We expect Anton Oil’s 2Q13 operational update to have neutral implications for the stock price with jobs completed in the quarter down 19% y/y but up 88% from the previous quarter.
Anton Oil released its 2Q13 operational updates with overall jobs completed in 2Q12 falling y/y, although this was largely expected. The company expects overall job growth in 2013 to slow, as the company takes on less jobs but jobs with bigger contract sizes. Jobs completed in key services such as multi-stage fracking, pressure pumping, directional drilling and drilling fluid services all rose y/y, highlighting the strong demand in the market and the ability of the company to continue winning and completing jobs in these key services. We believe Anton Oil remains strategically positioned to benefit from China’s structural growth in drilling services demand, and we reiterate our Overweight rating.
Overall decline in jobs y/y largely expected: The company completed a total of 525 jobs in 2Q13, down 19% y/y from 652 in 2Q12. With the company expecting to win jobs with larger contract sizes at the expense of the number of jobs, this was largely expected. Despite the overall fall in jobs, there was still strong y/y growth in many of the company’s key services like multi-stage fracking (up 156%y/y), pressure pumping (26 jobs from 1 previously), directional drilling services (up 7% y/y) and an increase in drilling fluid services (7 from 0 in 2Q12).
Seasonal pick-up in jobs: Overall jobs completed for the quarter increased by 88% q/q, as the ‘peak drilling’ season kicked off in the quarter and resulted in an expected strong increase q/q in jobs completed. Considering the higher base the company is coming off in 2013 compared with 2012, this was an encouraging result for Anton Oil.
Order backlog remains strong: Despite an expected slowdown in jobs this year, Anton Oil’s order backlog remained essentially flat y/y, compared with its order backlog in July 2012. The company also saw y/y increases in its backlog for many key services. Anton Oil announced contracts in its three key domestic basins (Tarim, Ordos and Sichuan). The company won multi-stage fracking services contracts in Ordos for tight oil and gas, oil based drilling fluid services in Tarim for conventional gas and directional drilling services for tight gas drilling in the Sichuan Basin. The company expects to ‘actively participate in several large tenders’, which is likely to see further contracts being added to its backlog in 2H13.
New capacity additions: The company added 31,200HHP of pressure pumping capacity in the quarter and also received two rigs (5,000m) in May and June, respectively. Anton Oil's initial plan at the start of the year to increase its fracturing capacity by 38,000bhp has now been accelerated with the company expecting to reach 100,000bhp by year end (from 24,000 at the start of the year). Strong demand for its fracturing services and an increase in activity from its operations in the Sichuan and Ordos basins (both low permeability basins) has seen the company make the strategic decision to increase its fracturing capacity.