On 30 May 2020, Medserv plc published an Interim Report providing an overview of the company’s performance during the first three months of 2020 as well as the forecasts for the year ending 31 December 2020. Given the impact of the significant ILSS contract in Suriname which was terminated in December 2019, the company’s performance in 2020 is not comparable with that recorded in 2019.
In this context, Medserv explained that revenues in Q1 2020 amounted to €8.8 million which, in turn, was almost equally split between the ILSS segment (€4.6 million) and the OCTG segment (€4.1 million). Furthermore, EBITDA stood at €1.5 million. This translated into an EBITDA margin of 17% which is also in line with the EBITDA margin of 16.9% generated in Q1 2018.
For the full 2020 financial year, Medserv is now expecting revenues of €26.5 million and an EBITDA of €5.5 million. In this respect, the company explained that the lost revenue from Suriname was originally forecast to be recovered from new drilling projects that were scheduled to commence in Cyprus in Q2 2020. However, the postponement of offshore drilling in Cyprus, coupled with the suspension of other similar offshore drilling projects due to the ‘COVID-19’ pandemic, has resulted in Medserv revising downwards its budgeted targets.
Medserv noted that although its facilities remained operational, the ‘COVID-19’ pandemic, the ensuing collapse in the price and demand for oil, as well as geopolitical events resulted in international oil companies cutting back on capital expenditure and demanding discounts.
In Libya, offshore drilling activity has been suspended whilst Cyprus postponed drilling activities. On the other hand, drilling and project development in Egypt remained ongoing and are expected to be maintained at current levels.
In Suriname, as the contract ended at the end of 2019, Medserv resized its setup in the country with a view of maintaining a presence in the region where large finds in neighbouring Guyana, Trinidad and Tobago, as well as future activity planned in Suriname itself, makes this region an exciting area for exploration in the oil and gas industry.
Meanwhile, the global downturn had minimal effect on earnings from the supply chain management of the OCTG segment of the company which is driven by onshore drilling activity in the Middle East. Demand for supply chain management services remain strong as national oil companies in the Middle East did not suspend any onshore drilling and continue to confirm their commitment to approved projects.
Overall, Medserv’s objective for the year is to preserve liquidity and ensure that it continues to register positive EBITDA. In this respect, immediate cost containment measures have been put in place across all of the company’s operations. These included restructuring to the new norm and postponing any capital expenditure plans. Such measures ensure that Medserv will have sufficient funds to meets its obligations as they arise and fall due through the course of the year.
Medserv also noted that it still enjoys a strong business pipeline across its core markets, namely North Africa, Eastern Mediterranean and the Middle East. Once travel bans are lifted, the long-term energy projects for which Medserv is already contracted to service are expected to resume as the cost of commercialising these projects are low (reflecting capital investments that have already been made) apart from being located close to the market or are needed for national consumption. Additionally, Medserv is awaiting adjudication of several tenders including ILSS services to an international oil company operating offshore Egypt and supply chain management for OCTG contracts in the United Arab Emirates.
Medserv concluded by noting that as offshore exploratory drilling and development in the company’s operating markets are expected to resume in Q2 2021, these will pave the way for the company to return to pre-‘COVID-19’ trading levels in 2021.