Well Positioned to Capture Market Opportunities 2018 Annual Report and Accounts Hunting Is a Key Supplier to the Upstream Oil and Gas Industry
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Well positioned to capture market opportunities 2018 Annual Report and Accounts Hunting is a key supplier to the upstream oil and gas industry. Our strategy is to manufacture products and deliver services to our customers wherever in the world they are operating. Hunting’s product offering extends across the life cycle of an oil and gas well, and this focus allows us to create, distribute and sustain value for our shareholders. Hunting is quoted on the London Stock Exchange and is a constituent of the FTSE 250 index. Highlights Market highlights Financial highlights Average WTI crude oil Year-end WTI crude oil Revenue Net cash price spot price $65 per barrel $45 per barrel $911.4 m $61.3m (2017 – $50 per barrel) (2017 – $60 per barrel) (2017 – $724.9m) (2017 – $30.4m) Global average Global average Underlying profit Reported profit onshore rig count offshore rig count from operations* from operations 1,990 units 200 units $104.7m $75.4m (2017 – 1,810 units) (2017 – 198 units) (2017 – $14.3m) (2017 – $(24.8)m loss) Global drilling and US onshore drilling and Underlying diluted Reported diluted production expenditure production expenditure earnings per share earnings per share $231.2bn $133.5bn 49.6 cents 52.3 cents (2017 – $201.2bn) (2017 – $106.1bn) (2017 – 8.0 cents) (2017 – (16.0) cents loss) Source: Bloomberg/Spears & Associates * Non-GAAP measure (“NGM”) see pages 161 to 165. Contents Strategic report Corporate governance report 59 Consolidated statement of Summary of the year 1 Directors’ report 65 cash flows 102 Hunting at a glance 2 Nomination committee report 66 Notes to the consolidated Chairman’s statement 4 Remuneration committee report 68 financial statements 103 Chief Executive’s statement – Remuneration at a glance 70 Company balance sheet 152 and Outlook 6 – Directors’ remuneration Company statement of changes Market review 8 policy summary 72 in equity 153 Key performance indicators 12 – Annual report on remuneration 77 Company statement of cash flows 154 Group review 14 Audit committee report 86 Notes to the Company financial Segmental review 20 statements 155 Our business model 28 Financial statements Our business strategy 42 Independent auditors’ report 91 Other information Risk management 44 Consolidated income statement 98 Non-GAAP measures 161 Consolidated statement of Financial record 166 Corporate governance comprehensive income 99 Shareholder and statutory Corporate governance overview 54 Consolidated balance sheet 100 information 167 Board of Directors and Company Consolidated statement of Glossary 170 Secretary 56 changes in equity 101 Professional advisers 172 Executive committee 58 Front cover image: a Hunting Sand Filter being prepared for dispatch. Summary of the year Operational and Financial Strategic report corporate highlights highlights Record performance delivered by Hunting Titan, supported Revenue increased 26% to $911.4m (2017 – $724.9m) by strong US onshore completion activity. supported by US onshore drilling market. – Increase in volume of H-1 Perforating Systems sold, as customers – Hunting Titan segment revenue increased 34% to $418.2m Corporate governance continue to adopt more efficient and safer perforating technology. (2017 – $312.8m). – Capacity expansion initiatives commenced at Milford and Pampa – US segment revenue increased 49% to $327.1m (2017 – $218.9m). facilities to address demand. – Rationalisation of distribution centres across North America to EBITDA. increase alignment with customer activity and general market – Underlying EBITDA of $142.3m (2017 – $56.0m) and margin of 16% outlook. (2017 – 8%). – Reported EBITDA of $141.3m (2017 – $53.6m) and margin of 16% US segment records increased volumes as US onshore (2017 – 7%). market accelerated. – Good customer acceptance of TEC-LOCK™ semi-premium Profit from operations. Financial statements connection, for use in onshore drilling operations. – Underlying profit from operations increased to $104.7m – Modest increases in demand for MWD/LWD tools as key (2017 – $14.3m). customers’ replacement programmes recommenced. – Reported profit from operations increased to $75.4m – Increased volumes reported at Subsea as domestic and (2017 – $(24.8)m loss). international deep water projects recommenced. – Production of Hunting Titan products now occurring within Earnings Per Share. Hunting Electronics, Hunting Specialty and US Manufacturing – Underlying diluted EPS of 49.6 cents (2017 – 8.0 cents). facilities, increasing utilisation and inter-segment sales. – Reported diluted EPS of 52.3 cents per share (2017 – (16.0) cents loss per share). Other information Sales volume improvement recorded within other international operating segments. ROCE. – Canada operations report increased OCTG volumes following – Underlying ROCE in the year improved to 9% (2017 – 1%). new customer wins. – European well intervention business recorded increased demand Net cash of $61.3m at year-end (2017 – $30.4m). for pressure control and well testing equipment. – Net cash generation of $30.9m (2017 – $32.3m). – Asia Pacific operations report modest increase in OCTG sales in domestic China. Amend and extend exercise completed in December 2018 in – Middle East activity improved in the year as well intervention and respect of the Group’s multi-currency revolving credit facility. OCTG sales into Northern Iraq recommenced. – Quantum of facility now $160.0m with a maturity date of 2022. – Facility can be increased to $235.0m, with the maturity date Capital investment mainly addressing production capacity extending to 2023, subject to agreement with lending group. constraints. – $30.1m spent in the year, including investment to support future Dividend distributions recommenced in the year, with an demand for Hunting Titan products, targeted to reduce costs interim dividend of 4.0 cents per share paid in October 2018. and increase efficiency. – Final dividend declared of 5.0 cents per share, to be paid on 10 May 2019 to shareholders on the register on 23 April 2019, Group rationalisation continued in the year. subject to shareholder approval. – Closure of one manufacturing facility in Kenya and three – Total dividends declared of 9.0 cents per share for the year distribution centres in North America. (2017 – nil) absorbing $14.8m of cash (2017 – $nil). Board changes. – Carol Chesney appointed Director and Chair of the Audit Committee in April 2018. – Keith Lough appointed Director in April 2018 and Senior Independent Director in August 2018. – John Nicholas retired from the Board in April 2018 and John Hofmeister retired in August 2018, both completing nine years’ service. Hunting PLC | 2018 Annual Report and Accounts 01 Hunting at a glance Our operations Our operating facilities need to be close to Conventional oil and gas basin our customers and are therefore based in or Unconventional oil and gas basin Key operating locations near the main oil and gas producing regions. Group overview Segmental revenue Operating sites Distribution centres Split of external revenue by segment 34 (2017 – 35) 18 (2017 – 21) Countries of operation Patents granted and pending 1 Hunting Titan 45% 2 US 31% 3 Asia Pacic 9% 4 Europe 8% 11 (2017 – 12) 690 (2017 – 596) 5 Canada 4% 6 Middle East, Africa and Other 3% Employees (year-end) Internal manufacturing 7 Exploration and Production <1% reject rate 2,772 (2017 – 2,610) 0.2% (2017 – 0.3%) 02 Hunting PLC | 2018 Annual Report and Accounts Strategic report Strategic report Our products and services Our business relationships Oil Country Tubular Goods Hunting generates value through the manufacture of The Group owns proprietary connection products, provision of related services and supply of technology including the SEAL-LOCKTM and rental equipment to the upstream energy sector used TM Corporate governance WEDGE-LOCK premium connections and in the extraction of oil and gas. Corporate governance the TEC-LOCKTM semi-premium connection. The Group manufactures couplings and Our strategic focus is on the manufacture of products accessories and applies premium threads used in the wellbore or forming part of the wellbore’s to pipe for its customers throughout its infrastructure. global facilities. Oil and gas extraction requires a diverse range of products Perforating Systems and services. The nature of the sector results in relationships Hunting manufactures perforating guns, with business partners who can be customers, suppliers energetics charges and instrumentation used and competitors at different points in the value chain. Financial statements in well completion activities. Products are Financial statements manufactured across our global network and sold through distribution points in Canada, China, Indonesia, UAE, UK and US. Advanced Manufacturing Advanced Manufacturing includes precision machining and electronics manufacturing, Customers both utilised in MWD/LWD tools. A range of Other information non-oil and gas products are also engineered Other information for the power generation, aviation, military and space sectors. Drilling Tools Hunting’s Drilling Tools business provides Hunting mud motor rental services for operators in the onshore oil and gas basins of the US. Intervention Tools Competitors Suppliers The Group manufactures a range of tools including Thru-Tubing, Slickline and Wireline tools and Pressure Control Equipment used for intervention activities. O Subsea il a ycle nd gas extraction c Hunting’s Subsea business manufactures hydraulic couplings, valves and accessories for application to deep water drilling activities.