Deep diveEnergy
ADES International Holding PLC

ADES International sees significant growth potential as backlog and end markets improve


•    ADES International Holding PLC (LON:ADES) is a Middle East-focused onshore and offshore drill rig contractor
•    First-quarter revenues of US$108.7mln, up from US$41.2mln in the comparative period of 2018
•    US$1.5mln of backlog at the end of March
•    Listed as a ‘buy’ by Numis Securities

Jack up rig

Quick facts: ADES International Holding PLC

Price: $12.85

Market: LSE
Market Cap: $562.75 m

Our focus remains on extracting synergies and properly integrating the recently acquired rigs, tendering activity and maintaining excellent customer service and asset utilization

Mohamed Farouk, chief executive

What it does

ADES Group currently operates a fleet of 13 jack-up offshore drilling rigs, 34 onshore drilling rigs, a jack-up barge, and a mobile offshore production unit (MOPU), which includes a floating storage and offloading unit.

The Weatherford acquisition doubled the operational rig fleet and added 2,300 staff in the Middle East.

Some 60% of revenues come from offshore drilling and 40% onshore.


How is it doing

In its first-quarter results in May, the first since ADES acquired US$288mln worth of rigs from Weatherford International, revealed revenue of US$108.7mln, up from US$41.2mln in the comparative period of 2018 and US$79.7mln for the whole of the first half last year.

ADES added that its margins were in line with expectations, and said it had US$1.5mln of backlog at the end of March.

The company noted that integration of the former Weatherford rigs - located in Saudi Arabia, Algeria, Kuwait and Iraq - continues to be ‘on-track’.

The firm said it has renewed six contracts in Saudi Arabia for the acquired rigs, with each extended for three years, and it has landed two additional seven-year contracts in the kingdom for new-build rigs.

A little later on in June, the company said it had also landed a new contract in Egypt and an extension to an existing contract in Algeria.

The company secured a two-year deal with a leading Egyptian energy company for its ADMARINE IV offshore jack-up rig in Egypt – it is an initial one-year term with a one-year extension option on the same terms.

Meanwhile, in Algeria, it clinched an extension of a contract for RIG 828 – acquired recently from Weatherford – and the term moves out to June 2020.


What the boss says: Mohamed Farouk, chief executive

"We delivered a strong operational performance in the first quarter of the year, significantly accelerating revenue growth which increased by almost threefold compared to Q1 2018…Our results were supported by the steady ramp up of utilisation rates and the increasing contribution from the 2018 acquisitions.”

“Our focus remains on extracting synergies and properly integrating the recently acquired rigs, tendering activity and maintaining excellent customer service and asset utilization.”

“ADES' growing order backlog combined with improving end markets and higher utilisation rates provide significant growth potential and visibility, underpinning our confidence for 2019 and beyond."


What the broker says

In a July note initiating ADES at a ‘buy’ rating and US$24.3 price target, analysts at Numis said the firm had an “unsustainably low valuation” and was the least expensive oil services firm versus its global peers.

The broker also said that the company was the second-largest jack-up rig owner in the Middle East and North Africa (MENA) region, with its fleet “perfectly suited” for the needs of leading oil companies.

The analysts pointed out that ADES has “high revenue visibility” with 95% of their 2019 earnings forecast already covered, as well as 76% of 2020, and 56% for 2021.

They said they see “more upside than downside risks over the next few years”, particularly if day rates for the jack-up rigs increase.

With the shares trading at around US$13.7 as of 9 July 2019, ADES carries a market cap of £479.4mln.

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