Announcement: Results for period ended 31 March 2017 (PDF)

AIM traded Enteq Upstream plc, the oil and gas drilling technology company, today announces its financial results for the year ended 31 March 2017.

• Cash balances have been maintained

• On-going overhead control, whilst maintaining core competencies, has resulted in a reduced loss before tax.

• Reduced revenues reflect the difficult conditions experienced in the industry.

  Financial metrics Years ended 31 March:

  2017	2016
  	$4.8m	$6.3m
  $(0.5)m	$(0.6)m
  $1.1m	$4.7m
  1.7 cents	3.6 cents
  2.0 cents	8.0 cents
  $15.3m	$15.1m

  • Revenue

  • Adjusted EBITDA1

  • Loss before tax

  • Adjusted loss per share2

  • Loss per share

  • Cash balance

  Outlook

• Increasing drilling activity in North America is restoring customer confidence, however, capital expenditure remains constrained.

• Investment in technology and business development will continue to enhance the Group's product range.

• Management to maintain focus on cash and overhead control.

"Enteq has maintained a sustainable business through difficult market conditions. Core competencies remain, technical differentiation is being improved and market share maintained. The business is secure and ready to respond to growth opportunities around the world and in North America when market conditions allow."

David Steel, Finance Director

1 Adjusted EBITDA is reported profit before tax adjusted for interest, depreciation, amortisation, foreign exchange movements, Performance Share Plan charges and exceptional items.

2 Adjusted loss per share is reported loss per share adjusted for exceptional items, amortisation and foreign exchange movements.

Whilst the first nine months of the financial year were extremely challenging, market conditions have seen some improvement since the beginning of 2017. The number of drilling rigs operating in North America has risen from approximately 420 in April 2016 to the March 2017 level of approximately 840. However, global factors continue to cause some instability in the oil price and accordingly the Board's expectations for capital investment by customers in new drilling equipment remain cautious.

Enteq has continued to develop its markets outside North America, including the fulfillment of its first contract in Saudi Arabia.

Post the financial year end, in May 2007, Enteq received a grant from the Technology Strategy Board of Innovate UK related to the Newton Fund: China - UK Research and Innovation Bridges Competition 2015. In conjunction with Imperial College, London and the Chinese institute of Petroleum in Beijing, Enteq will be developing technologies for optimal drilling of geothermal wells over the next two years.

Whilst still maintaining a low-cost base, Enteq has continued to invest in new product development. This has resulted in the recent filing of two UK and two U.S. patent applications.

Employee numbers have further reduced from 21 at the end of March 2016 to 19 at the end of March 2017. This number not only enables the business to maintain key functions necessary for a solid core business but also provides a base from which to react to any market recovery.

At the AGM, held in September 2016, the previous Chairman, Neil Warner, left the Board and the Company; his contribution is very much appreciated. Raymond Garcia also stepped down from the Board but remains as Chief Operating Officer. During a difficult time in the industry all members of staff have made a significant contribution to the control and discipline in the business; the Board thanks them for their support, understanding and loyalty.

World oil prices have recently been under-pinned by Russian / Middle Eastern volume agreements which should result in more favorable market conditions for oil and gas companies and their service providers. In North America, through a combination of stable oil prices and increased efficiencies, the shale drillers are maintaining activities which will drive the need for further equipment in due course.

Enteq continues to enhance its technology and make gains in establishing new international customers. Tight cost management has led to a strong cash position that give Enteq a platform from which to develop in a potentially recovering market.

Chairman

Chief Executive's Operating and Strategic Review

Enteq supplies Measurement While Drilling (MWD) equipment to the oil and gas industry world-wide to enable directional drilling.

Directional drilling is carried out by oilfield service companies who either purchase equipment from third parties such as Enteq or develop the equipment themselves. Measurement While Drilling equipment is used on every rig which drills directional wells.

Due to an uncertain oil price since the end of 2015, the development of new oil fields and hence overall drilling activity has reduced. A key indicator of activity is the number of drilling rigs in operation, which is reported by Baker Hughes International. The number of drilling rigs operating in the USA has risen from approximately 420 in April 2016, to 840 in March 2017 and on to the current levels in excess of 910, but is still well below previous levels of 2,000 plus.

This rise of activity in USA is a sign that oil companies are now finding that, at the more stable oil price (West Texas Intermediate oil price has remained between $45 and $50 for the last six months) and through increased efficiencies in drilling activity, it is again economic to continue development of certain oilfields.

The directional drilling market continues to be divided between those 'major' service companies who are vertically integrated using their own equipment, and the 'independents' who need to acquire equipment, such as the Measurement While Drilling equipment provided by Enteq, from third parties. In North America, the major service companies have historically owned approximately 50% of the market but are currently offering competitive solutions for drilling which will have increased this share. The independents continue to have excess capacity of equipment meaning their new purchases remain slow. Enteq has, however, successfully offered some 'update' options which have allowed some of the larger customers to upgrade their equipment, assuring their loyalty to Enteq remains as the market recovers.

Outside North America, where drilling projects by the National and the larger International Oil Companies tend to be longer term, activities have remained slow, and the lower revenue flows from oil production have created tight cash flows throughout the market.

Enteq has maintained good relations in the international market and continued to generate revenues in China, Russia, the Middle East and India all of which have good longer term potential. Notable is a new contract for Saudi Arabia which has now been fulfilled and should lead to further opportunities.

Due to some consolidation in the market, and within competitors, management believe that Enteq has improved its market share in a potentially recovering market.

Some further consolidation has taken place amongst other third-party suppliers of equipment, although some new providers have also emerged. Enteq remains a strong and recognised independent solution and technology provider of Measurement While Drilling equipment.