Doubtlessly the financial year 2015-16 was the most challenging period that we haveseen in our 30-year existence.
The year was marked by a continuing decline in crude oil prices dropping from a perbarrel peak of $112 in 2014 to a low of $27 in 2016. Several oil exploration andprocessing companies reported their steepest losses as crude oil realisations declined tofar lower than exploration costs during the year under review.
Pessimists felt that oil prices would decline even further striking fear into thehearts of 18 even the most serious investors who shied away from committing resourcestowards oil exploration. The fact that there was a concurrent improvement in the operatingenvironment for renewable energy only aggravated the gloom resulting in sectoralinactivity.
The result of this decline in spending immediately translated into a lower engagementof oil rigs on the one hand and a decline in day rates on the other. The concurrentdecline in sectoral asset utilisation (down to a mere 50%) and erosion in realisationsaffected the viability of international rig service providers.
The only bright spots amidst this massive downtrend were the oil exploration programmesof india and the Middle East.
India imports about 185 million tonnes of crude oil each year as there is a need tocreate more reserves to reduce the countrys dependence on imports and increase itsoil security.
Iran benefited on account of the lifting of the US embargo. The country increased itscrude oil throughput from 1000000 barrels per day to 3000000 barrels per day andincreased its oil exploration investments as well.
However apart from India and Iran there was a decline in this activity across theworld. subsequently the Company reported losses in the last two quarters of the financialyear under review following profits in the first two quarters. The Company ended the yearunder review with a marginal profit of Rs. 512.69 million.
I must assure shareholders that this drop in performance would have been steeper butfor a number of proactive initiatives taken by the management. We moderated our operatingexpenditures following a deeper scrutiny of expense heads; we rationalised manpower costsby efficiently combining functions and roles; we worked closely with vendors to moderatecosts wherever possible; we continued to interact proactively with our bankers regardingmarket weaknessess and our counter-responses to them.
The result is that even as the overall market weakened during the year under review weselected to strengthen our Balance sheet.
We repaid $22 million of bond and extended a $65 million bond by two yearsstrengthening our cash flows. The full benefit of this will be reflected during theupcoming fiscal. Besides the promoters of the Company exercised their preferentialwarrants infusing $25 million into the Companys net worth in a rare demonstrationof confidence regarding the prospects of the sector.
The other improvement was a decline in receivables from Iran (down to less than ayear). During a year when Iran accounted for 34% of our revenues this projectedimprovement in cash flows will enhance our liquidity and profitability. Besides with thei ran stigma set to become a thing of the past we expect our investments to be recoupedfaster cost of spares and insurance to fall further and a larger business opportunity toopen up in that geography.
At the close of the financial year under review the Company had nine of its 18 rigassets deployed. The immediate priority is to enhance asset utilisation within the nexttwo years and thereafter strengthen our day rate.
During the year under review the Aban II rig was deployed in tow with ONGC for a ratethat was marginally lower than the three-year average. Aban III and IV as well as Aban Icecontinued to be deployed at attractive rates.
We are optimistic about our prospects for a number of reasons.
The Company is one of the most competitive global rig service providers.
The Companys state-of-the-art assets incur relatively low overheads.
The Companys rig professionals are among the most well-trained enhancingrig safety and uptime.
The combination of these realities resulted in Aban continuing to remain viable duringthe challenging third and fourth quarters when asset utilisations plummeted. The fact thatthe Company reported a cash profit during such a challenging year validates our inherentcompetitiveness.
Looking ahead we expect the oil prices to revive soon. There has already been areasonable rally in oil prices. Besides oil exporters are expected to reconcile theirpolitical differences and moderate oil production stablising oil prices at reasonablyremunerative levels reviving oil exploration investments and strengthening prospects forrig service providers.
This combination of this sectoral optimism on the one hand and strategic corporateinitiatives on the other should make it possible for Aban Offshore to rebound with speedas soon as the sector revives.