THE FINANCIAL YEAR UNDER REVIEW WAS ONE OF THE MOST CHALLENGING IN THE EXISTENCE OFABAN OFFSHORE LIMITED.
The Company reported an EBIDTA of Rs. 9270.70 million but a net loss of Rs. 10578.54million. I have no hesitation in stating that this loss would have been higher but for theCompany's proactive initiatives in terms of asset deployment on the one hand and costmanagementontheother.Thefactthat the Company stayed EBIDTA-positive in a difficultenvironment validates that Aban Offshore still remains one of the most cost-competitiverig service providers in the world. Hence I must assure shareholders that when theindustry environment revives we will be well-positioned to report a disproportionatelylarger improvement with respect to revenues profits and margins. Until then the Companywill seek to strengthen its business model and increase its profitability.
The biggest profitability driver of rig service providers is the price of crude oil.The higher the oil price the better the viability of oil exploration and processingcompanies the greater their reinvestment into drilling and the greater their need tolease drilling rigs from service providers like us. In this context the one bigdevelopment during the year under review was a substantial rebound of the internationalcrude oil price from a low of around US$28 per barrel to the prevalent US$50 per barrel.However I must immediately indicate that this substantial recovery was not mirrored in animprovement in rig rentals. The only improvement that was visible was that a few customersdid announce capital expenditure programmes which translated into some contracts markedby shorter tenures. Case in point: contract tenures declined from an average of aroundeight quarters earlier to around a single quarter on a number of occasions indicating theextreme caution with which oil exploration and production companies selected to proceed inthis environment.
THE ABAN MARKETING STRATEGY
At Aban Offshore we possess modern rigs available for deployment translating into atotal annual availability of 216 rig months. At a time when rig rentals remained weak(declining to as low asUS$50000 a day) the principal objective of the Company was tomaximise rig deployment with the objective to minimise overheads. The result is that ourmarketing team reached a wider customer spread; the Company relocated Aban Abraham fromBrazilian to Indian waters (deployed by ONGC) making it the sole Indian-owned drillshipworking here. Similarly the Company won a new contract for Aban Ice with ONGC for threeyears enhancing revenue visibility.
Aban's marketing team continued to work closely with a range of customersunderstanding their needs and responding with speed to emerging opportunities. The resultwas that the Company engaged three new customers during the year under review showcasingthe fact that Aban's price-value proposition continues to be attractive. At Aban Offshorewe also focused on reducing overheads by Rs. 5983.08 million during the year with a viewto bring down our breakeven point.
One of the biggest challenges that we face lies in the management of our debt. As of 31March 2017 we possessed Rs.140.05 billion of debt on our books corresponding to adebt-equity ratio of 5.31:1. During our favourable years the Company selected to expandby taking on debt. While this appears high we would need to bring to the attention of ourshareholders that the average debt cost of 7.60% should in normal circumstances havetranslated into a good interest cover. However with rig rentals declining it becamedifficult to cover interest costs. The principal objective of the Company is to workclosely with bankers to moderate debt cost on the one hand and extend debt repaymenttenures on the other. The Company repaid Rs. 2.24 billion of high-cost bonds during2016-17. We expect that this will have a reasonable impact on our interest outflow goingahead. I must assure shareholders that the Company is working closely with bankers toresolve debt issues and improve the Company's viability.
The outlook for the global oil industry continues to be fluid. The two big variablesinfluencing global oil prices comprise the OPEC's stance on whether it would moderate oiloutput and geopolitical tensions that could cause oil prices to rise. Our expectation isthat oil prices are likely to consolidate around the prevailing levels. On the other handa number of active rigs have gone out of business and are unlikely to come back into play.The result is that when demand revives we foresee that rig demand may improve the rateson account of these factors.
The Aban agenda is to market aggressively extend our presence across more customersand waters maximise rig deployment cover overheads effectively repay or re-price debtand moderate overheads. The Company's rigs are known for their service-readiness andability to respond to customer needs anywhere in the world. This makes it possible forAban to deploy rigs at a short notice and enhance overall capacity utilisation.
This is the guarded optimism that I must share with you. We believe that ourpersistence will eventually prevail and the company is attractively positioned for anysectoral rebound in a quick and reliable manner.