3rd Sep 2012 09:41
3 September 2012
Greka Drilling Limited
("Greka Drilling" or "the Company")
Interim Results - Revenues increase by 65%
Greka Drilling Limited (AIM: GDL), the largest independent and specialized unconventional gas driller in China is pleased to announce its unaudited interim results for the half year ended 30 June 2012.
FINANCIAL HIGHLIGHTS
·; Revenue increased to US$28.3m in H1 2012, compared with US$17.1m in the same period of 2011, a 65.5% increase over the same period last year
·; US$0.7m net profit in H1 2012, compared with US$0.4m net profit in the same period last year, a 75% increase
·; US$0.002 earnings per share in H1 2012; unchanged from the same period last year
·; Capital Expenditureincreased to US$89.9m for H1 2012 versus US$43.2m to December 2011 (US$17.6m for H1 2011)
·; Raised US$21.2m in working capital from loans
·; US$7.3m cash in hand at 30 June 2012
OPERATIONAL HIGHLIGHTS
·; 57,997 meters drilled in H1 2012 compared with 26,435 meters drilled in the same period last year, an increase of 119% year-on-year
·; LiFaBriC wells averaged 3,897 total meters in H1 2012 compared with 3,691 total meters during the same period year-on-year (H1 2011)
·; The longest LiFaBriC lateral section was 5,454 meters in H1 2012 (5,297 meters in H1 2011), a 3% increase
·; The longest measured depth ("MD") of a single LiFaBriC section, surface to intersect, was 1,809 meters in H1 2012 (1,668 meters in H1 2011), an 8% increase
·; The longest total vertical depth ("TVD") of a single vertical well was 1,414 meters in H1 2012 (1,233 meters in HI 2011), a 15% increase
CORPORATE HIGHLIGHTS
·; All new rigs have now arrived at our Shanxi Base Camp as planned, increasing the fleet from 7 rigs to 32 rigs, with ISO 9001 certification on all 25 new GD75 rigs being attained
·; The Company has completed the commissioning and integration of what is currently the single largest fleet of Electromagnetic MWD (Measurement While Drilling) tools available within the People's Republic of China ("PRC")
·; The first of the new fleet of rigs was fitted with equipment that allowed the rig to be monitored remotely via the Supervised Control and Data Acquisition system ("SCADA") from a centralized Zhengzhou control facility. This control system will be added to all the other rigs in the fleet
·; Company personnel increased to 715 at end of H1 2012 versus 520 in December 2011 (325 at end of H1 2011)
·; 639 personnel received internal training for a total of 73,684 man hours in H1 2012
·; In line with improving overall efficiency and reacting to operational events, the Operational Control Centre ("OOC") saw the creation of positions for both Well Planning/Modeling and Production Planning Engineers. These positions give a 24/7 coverage of our operations, providing decisions into the field within 1-2 hours up to 8 hours
·; Construction of the Shanxi Base Camp was completed in H1 2012 with a total resident headcount of over 450 personnel
·; The Company website provides photographs of the site which is a first of its kind in China
OUTLOOK
·; Drilling meterage expected to accelerate substantially in second half of this year
·; Maintain technological lead in unconventional gas drilling
·; Committing to third party drilling contracts
·; Establishing Singapore as the regional headquarters
·; Evaluating expansion beyond China
CHAIRMAN'S STATEMENT
I am delighted to report that we have grown the business on time and within plan. In this half year we have completed our first phase of rig fleet growth by adding the 25 specialized rigs. The first phase involved the design, construction and commissioning of a fleet of 25 rigs. These rigs, purpose built for unconventional gas drilling, were co-designed with the manufacturer, made in Italy and are the first of its kind imported in to China and have all been successfully commissioned. The single rig type provides a wide range of benefits within our daily operations such as a single rig skilled workforce and common spare parts to name a couple.
This entire business plan was conceived and executed within a year, a material milestone for a young company. This timely execution provides a credible insight into our capabilities.
The Company, which prides itself in many technological firsts within our niche, believes it has one of the largest directional drilling teams in China of any independent. In coping with the geological difficulties that exist in unconventional gas production, the Company looks forward to providing our customers with the necessary skill sets to enable successful unconventional gas drilling. The number of interested clients within China and other Asian countries is an indication of the demand for such skilled expertise.
Today the Company is drilling at greater depths and successfully geo-steer more precisely farther. The directional wells are reaching a measured depth of 1,800 meters while the vertical wells targeting unconventional gas reservoirs at depths over 1,400 meters. A clear demonstration of the continued capability expansion meeting the customers demand to explore farther.
In addition to the significant increase in operations, the management team was concurrently expanded. The current management includes career veterans from Haliburton and Weatherford and bring with them the skill sets to enable the transition into a dedicated third party service provider to clients within China and thereafter other Asian countries.
The rig fleet is in place, manpower hired and skilled, base camp constructed, and now with the appropriate operational management at the helm, we are fully prepared to accept third party contracts and increase the clientele of the business. I look forward to announcing the signing of third party contracts in the latter part of this year.
Randeep S. Grewal
Chairman & CEO
Condensed Consolidated Statement of Comprehensive Income
Six months ended 30 June 2012 | Six months ended 30 June 2011 | Year ended 31 December 2011 | ||||
Note | US$'000 | US$'000 | US$'000 | |||
Unaudited | Unaudited | Audited | ||||
Revenue | 3 | 28,255 | 17,076 | 43,834 | ||
Cost of sales | 3 | (21,986) | (14,099) | (34,235) | ||
Gross profit | 6,269 | 2,977 | 9,599 | |||
Foreign exchange (losses)/gains | (183) | 117 | 671 | |||
Other administrative expenses | (4,100) | (2,027) | (5,581) | |||
Total administrative expenses | (4,283) | (1,910) | (4,910) | |||
Profit from operations | 1,986 | 1,067 | 4,689 | |||
Finance income | 4 | 4 | 5 | 12 | ||
Finance costs | 5 | (631) | (50) | (85) | ||
Profit before income tax | 1,359 | 1,022 | 4,616 | |||
Income tax | 6 | (689) | (617) | (1,812) | ||
Profit for the year from continuing operations | 670 | 405 | 2,804 | |||
Other comprehensive income: | ||||||
Exchange differences on translation foreign operations | 68 | 524 | 825 | |||
Total comprehensive income for the year | 738 | 929 | 3,629 | |||
(Loss)/profit for the year attributable to: | ||||||
--Owners of the company | 670 | 736 | 2,790 | |||
--Non-controlling interests | -- | (331) | 14 | |||
670 | 405 | 2,804 | ||||
Total comprehensive income attributable to: | ||||||
--Owners of the company | 738 | 1,269 | 3,627 | |||
--Non -controlling interests | -- | (340) | 2 | |||
738 | 929 | 3,629 | ||||
Basic and diluted | ||||||
Profit per share attributable to equity | ||||||
holders of the parent (US$) | 7 | 0.002 | 0.002 | 0.007 | ||
Condensed Consolidated Statement of Financial Position
As at 30 June | As at 30 June | As at 31 December | ||
2012 | 2011 | 2011 | ||
US$'000 | US$'000 | US$'000 | ||
Note | Unaudited | Unaudited | Audited | |
Assets | ||||
Non-current assets | ||||
Property, plant and equipment | 8 | 89,924 | 17,595 | 43,219 |
Intangible assets | 595 | 181 | 524 | |
Deferred tax asset | 9 | -- | 241 | -- |
90,519 | 18,017 | 43,743 | ||
Current assets | ||||
Inventories | 10 | 11,159 | 5,963 | 9,155 |
Trade and other receivables | 11 | 14,045 | 20,238 | 28,930 |
Cash and cash equivalents | 7,290 | 38,545 | 6,559 | |
32,494 | 64,746 | 44,644 | ||
Total assets | 123,013 | 82,763 | 88,387 | |
Liabilities | ||||
Current liabilities | ||||
Trade and other payables | 12 | 17,065 | 5,592 | 8,994 |
Loans and borrowings | 13 | 10,672 | 1,514 | 1,984 |
Notes payable | 14 | 2,617 | -- | -- |
Current tax liabilities | 580 | 1,231 | 283 | |
30,934 | 8,337 | 11,261 | ||
Noncurrent liabilities | ||||
Long term payable | 15 | 1,284 | -- | -- |
Working facility | 16 | 12,931 | -- | -- |
14,215 | -- | -- | ||
Total net assets | 77,864 | 74,426 | 77,126 | |
Capital and reserves | ||||
Share capital | 4 | -- | 4 | |
Capital reserve | 77,186 | 77,190 | 77,186 | |
Merger reserve | (1,533) | (1,533) | (1,533) | |
Reserve fund | 595 | 102 | 595 | |
Foreign exchange reserve | 1,667 | 1,052 | 1,599 | |
Retained earnings | 334 | 259 | -336 | |
Total equity attributable to | ||||
equity holders of the parent | 78,253 | 77,070 | 77,515 | |
Non-controlling interests | (389) | (2,644) | (389) | |
77,864 | 74,426 | 77,126 | ||
Condensed Consolidated Statement of Changes in Equity
Share capital | Share premium | Invested capital* | Reserve fund | Foreign exchange reserve | Retained deficit | Equity attributable to owners of the Company | Non-controlling interests | Total | |
US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
At 31 December 2010 | -- | -- | (1,533) | 102 | 519 | (477) | (1,389) | (2,304) | (3,693) |
Total comprehensive income for the period | -- | -- | -- | -- | 533 | 736 | 1,269 | (340) | 929 |
New issue of ordinary shares | 4 | 49,996 | -- | -- | -- | -- | 50,000 | -- | 50,000 |
Capital contribution | -- | 27,190 | -- | -- | -- | -- | 27,190 | -- | 27,190 |
At 30 June 2011 | 4 | 77,186 | (1,533) | 102 | 1,052 | 259 | 77,070 | (2,644) | 74,426 |
Profit for the year | -- | -- | -- | -- | -- | 2,054 | 2,054 | 354 | 2,408 |
Other comprehensive income: | |||||||||
- Exchange difference on translation of foreign operations | -- | -- | -- | -- | 304 | -- | 304 | (12) | 292 |
Total comprehensive income for the year | -- | -- | -- | 0 | 304 | 2,054 | 2,358 | 342 | 2,700 |
Adjustments arising upon acquisition of additional interests in subsidiaries | -- | -- | -- | -- | 243 | (2,156) | (1,913) | 1,913 | 0 |
Transfer of reserve fund | -- | -- | -- | 493 | -- | (493) | 0 | 0 | 0 |
At 31 December 2011 | 4 | 77,186 | (1,533) | 595 | 1,599 | (336) | 77,515 | (389) | 77,126 |
Profit for the year | -- | -- | -- | -- | -- | 670 | 670 | -- | 670 |
Other comprehensive income: | |||||||||
- Exchange difference on translation of foreign operations | -- | -- | -- | -- | 68 | -- | 68 | -- | 68 |
Total comprehensive income for the year | 0 | 68 | 670 | 738 | 0 | 738 | |||
At 30 June 2012 | 4 | 77,186 | (1,533) | 595 | 1,667 | 334 | 78,253 | (389) | 77,864 |
Condensed Consolidated Statement of Cash Flow
Six months ended 30 June | Sic months ended 30 June | Year ended 31 December | |
2012 | 2011 | 2011 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Operating activities: | |||
Profit before income tax | 1,359 | 1,022 | 4,616 |
Adjustments for: | |||
Depreciation | 3,533 | 1,383 | 2,941 |
Amortization of other intangible assets | 32 | 11 | 37 |
Loss on disposal of property, plant and equipment | -- | -- | 10 |
Finance income | (4) | (5) | (12) |
Finance costs | 631 | 50 | 85 |
Cash flows before changes in working capital | 5,551 | 2,461 | 7,677 |
Increase in inventories | (2,039) | (1,609) | (4,801) |
Increase in accounts receivable | (6,036) | -- | -- |
Decrease/(increase) in other receivables | 20,979 | 5,319 | (3,396) |
Decrease/(increase) in trade and other payables | 11,989 | (21,728) | (18,783) |
Cash generated from operations | 30,444 | (15,557) | (19,303) |
Income tax payment | (387) | (617) | (1,976) |
Net cash from operating activities | 30,057 | (16,174) | (21,279) |
Investing activities: | |||
Payments for purchase of property, plant and equipment | (50,392) | (2,165) | (28,671) |
Payments for intangible assets | (105) | (12) | (363) |
Cash acquired with subsidiary undertaking | -- | -- | 16 |
Interest received | 4 | 5 | 12 |
Net cash used in investing activities | (50,493) | (2,172) | (29,006) |
Financing activities | |||
Proceeds from the issue of share capital | (0) | 50,000 | 50,000 |
Proceeds of loan | 21,196 | -- | 1,984 |
Repayment of short term loan | -- | -- | (1,555) |
Finance costs paid | (158) | (50) | (85) |
Net cash from financing activities | 21,038 | 49,950 | 50,344 |
Net increase in cash and cash equivalents | 602 | 31,604 | 59 |
Cash and cash equivalents at the beginning of the year | 6,559 | 6,383 | 6,383 |
7,161 | 37,987 | 6,442 | |
Effect of foreign exchange rate changes | 129 | 558 | 117 |
Cash and cash equivalents at end of year | 7,290 | 38,545 | 6,559 |
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 2011, 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 2012 were approved and authorized for issue by the Audit Committee and the Board on 31 August 2012.
2. ACCOUNTING POLICIES
The condensed financial information for the six months ended 30 June 2012 and 30 June 2011 is unaudited and does not constitute the Group's statutory financial statements for those periods. The condensed consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2011, which have been prepared in accordance with IFRSs as adopted by the European Union.
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.
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 unrealized 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 2012. 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 recognized during the periods ended 30 June 2012, 31 December 2011 and 30 June 2011 are as follows:
Six months ended 30 June 2012 | Six months ended 30 June 2011 | Year ended 31 December 2011 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Segment revenue | 28,255 | 17,076 | 43,834 |
Cost of sales | (21,986) | (14,099) | (34,235) |
Gross profit | 6,269 | 2,977 | 9,599 |
4. FINANCE INCOME
Six months | Six months | Year ended | |
ended 30 | ended 30 | 31 December | |
June 2012 | June 2011 | 2011 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Bank interest | 4 | 5 | 12 |
5. FINANCE COSTS
Six months | Six months | Year ended | |
ended 30 | ended 30 | 31 December | |
June 2012 | June 2011 | 2011 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Interest expense on short term loans | 198 | 50 | 85 |
Interest expense on loans from GDG | 433 | -- | -- |
631 | 50 | 85 |
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 2012 | June 2011 | 2011 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Current tax | |||
Charges for current period | 607 | 328 | 1,812 |
Under provision in prior year | 82 | 289 | -- |
Deferred tax | -- | -- | -- |
(Credit)/charge for the period | -- | -- | -- |
Total tax charge | 689 | 617 | 1,812 |
The reasons for the difference between the actual tax charge for the periods and the standard rate of corporation tax in the Cayman Islands applied to the profit for the periods are as follows:
Six months | Six months | Year ended | |
ended 30 | ended 30 | 31 December | |
June 2012 | June 2011 | 2011 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Profit before income tax | 1,359 | 1,022 | 4,616 |
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 | 340 | 256 | 1,154 |
Tax effect of revenue not taxable for tax purposes | -- | (21) | (71) |
Tax effect of expenses not deductible for tax purposes | 267 | 93 | 56 |
Tax losses not recognized | -- | -- | 574 |
Over provision in respect of prior year | 82 | 289 | 99 |
Income tax charge | 689 | 617 | 1,812 |
7. EARNINGS PER SHARE
Six months | Six months | Year ended | |
ended 30 | ended 30 | 31 December | |
June 2012 | June 2011 | 2011 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Earnings for the purpose of basic profit per share | 670 | 736 | 2,790 |
Weighted average number of ordinary shares | 398,245,758 | 398,245,758 | 398,245,758 |
Basic earnings per share is based on the profit for the period US$670,649 (first half 2011: profit for the period, US$405,000) 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 costs of approximately US$51,661,809 in relation to additions to plant and equipment (30 June 2011- US$2,165,663, 31 December 2011 - US$29,704,086).
9. DEFERRED TAXATION
As at | As at | As at | |
30 June | 30 June | 31 December | |
2012 | 2011 | 2011 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Deferred tax assets | |||
at the beginning of the year | -- | -- | 301 |
Additional temporary differences | -- | 241 | -- |
Reversal of temporary differences | -- | -- | -301 |
At the end of the period | -- | 241 | -- |
There were no unrecognized deferred tax assets or liabilities in the period.
10. INVENTORIES
As at | As at | As at | |
30 June | 30 June | 31 December | |
2012 | 2011 | 2011 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Raw materials and consumables | 11,046 | 5,963 | 9,122 |
Work-in-progress | 113 | -- | 33 |
11,159 | 5,963 | 9,155 |
11. TRADE AND OTHER RECEIVABLES
As at | As at | As at | |
30 June | 30 June | 31 December | |
2012 | 2011 | 2011 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Amount due from related parties | 9,031 | 7,506 | 2,975 |
Prepayments | 4,590 | 12,490 | 25,755 |
Other receivables | 424 | 242 | 200 |
14,045 | 20,238 | 28,930 |
12. TRADE AND OTHER PAYABLES
As at | As at | As at | |
30 June | 30 June | 31 December | |
2012 | 2011 | 2011 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Trade payables | 14,954 | 4,844 | 8,015 |
Other payables | 2,111 | 748 | 979 |
Amount due to related parties | -- | -- | -- |
17,065 | 5,592 | 8,994 |
13. LOANS AND BORROWINGS
As at | As at | As at | |
30 June | 30 June | 31 December | |
2012 | 2011 | 2011 | |
US$'000 | US$'000 | US$'000 | |
Unaudited | Unaudited | Audited | |
Bank loans - secured | 10,672 | 1,514 | 1,984 |
Bank loans breakdown for 2012 as below:
Loan bank | Period | Amount US$'000 | Interest rate | Repayment date | Mortgage |
Loan A | One year | 1,976 | 7.54% | 8-Dec-12 | Building |
Loan B | One year | 2,372 | 7.54% | 14-Mar-13 | Building |
Loan C | 6 months | 3,162 | 7.54% | 24-Nov-12 | 5 rigs |
Loan D | 6 months | 3,162 | 7.54% | 10-Dec-12 | 5 rigs |
Total | 10,672 |
14. NOTES PAYABLE
The company issued US$2,617,252 of seven pages 6-months period of bank notes to suppliers for purchasing drilling equipment with same money security.
15. LONG TERM PAYABLE
US$1,284,440 has been recorded into long term payable, it belongs to the warranty to DRILLMEC for the over 1-year term's rig purchasing.
16. WORKING FACILITIES
On 27 January 2012, GDL borrowed US$12,500,000 working facility loan with two years' period and 8% yearly interest rate from Greka China Limited under the agreement signed on 11 February 2011.
17. RELATED PARTY TRANSACTIONS
Save as disclosed in notes 11, 12 and 16, 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.
Related Shares:
Greka Drilling