Aug 27, 2021

Hunting forecasts $10 million full year fall in EBITDA

Energy
Oil
metals
UK
Dominic Ellis
5 min
Hunting says recovery is "slower than anticipated" as international markets remain hampered by COVID-19

Ongoing uncertainty in the oil and gas industry is reflected in Hunting's mixed half-year results.

While revenues largely held up at $244.4 million (compared with $248.3m H2 2020) and gross profit came in at $44.1 million (H2 2020 $42.2 million), EBITDA loss was $3.6 million (H2 2020 $2.3 million) and most significantly, it expects full year EBITDA to fall by $10 million given "slower than anticipated recovery" within core energy markets.

Chief Executive Jim Johnson said its results reflect a similar performance when compared to H2 2020 as the global oil and gas industry slowly emerges from the impact of the COVID-19 pandemic.

"The market recovery in the US, while slower than anticipated, shows clear signs of growth, which is projected to accelerate as more global economies reopen and travel increases," he said. "The recovery within international markets, while still projected to grow in H2 2021 and into 2022, continues to be hampered by spiking COVID-19 infection rates, leading to ongoing caution within our client base."

New business investments in Well Data Labs and Cumberland Additive will assist the group in diversifying core competencies while increasing its overall technical offering to clients.

"Management is further encouraged by the outlook for 2022, which is supported by a strengthening order book, as clients plan for new projects and robust commodity prices," he added. “The group continues to retain strong capital discipline across all areas of the business, which will see our balance sheet and cash and bank position remaining strong."

Strategic highlights

  • Investment in Cumberland Additive Holdings In August, the group made a $5 million equity investment in Cumberland Additive Holdings which provides 3D printing and additive manufacturing capabilities to clients operating in the oil and gas, aerospace and defence sectors. The investment provides Hunting with new manufacturing opportunities and new market channels, providing further potential for revenue diversification.
     
  • Investment in Well Data Labs In February, Hunting entered into an agreement to provide $2.5m of convertible financing to Well Data Labs, a software business focused on oil and gas drilling data processing. The business has rapidly grown a blue-chip customer base within the upstream energy industry since the company was founded in 2014. Since the strategic investment was concluded, Hunting and WDL have begun a number of collaborative programmes, combining the Group’s perforating products and instruments and the software of WDL.
     
  • Established Hunting Energy Services India In March, it completed the incorporation of an entity in India to address growth opportunities in-country, driven by the local content requirements of India’s oil and gas industry. The group has already benefited from a strong relationship with Jindal SAW, its partner in the country, and is exploring new collaboration projects in the supply of OCTG and accessories manufacturing.
     
  • Launch of H-3 Perforating System In Q2, Hunting Titan launched the H-3 Perforating System to complement its existing integrated perforating systems portfolio. The H-3 Perforating System takes many of the reliability and safety features of Hunting’s H-1 Perforating System and incorporates the industry’s first wireless safe detonator and the latest switch technology, the ControlFire V3. The H-3 System is shorter than Hunting’s H-1 System and other conventional guns, in line with industry efforts to reduce tool string length and weight. The H-3 System is also compatible with industry standard shaped charges, thus widening the appeal of this product to operators.
     
  • Increased Production of Factory-loaded Perforating Systems. A key initiative within the reporting period has been to increase production of factory-loaded perforating systems. During H2 2020, Hunting Titan completed an investment at its Milford, Texas, facility to address this customer requirement and during H1 2021 has seen strong sales for this offering, contributing to the strengthening revenue of the segment through the reporting period. As at June 30, more than 40% of total perforating gun sales were derived from this new offering.
     
  • Further Commercialisation of Organic Oil Recovery Technology In H1 2021, the Group secured its first major well treatment programme with a major Bahraini operator. The c.$1 million order will see the completion of a 30 well programme to increase production of mature fields. Hunting is in the process of negotiating an extension to its exclusive marketing agreement with the owner of the technology, which will extend the Group’s geographic footprint to include all countries in the Eastern hemisphere, in addition to providing financial support for the construction of a test laboratory in the Middle East where a number of existing and potential customers are located. The technology continues to be closely monitored by major international energy groups.
     
  • Consolidation of Singapore Facilities In the period, the Board approved a $3 million project to consolidate the Group’s existing sites in Singapore to a single, purpose-built location. The new operating site, to be operational by Q2 2022, will improve in-country synergies as it will combine the regional administration function and the OCTG, Accessories and Well Intervention manufacturing businesses.
     
  • Proposed launch of a Level 2 Sponsored American Depositary Receipt programme
    The Board of Hunting has begun planning for the launch of a level 2 sponsored ADR programme, to enable Hunting shares to be traded more easily by US investors. The programme is likely to commence towards the end of 2021, following the appointment of a suitable sponsor and the receipt of approvals from the relevant US regulatory authorities. The Directors have commenced this process to increase the profile of Hunting with US investors, as the US has been the core of Hunting’s business for a number of years, driving the majority of revenue and profits, and the US is where most of our quoted peers are listed.

Financial highlights

  • Revenue $244.4m (H2 2020 – $248.3m; H1 2020 – $377.7m).
  • The Group reports an EBITDA loss of $3.6m for the six months to June 30, with an EBITDA loss reported in Q1 2021 followed by a small profit in Q2 2021 as trading conditions improved within the US onshore market.
  • Total cash and bank reported at June 30 of $105.7m (31 December 2020 – $101.7m).
  • Interim dividend of 4.0 cents per share declared in respect of H1 2021 (H1 2020 – 2.0 cents per share), absorbing cash of approximately $6.5m (H1 2020 – $3.3m), payable to shareholders on 29 October 2021, with a record date of 8 October 2021.
  • Net assets as at 30 June 2021 of $940.0m (31 December 2020 – $976.6m).

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