The second quarter marked the transition into the operational phase for Ability Drilling and the Company has during the second quarter focused on making this transition as smooth as possible. The organization was expanded and enhanced in April, Land rig 1 was delivered to site (Jordan) in April and the rig came into operation on June 10. The drilling start was hampered by start-up issues leading to low utilization in June/July
Ability Drilling recorded operating revenues of NOK 2.1 million in the second quarter 2008. The revenues consist of revenues from operation Land Rig 1, which started drilling operations on June 10, 2008.
Operating expenses exclusive of depreciation were NOK 23.4 million in the second quarter 2008 (NOK 6.9 million in the second quarter 2007), of which NOK 11.7 million (NOK 2.5 million) in payroll expenses. Increasing payroll expenses is partly an effect of the build-up of the organization prior to the Company’s transition into the operational phase. In addition, the Land Rig 1 is operated with double crew on some key positions, enabling faster start-up and less training of personnel on Land rig 2.
Furthermore, NOK 3.6 million related to an option incentive program was charged to payroll expenses in the second quarter 2008 (NOK 7.5 million in the first half of 2008). The company established a share option program on August 16, 2007. The incentive program has been recorded according to IFRS 2 on Share Based Payments. The value of allocated share options has been estimated by third party. The estimated value on the allocation date is distributed over the contribution time of three years.
A total of NOK 16.8 million was charged as payroll expenses in 2007.
EBITDA fell to NOK -21.3 million (NOK -6.9 million), while the operating profit declined to NOK -21.5 million (NOK -7.0 million).
Net financial items in the quarter totalled NOK -3.2 million (NOK -5.5 million). Compared with the corresponding quarter last year, increasing interest rates on the bond loan was outweighed by higher financial income due to the higher liquid assets position, as well as capitalization of interest cost on rig financing (capitalization started on January 1, 2008). The profit before tax in the quarter was NOK -24.7 million (NOK -11.4 million). Pretax and net profit figures are equal as no tax has been calculated.
The group's book equity as of June 30, 2008 was NOK 543 million, corresponding to an equity ratio of NOK 53%. The corresponding figures at year end 2007 were NOK 567 million and 55% respectively.
The group's liquid assets in the form of bank deposits and interest-bearing securities were NOK 338 million (NOK 542 million as of 31.12.2007). Interest bearing debt totalled NOK 421 million (NOK 435 million as of 31.12.2007). All debt and liquid assets are kept in NOK.
For the first six months of 2008, the net cash flow was NOK -204 million compared with NOK 239 million in the corresponding period last year. The cash flow from operating activities was NOK -4 million in the first half of 2008 (NOK -31 million in the first half of 2007), cash flow from investment activities was NOK -186 million (NOK -169 million in the first half of 2007), while cash flow from financing activities totalled NOK -14 million (NOK 439 million in the first half of 2007).
Status of Operations and Contracts
Ability Drilling has so far ordered 11 rigs, of which 9 land rigs and two workover rigs. In addition, the Company has options with construction partner TTS Sense EDM for 33 additional land rigs and 40 additional workover rigs.
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