Demand for drilling services slows

Two major mining services companies reviewed their operations and respective outlooks late last year, given the change in market conditions brought about by the global economic crisis.
In November, Swick Mining Services, one of Australia’s largest drilling contractors, downgraded its 2009 financial year guidance to revenue of $125-130 million down from $155 million. The revised figure represents growth of 49-55 per cent.
The company said that mine sites still have an on-going requirement for drilling services to support their operations and deliver new reserves for future production.
“With an industry wide focus on cost control and efficiency, Swick Mining Services, with its best practice rigs that deliver increased productivity, and therefore lower total drilling costs per metre, expects to maintain its market position and potentially attract new demand”, the company said in a statement.
Swick’s focus on servicing mid-to-large tier mining houses is offering a strong order book of drilling contracts for the remainder of FY09 and it is actively pursuing additional drilling opportunities with these larger clients at brownfields sites.
Swick has postponed around $33 million in new capital expenditure, which is mainly in the area of new rig builds. However, the company said it will still deliver a minimum of 24 new drill rigs into its fleet during the current financial year, of which 17 are already completed.
Boart Longyear also outlined the action it was taking in anticipation of softening demand in 2009 to adjust its cost base accordingly.
In a December 3rd conference call, company representatives said that forward capital budges for its major mining customers remained uncertain, with many delaying their exploration spending decisions until 2009.
Commenting on the call, Craig Kipp, president and chief operating officer, said, “The financial performance of our Drilling Services business continues to be very solid, even with approximately 15 per cent of our rigs now idle. However, our Products business has recently experienced a decline in order for manufactured products, particularly in our capital equipment product line. This decline in orders is starting to flow through into lower revenues.
“To date, workforce reductions in Drilling Services and Products have resulted in the elimination of over 500 positions. Additional actions are expected to be announced by the end of the year, including further rationalisation of the company’s manufacturing capacity as well as a significant re-alignment of business support and administrative functions.”