Abbot Group says overall, the results for the year ending December 31, 2005 for our core operating businesses will be broadly in line with market expectations. It is anticipated that our investment in Spear Technologies, a non-core activity, will be disposed
of prior to the announcement of our Preliminary Results in March 2006.
KCA DEUTAG has been awarded a contract by TNK-BP to build four HR-5000 hybrid development drilling rigs to support TNK-BP's operations in the Uvat region, Tyumen Oblast, Western Siberia.
Three of the rigs will be new builds by Bentec in Germany with work commencing immediately such that two rigs will be delivered in the fourth quarter of 2006, with the third being delivered shortly thereafter. The fourth rig, which is currently under construction, will be delivered to Tyumen, West Siberia, during the first quarter of 2006 where it will be used as a training facility prior to
going to work in field in early 2007.
All mobilization and transportation is included in the project.
Together with the above mentioned contract KCA DEUTAG also received a Letter of Intent for a Labour and Maintenance Contract to operate the units for TNK-BP commencing during the first two quarters of 2007. The total value of the combined contracts is $216 million.
The Bentec design of a specialized high capacity, winterized unit has been developed specially for the Russian market.
KCA DEUTAG's rig T2000, a high capacity integrated drilling unit, which was recently mobilized to Sakhalin is, following early termination, being relocated to Central Siberia on an initial one year contract valued at $15 million. It will commence operation at the beginning of the second quarter of 2006.
KCA DEUTAG has been awarded a contract by a major international operator for a further new build 200-ton capacity land drilling rig for use in Western Siberia.
The contract, which is for an initial term of 4 years, plus options to extend, requires KCA DEUTAG to invest in a new Russian built drilling unit with a value of $19 million, which includes mobilisation and transport. The contract also specifies a $2.9 million up front payment to assist in securing equipment and
long lead items.
With these contracts KCA DEUTAG will, by the end of 2007, be operating nine modern high capacity winterized rigs for major clients in Russia.
KCA DEUTAG has signed a Letter of Intent with South Rub Al-Khali Company Limited (SRAK), a consortium formed by Shell, Total and Saudi Aramco, for KCA DEUTAG'S newly upgraded 3000HP heavy rig to explore for non-associated gas & condensate in the Rub Al-Khali concession.
The contract, valued at approximately $14 million, requires three consecutive wells to be drilled to depths of 15,000 ft over a period of approximately 10-14 months. However, in case of gas discovery, the period is likely to be extended.
The heavy rig, which is currently being modified to meet SRAK's technical requirements, has recently completed a contract for Margham in Dubai.
The Rub Al-Khali area is located in harsh environment with the nearest road lying 500 kilometres from the location. Mobilization is expected to commence towards the end of the first quarter of 2006 to meet the agreed commencement date of 1 May 2006.
This contract demonstrates KCA DEUTAG'S ability to execute projects which are extraordinarily challenging and which require a high level of technical expertise, while at the same time delivering exemplary standards of safety.
Current Trading and Outlook
Our land rig fleet currently comprises 61 units, which include eight under construction and three managed rigs. All units under construction will be operational by early 2007.
Overall, we are continuing to see a general strengthening of land rig rates when contracts are awarded or renewed, although the level of increase varies across each market place. However, in all areas of operation we continue to achieve very high levels of utilisation.
Following the completion of the acquisition of Prosafe Drilling, KCA DEUTAG is now the largest platform drilling contractor in the North Sea.
On the Norwegian Continental shelf, we have production drilling contracts on nine rigs of which six are operational. Since the rigs came into our ownership, we have reduced down-time and are continuing to improve workforce effectiveness which is having a positive effect in terms of both productivity and profitability.
In the UK sector of the North Sea once again a degree of uncertainty has been introduced by the recent doubling of the Supplementary Tax. Of the nineteen rigs on which we are contracted, we are currently operating on nine. While this sector of the North Sea remains important to the Group with drilling turnover in
the region of $100 million, it will contribute less than 15% to total Group turnover in 2006.
In our international markets, we are maintaining high levels of activity both onshore and offshore and, although in Libya we continue to be affected by budgetary restraints as outlined in our Interim Results Statement, we are confident that this market will give improved returns in the medium term.
The consensus market view is that the price of oil will remain well above $35/bbl and, therefore, it is expected that investment in our industry will accelerate as the demand for both oil and gas continues to increase which in turn will enhance the demand for our services.
As more of our offshore drilling operations commence on previously awarded contracts particularly in the Caspian Region, where we have recently consolidated our leading position, we would reiterate our confidence that we shall deliver materially improving results year-on-year in 2006 and beyond.