THE scale of growth that Locke has in mind requires in the order of $500million – a sizeable war chest with which to hit the acquisitions trail – and First Reserve is ready to step up to the plate. He doesn’t want to see Abbot eclipsed by competitors or fall prey to them.
“We’re quite a global leader in what we do already, but we would be a pretty outstanding global leader if we can achieve that (double in size), which I believe we can do.”
Locke is clear that Abbot is in a very attractive sector with a convincing story. But it’s a long-term business and should not be judged on a quarterly basis, City-style, and with the share price leaping around. The horizon should be three to five years.
“This is about a terrific market outlook with very good long-term contracts. Indeed, contract terms are improving/lengthening.
“You’re investing in hi-tech equipment for which we have all the skills in-house to actually operate, and we can go out and get very good contracts from the super-majors, national oil companies, in strong growth markets.
“It’s been a deliberate target of mine over at least 10 years to build up a platform for the business in the growth markets as we see them … as we saw them and still see them … West Africa, North Africa, Middle East, FSU, Caspian and Russia, plus some other areas as well.
“They’re the big growth markets in our industry and we have a terrific footprint in all. We’ve built up a position where we’re either a market leader or one of the top three players in each of the main markets that we’re in.”
So who are the other drilling brands in Abbot’s peer group?
It varies slightly from market from market, but essentially it’s North American. Nabors is the top one; it ranks as the biggest land drilling outfit in the world. Then there are others such as Parker Drilling and Precision. Additionally, there are significant local competitors in certain marketplaces. Offshore, it’s the normal jack-up type operators, though Locke reckons that Pride is the one to watch in this market.
Of course, while Locke has tossed his hat into the P/E ring, that brings its own set of risks, notably potential for selling on to P/E interests or, classically, flotation back on the public marketplace after about three to five years. Sale to a drilling competitor cannot be ruled out, either.
“The risk of that, to my mind, is probably more limited than it was because First Reserve is clearly bought into the thesis of what we’re trying to do … that is, grow the business.
“Remember, this is something that we, the management, chose to do. It wasn’t from a position of weakness; ours is a position of strength.
“We have a very strong (ownership) position in this company going forward. I am investing in the business … I’m not exiting. I’m initially putting quite a significant sum of money into Abbot and will probably put more money in over time as new equity gets put into the company.
“I remain chairman … there’s nobody else who’s going to be chairman. We have a much greater risk as a public company owned by a wide range of institutions looking for financial return in the short term.
“So if a Nabors, and it would have to be somebody of that size, was to come along, they’re more likely to do that when the share price is low, so they can buy it cheaply, than approach an owner that has paid a proper price and wants to see a return on that investment.”