Hunting 'comfortable' but cautious as some markets continue to disappoint

International energy services group Hunting issued a pre-close trading update on Thursday, ahead of its half-year results to be issued in late August, reporting that its performance during the period continued to reflect strong activity levels within US onshore completions, improving sentiment in the US offshore market and localised regional improvements in the Asia Pacific and Middle East markets.

The FTSE 250 firm said activity levels in Europe and Canada remained “challenging”, as lower drilling activity continued to impact these markets.

Based on those regional trends, Hunting said its Titan division had delivered a performance ahead of management's expectations, and its US segment had returned to operating profitability, while Hunting's other segments delivered an operating loss in the period.

“Within Hunting Titan, the segment reports a strong increase in sales across all product lines, driven in part from higher completion activities and greater frac intensity,” the board explained in its statement.

“This increase is supported by the further commercialisation of Hunting Titan's proprietary perforating technologies including the H-1 System and EQUAfrac shaped charge, which offer greater reliability, reduced rig time and higher margins of safety.

“The Permian Basin remains the largest contributor to Titan's sales, however, other basins have also reported good increases in activity as the stable oil price environment supports new drilling activity in the onshore US market.”

Hunting said the manufacture of perforating systems in its facilities in Canada, Mexico and China also increased in the period.

In the US, the group's premium connections, drilling tools, advanced manufacturing and speciality business units reported improved sales compared to 2017, predominantly supported by US onshore drilling activity.

Hunting Electronics performed “strongly” during the period, the board said, as clients increased their investment in new capital equipment, in addition to the business supporting Hunting Titan in the manufacture of perforating switches.

“Of note has been the improved performance of the segment's manufacturing and accessories business which is nearing a breakeven position, as activity in the US offshore and international markets slowly improves.

“Hunting Subsea remains subdued, given the low investment levels particularly within the US offshore/deep water markets.”

In Canada, while drilling activity levels remained low due to local oil pricing and distribution bottlenecks, the business reportedly benefited from the increased production of perforating guns for Hunting Titan.

Across the water in Europe, Hunting said that while drilling activity in the UK North Sea remained “subdued”, the business retained a number of key supply contracts.

“Further, the group's well intervention unit has returned to profit during the second quarter of 2018, supported by the introduction of new technologies and products.

“Due to continuing losses within the group's Kenya operation, management has decided to close its facility in Mombasa,” the board confirmed, adding that the cost of closure was forecast to be absorbed within surplus provisions held over from the Cape Town facility closure announced in 2017.

In the Middle East, well intervention contracts in northern Iraq contributed to increased sales, while Hunting's joint venture in Saudi Arabia also reported a “modest” increase in order intake from key partners in the country.

Hunting's Asia Pacific business reported increased orders for OCTG for the domestic market in China, and also increased production of perforating guns for Hunting Titan.

Activity in Singapore and Indonesia remained “quiet”, the board said, as international operators limited new drilling activity.

The group's balance sheet was said to remain “strong” with a net cash balance of more than $30m expected at 30 June.

“This includes $8m of proceeds from the sale of the group's Cape Town facility in May,” Hunting confirmed.

It said working capital had absorbed cash during the period - as expected, given the increased activity levels - and inventory was expected to be around $325m at 30 June compared to $286m at 31 December.

Capital investment remained “modest”, with about $11m incurred up to the end of June.

“Given current market conditions, and the outlook for the remainder of the year, management continue to take a cautious view on the rate of recovery in the wider market in the second half, but currently remain comfortable with the market consensus for the 2018 full year outturn.”