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Aban Offshore Ltd

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BSE Code : 523204 | NSE Symbol : ABAN | ISIN : INE421A01028 | Industry : Crude Oil & Natural Gas |


Chairman's Speech

I Present The Performance Of The Company For The Year Under Review: Revenues Declined By 42.17 Per Cent And Profit After Tax Declined By 10.58 Per Cent.

I Must Assure Our Shareholders That Even As These Numbers Seem Adverse At First Glance, They Are Better Than The Sectoral Average And Stand Testimony To Our Passion To Perform In The Face Of Challenges.

Overview

The global oil sector reflected a divergent trend during the course of the year under review. During the first half of the financial year, the international price of crude oil strengthened from a starting-of-the-year figure of $ 66 per barrel to a peak of $ 74 per barrel. While oil realisations were strengthening, oil-prospecting companies were more interested in engaging in fresh drilling and strengthening their multi-year reserves.

Thereafter, the prospects of a global over-supply began to surface and oil prices declined to a 2018-19 low of $ 46 per barrel before recovering to close the financial year at $ 63 per barrel.

Seldom in the space of any one financial year have we seen three distinct short-term price moves, enhancing sectoral uncertainty and volatility. In the downstream oil marketing sector, one of the pre-requisites for funding additional capital expenditure is stability or optimistic outlook, both of which were absent during the last financial year.

This reality affected the sentiment for fresh drilling and prospecting which, in turn, affected rig deployment and utilisation on the one hand and rig-day rates on the other. The result is that the entire oil sector eco-system encountered challenging circumstances where the biggest challenge was to weather the prevailing environment with a minimal impact on competitiveness.

At Aban, we believe that the most effective strategy for the moment is to be opportunity-ready. While there is no certainty when the sectoral sentiment may turn for the better, there is a premium on the ability to be fully prepared at all times.

Aban’s positioning

At Aban, we believe that the most prudent strategy in this challenging environment is mastering the defensive: controlling costs, enhancing . We asset availability and amortising fixed costs more effectively believe that in an environment where the prospect of an improvement in rig rates is negligible for the moment, the best strategy is to look within, remove inefficiencies, moderate costs and enhance overall competitiveness.

During the year under review, the Company continued to focus on deploying most of its assets across the foreseeable future with the objective of reducing idling, generating revenues, covering focused costs more effectively and enhancing overall viability.

The effectiveness of our focus became visible as we bagged contracts for rigs Aban III and IV from Oil and Natural Gas Corporation (ONGC), India’s largest hydrocarbon exploration company. These rigs will be deployed for a period of three years starting from the third quarter of the current financial year, enhancing our revenue visibility from these assets.

Besides, this focus on enhancing revenue visibility was also reflected in the deployment of Deep Driller 8 (Aban Singapore) for two years starting October 2018. Since the rig has already been put on stream for the client, the revenue inflows have commenced.

Aban 8 was deployed for Petrofac, a prominent oil major of Malaysia. The contract for three firm wells and two optional wells was extended to the first quarter of 2019-20.

I am pleased to report that Deep Driller 4 was operating for Vedanta Limited until April 2018 following which it was enlisted for refurbishment. The Company entered into a contract with Carigalli PTTEP Operating Company (CPOC) for deployment for 18 months starting May 2019, with the possibility of time-based extensions.

Opportunity-ready

At Aban, we believe that the most effective strategy for the moment is to be opportunity-ready. While there is no certainty when the sectoral sentiment may turn for the better, there is a premium on the ability to be fully prepared at all times.

At our company, we believe that opportunity-readiness will be derived from our operating assets being maintained through the downtrend so that they are deployment-ready whenever needed. We also believe that we need to protect our most precious capital, knowledge, through strengthening people-retention during these challenging times, reinforced through a culture of training and continuous skilling. We have faith that by investing in safety practices, we will strengthen our recall as a preferred service provider by companies at a time when every day of drilling is critical to customer profitability. We are convinced that companies that survive through this downturn and are the last standing will be the first off the blocks when sectoral conditions revive.

Guarded optimism

While it would be too early to ascertain which way the oil market is headed, the optimism comes from the fact that oil prices rebounded and steadied in the high sixties level. The Company is seeing an incidence where more enquiries are being converted into contracts. While rig rentals are steady at $ 50-70 per barrel compared to peak levels that were considerably higher, the objective is to maximise rig deployment at these rates. We believe an excess of rig scrapping during this downtrend over rig introduction will steady the market across the foreseeable future. A tipping point could then result in a larger demand for rigs than available supply, strengthening realisations. As one of the larger global rig owning companies with a wide portfolio and relatively young assets, we believe we are attractively placed to capitalise on the next upturn.

Our priorities

At Aban, our priority is to optimise the capacity utilisation of our assets on the one hand and reduce debt or service interest payments on the other. We believe that a combination of the two will reduce the size of our Balance Sheet, strengthen our any-market competitiveness and reinforce business sustainability.

Reji Abraham

Managing Director