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Greka Drilling encouraged by increased interest in lateral CBM wells

Published: 09:24 21 Apr 2016 BST

Methane
The government of China remains supportive of the coal bed methane (CBM) industry

Greka Drilling Ltd (LON:GDL) managed to increase revenues in 2015, despite the well-documented travails of the oil and gas sector.

The Asia-focused independent and specialised unconventional oil & gas driller drilled 62 wells in 2015, up from 45 wells drilled in 2014.

Annual revenues rose to US$29.9mln in 2015 from US$24.4mln in 2014, while underlying earnings (EBITDA) rose to US$2.4mln from US$1.9mln,

At the end of the year the company had cash and bank deposits of US$2.4mln, down from US$8.0mln at the end of 2014; the group subsequently secured a US$5mln debt facility at the end of March.

Shares fell in early deals, however, shedding 0.85p at 3.65p, as the company said there were “limited drilling opportunities in the first half of 2016”. The board has taken prompt action to reduce the fixed cost elements of its business.

In China the business had a delayed start to the 30 well Green Dragon Gas contract using Greka's LiFaBriC technology, and it is expected the remaining 16 wells under this contract will be drilled in the second half of 2016. 

Greka has worked closely with Green Dragon Gas to assess historic well performance data and has identified a number of re-drill opportunities in areas where heavy faulting may have constrained production rates, it said.

The oil price collapse has seen a number of exploration companies cut back on drilling plans in China, and this has led to over-capacity in the drill rig market, and a “race to the bottom” in terms of the prices contractors will accept and a concomitant rise in corner-cutting.

“We will not reduce our standards of safety and environmental protection or drill loss-making wells, and instead we are reducing our overhead costs and parking rigs where necessary,” said Randeep Grewal, chairman and chief executive officer of Greka.

The government of China remains supportive of the coal bed methane (CBM) industry, and Greka remains positive about the medium and long-term prospects of its business in China.

Meanwhile, India has significant resources of shallow onshore gas, particularly coal bed methane, and there is a clear desire from the Government to develop this clean energy source, Greka said. 

The development of this energy source has to date been delayed by a pricing policy that has kept well-head gas prices below the import parity price, such that major resource holders have been reluctant to invest, the company noted, although this is now changing with the Government recently introducing new pricing policies to encourage both onshore and offshore gas developments. As a result, state-owned coal bed methane resource holders have announced major investment plans.

"In 2015 we accomplished a 23% increase in revenues despite the challenging environment faced by the global drilling industry due to the rapid collapse in the commodity prices; however, our earnings were adversely impacted by foreign exchange losses and by our ongoing investment in India, where we have the only fleet of modern CBM-tailored rigs and we are at the forefront of developments in the CBM industry. We are delighted that Essar Oil Limited recently remobilised two of our rigs in India for drilling in the Raniganj block, which vindicates our commitment to the India market,” Grewal said.

“We are encouraged by the increasing attention in the CBM markets on the benefits of lateral wells, where Greka Drilling is a pioneer with our LiFaBriC technology, and for which we anticipate significant business when the drilling market recovers," Grewal said.

'Drought in drilling service sector is over' - Greka Drilling's Randeep Grewal

Randeep Grewal, chief executive of Greka Drilling Limited (LON:GDL), discusses what's been described as a “well-balanced” trading performance in their half yearly results. The drill contractor reported a 38% increase in first half revenue, up to US$3.6mln in the six months to 30 June,...

on 27/9/17