The board of Lamprell, the UAE rig maker and oil and gas engineering services firm, saw its shares rebound over 19% Friday after making two announcements.
The firm bucked its run of bad news on deliveries with confirmation that it had completed Hull 108, a legacy project from its takeover of former local rival MIS, to schedule for Compañía Perforadora Mexico. Delivery allows Lamprell to shed $70 million of debt it took on to acquire MIS in July last year.
“We are delighted to be announcing the delivery of this rig on schedule and we continue to believe the Gulf of Mexico represents an exciting market for Lamprell,” commented CEO Nigel McCue.
Lamprell has taken a battering on the London Stock Exchange after two profit warnings in quick succession – the first made only hours after its annual general meeting with shareholders – raised serious concerns about the company’s ability to manage costs on projects at the core of its business.
The group said it experienced progressive delays in key specialised vendor equipment for new build jack-up projects, as well as slippage in the award of new project contracts. Workers sat idle while Lamprell waited for parts from key suppliers, leading to rising costs.
The company also announced Friday that John Kennedy, a widely-respected industry veteran, has been appointed to replaced Jonathan Silver, who stepped down on 7 June.
Kennedy spent most of his career in the oil field services sector, including for Schlumberger, Halliburton and Wellstream Holdings, where he served as Executive Chairman.
Silver, a long-serving partner at law firm Clyde & Co and an important player on the UAE’s commercial scene, was regarded as an asset to the company, and Kennedy’s appointment helped reassure investors, as shares rose Friday from 79.05p to 94.35p.
Brian Fredrick resigned as a non-executive director on 14 June.
Whether Lamprell’s management can go from staunching an open wound to their credibility to making a full recovery remains to be seen, and is only likely to happen if the company can meet or exceed its stated targets and future deliveries without further warnings.
“After the company had already problems with executing lump-sum contracts in its newbuild business for windfarm liftboats in October 2011, we were led to believe when meeting with management at the beginning of 2012 that the company had taken the necessary steps to successfully tackle these internal operational problems,” said Jens Zimmerman, an analyst at ABN AMRO Private Banking. “Management’s strong emphasis on operational excellence since October seemed to deliver an improved and more consistent performance.
“But the recent profit warnings clearly indicate that these internal measures were ineffective and that the company’s execution strategy in its newbuild business is operationally flawed.”
Zimmerman expects Lamprell’s recovery to take at least a year.
The company still expects 2012 revenues of around $1.1 billion but cut its net margin expectation to 2.5 per cent from 3.5 per cent on 7 June. The company has not issued updated guidance for 2013.
Shares remain over 68% down from pre-profit warning level on 14 May, having fallen from over 400p around this time last year.
The company’s next scheduled announcement is of interim results due on 28 August.
