to the financial information. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision only affects that period or in the period of revision and future periods if the revision affects both current and future periods.
3. REVENUE AND SEGMENTAL INFORMATION
The Group has one reportable segment as set out below. The operating results are regularly reviewed by the Group's chief operating decision-makers ("CODMs") that are used to make strategic decisions.
Drilling services revenue represents the net invoiced value of contract drilling services provided to one customer. The amounts of each significant category of revenue recognised during the periods ended 30 June 2011, 31 December 2010 and 30 June 2010 are as follows:
Six months | Six months | Year ended | |
ended 30 | ended 30 | 31 December | |
June 2011 | June 2010 | 2010 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Segment revenue | 17,076 | 7,722 | 24,317 |
Cost of sales | (14,099) | (8,016) | (19,430) |
Gross profit | 2,977 | (294) | 4,887 |
4. FINANCE INCOME
Six months | Six months | Year ended | |
ended 30 | ended 30 | 31 December | |
June 2011 | June 2010 | 2010 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Bank interest | 5 | 2 | 3 |
5. FINANCE COSTS
Six months | Six months | Year ended | |
ended 30 | ended 30 | 31 December | |
June 2011 | June 2010 | 2010 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Interest expense on short term loans | 50 | 33 | 70 |
Interest expense on loans from a related company |
-- |
93 |
196 |
50 | 126 | 266 |
6. TAXATION
Taxation for the Group's operations in the PRC is provided at the applicable current tax rate of 25% on the estimated assessable profits for the period.
Six months | Six months | Year ended | |
ended 30 | ended 30 | 31 December | |
June 2011 | June 2010 | 2010 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Current tax | |||
Charges for current period | 328 | -- | 431 |
Underprovision in prior year | 289 | -- | -- |
Deferred tax | -- | (401) | -- |
(Credit)/charge for the period | -- | -- | 301 |
Total tax (credit)/charge | 617 | (401) | 732 |
The reasons for the difference between the actual tax charge for the periods and the standard rate of corporation tax in the Cayman Islands applied to the (loss)/profit for the periods are as follows:
Six months | Six months | Year ended | |
ended 30 | ended 30 | 31 December | |
June 2011 | June 2010 | 2010 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
(Loss)/profit before income tax | 1,022 | (1,300) | 2,754 |
Expected tax charge based on the standard rate of corporation tax in the Cayman Islands of 0% |
-- |
-- |
-- |
Effect of: | |||
Different tax rates applied in overseas jurisdictions |
256 |
(325) |
689 |
Tax effect of revenue not taxable for tax purposes |
(21) |
(59) |
(233) |
Tax effect of expenses not deductible for tax purposes |
93 |
(17) |
276 |
Income tax (credit)/charge | 328 | (401) | 732 |
7. EARNINGS PER SHARE
Six months | Six months | Year ended | |
ended 30 | ended 30 | 31 December | |
June 2011 | June 2010 | 2010 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Earnings for the purpose of basic (loss)/profit per share |
736 |
(982) |
1,826 |
Weighted average number of ordinary shares |
398,245,758 |
398,245,758 |
398,245,758 |
Basic earnings per share is based on the profit after taxation of US$405,000 (first half 2010: loss for the period, US$899,727) and the weighted average number of 398,245,758 ordinary shares in issue during each period.
In accordance with IAS 33 the weighted average number of shares for prior periods has been adjusted as if the Group reconstruction occurred at 1 January 2010.
8. PROPERTY, PLANT AND EQUIPMENT
During the period, the Group incurred approximately US$2,165,663 on additions to plant and equipment (30 June 2010 - US$72,220, 31 December 2010 - US$3,108,985).
9. DEFERRED TAXATION
As at | As at | As at | |
30 June | 30 June | 31 December | |
2011 | 2010 | 2010 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Deferred tax assets | |||
at the beginning of the year | -- | -- | 301 |
Additional temporary differences | 241 | 603 | -- |
Reversal of temporary differences | -- | -- | (301) |
At the end of the period | 241 | 603 | -- |
There were no unrecognised deferred tax assets or liabilities in the period.
10. INVENTORIES
As at | As at | As at | |
30 June | 30 June | 31 December | |
2011 | 2010 | 2010 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Raw materials and consumables | 5,963 | 2,714 | 4,025 |
Work-in-progress | -- | 719 | 329 |
5,963 | 3,433 | 4,354 |
11. TRADE AND OTHER RECEIVABLES
As at | As at | As at | |
30 June | 30 June | 31 December | |
2011 | 2010 | 2010 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Prepayments | 12,490 | 583 | 927 |
Other receivables | 242 | 187 | 91 |
Amount due from related parties | 7,506 | -- | 24,516 |
20,238 | 770 | 25,534 |
12. TRADE AND OTHER PAYABLES
As at | As at | As at | |
30 June | 30 June | 31 December | |
2011 | 2010 | 2010 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Trade payables | 4,844 | 2,569 | 2,677 |
Other payables | 748 | 511 | 841 |
Amount due to related parties | -- | 22,960 | 51,449 |
5,592 | 26,040 | 54,967 |
13. LOANS AND BORROWINGS
As at | As at | As at | |
30 June | 30 June | 31 December | |
2011 | 2010 | 2010 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Bank loans - secured | 1,514 | 1,178 | 1,480 |
The bank borrowings are fully repayable within eight months of the end of each reporting period and are secured on the Group's building situated in Zhengzhou.
14. SHARE CAPITAL AND CAPITAL RESERVE
On 7 February 2011 Greka China Ltd subscribed for one share for a subscription price of US$50m.
On the same date 398,245,757 shares were transferred to Green Dragon Gas credited as fully paid. On 8 March 2011 these shares were distributed by Green Dragon Gas to their shareholders.
On 15 February 2011 the inter group balances owing to Green Dragon Gas and its subsidiaries amounting to US$27.2m was capitalized into one share of Greka Technical Services ("GTS"), a subsidiary. This share was then transferred to the company.
15. RELATED PARTY TRANSACTIONS
Saved as disclosed in notes 11, 12 and 14, there were no other related party transactions that are required to be disclosed. Transactions between the Company and its subsidiary undertakings which are related parties, have been eliminated on consolidation and are not disclosed in this note.