Overall results for the year ending December 31, 2004 will be broadly in line with market expectations, with the Group achieving strong growth in its international operations. However, this achievement has been diluted by the continuing decline in North Sea activity, the weakness of the US dollar and the strength of the Euro.
For the coming year we believe that the price of oil will be maintained above $30/bbl which will continue to provide a basis for continued growth in our international business.
We have continued to position the company in the key major spend areas of our international clients and we have had some notable successes in winning contracts in the Middle East, Western Siberia, Nigeria and also in North Africa, specifically Libya.
The Group continues to make substantial investments in all of these market areas and we have increased our land rig fleet to 45 operational units with a further 5 units currently under construction, and 3 rigs, including a recently acquired rig, being upgraded. In addition we are in the final stages of negotiations to acquire 2 heavy land rigs, and we are also in the process of ordering 2 further rigs to be constructed in Russia.
These 12 units together with the recent acquisition of IADC in Libya will result in the Group having invested over $200 million during 2004/5. Although some of this investment will contribute to results in 2005 the full contribution will occur from 2006 onwards.
In addition, we have previously announced major offshore projects in Azerbaijan, Angola and Sakhalin Island, the first of which will commence operation in 2005 with the remaining projects progressively adding to our results in 2006, 2007 and 2008.
We have recently received notification from significant North Sea clients that contracts have been or will be extended for periods of up to three years, although we do not anticipate previous levels of activity from these contracts.
We have referred in the past to the decline in activity in the North Sea which, in spite of high oil prices, has been dramatic and is the direct consequence of a regulatory and fiscal regime that impedes the structural changes necessary to support the next phase of North Sea investment.
The prospect in 2005 for activity across almost all of KCA DEUTAG's portfolio of some 20 platforms on the UKCS is, therefore, uncertain particularly as some clients are clearly allocating resources elsewhere.
Our current investment program shows clear signs of delivery for the Group in 2006 and beyond, however the decline in our UK offshore activities, which is a local condition, and foreign exchange factors influencing 2005 performance are currently indicating an adverse effect on the Group performance when compared to expectations for the year.
Although we have put in place a degree of forward hedging of currencies for 2005, any continued weakness in the dollar and strength in the Euro will inevitably have an adverse effect on Group results, particularly in translation to Sterling.
Our strategy of international positioning and investment in appropriate assets to meet market requirements will ensure that for 2006 and beyond the Group remains on track to meet its self-imposed target of doubling the size of its business.
Alasdair Locke, Executive Chairman, of Abbot commented:
'I said in my interim statement in September that the outlook for the Group is, in our opinion, one of the best we have seen for many years, with an increasing demand for oil and gas which can only be met by a significant increase in development and production expenditure by the major oil companies particularly in our core market places of North & West Africa, the Middle East, the Caspian and Russia, over the next several years. I firmly believe that this remains the case today.
We remain fully committed to our operations in the North Sea which are an important contributor to the Group. We have, nevertheless, a clearly defined strategy of internationalisation which will progressively reduce the Group's exposure to the North Sea. Recent events have confirmed that this is the right strategy and I am confident that, with its financial strength and high quality of human resource, the Group will achieve strong growth in its international areas of activity both onshore and offshore, in 2005, 2006 and 2007.'
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