Chairman`s address to shareholders

Transcription

AJ Lucas Group Limited
2007 Annual General Meeting
For personal use only
23 November 2007
Chairman’s Address
Introduction
Ladies and Gentlemen, good morning.
Welcome to AJ Lucas’ 2007 Annual General
Meeting.
The format for this year’s Annual General Meeting is to be slightly different.
The
Chairman’s Address will be followed by a short presentation by Mr Lukas, Director of
Technical and Engineering Services. This in turn will be followed by a short presentation
by Mr Paul Bilston, General Manager of Lucas Energy. Mr Lukas will provide shareholders
with a brief summary of the types of projects and nature of the work in which the Company
is currently involved.
Mr Bilston will provide shareholders with a summary of Lucas’
activities as far as ownership of coal seam gas assets is concerned, which activities have
expanded substantially during the past year.
Lucas has developed considerably during the past two years.
All activities have
developed and matured and we are pleased with progress. Lucas now is:

The leading Australian drilling company and one of the two largest in the coal and
coal seam gas sectors;

One of the three principal cross country pipeline contractors operating in Australia,
and one of two which offer a full EPC service;

A major Sydney building and project management company, completing many
constructions that are simply too difficult for those less skilled;

One of the world’s leading trenchless technology businesses – generating and
availing ourselves of newer trenchless techniques;

Involved as a partner in major civil engineering infrastructure projects, in which all
Lucas skill sets can be employed.
Continued progress during the next two years should well and truly see Lucas achieving its
goal of being one of Australia’s leading engineering services companies supplying
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specialist infrastructure and construction solutions to Australia’s water & waste water, oil &
gas, and resources sectors.
The shape of the business is now materialising and will be rounded out in terms of balance
during the next two years. As predicted at the AGM two years ago, Stage III would take
approximately two years and be completed by end 2007. We are on target. Stage IV has
now commenced and similarly, should take approximately two years to complete.
2007 Result
The current financial year has started very satisfactorily, building on the result achieved in
2007. While the financial performance recorded in 2007 may not be seen as particularly
strong, it conceals the underlying momentum established by the Company. This is now
progressively emerging and will become apparent as the year unfolds.
The operating performance in 2007 was most satisfactory. Margins have improved across
the board, we are using our capital wisely and performance at both project and division
level was excellent. We expect margins to continue to improve in 2008 and 2009 as the
business matures and less expenditure is required in developing and expanding the
Company.
Profit at Group level in 2007 was affected by substantial legal expenditure incurred in the
proceedings initiated against McConnell Dowell, resulting from the Minerva project in
2003. The case has now been heard and we are expecting a judgement before the end of
the year.
Strategic Direction
There is no question that the strategy adopted by the Company has proved to be correct.
The projects have been somewhat slower in coming to the market place than Lucas
originally anticipated, (we originally expected that the projects should have commenced
coming to the market 5-7 years ago), nevertheless, they are now occurring and generating
significant activity across all sectors in which Lucas is involved.
This is expected to
continue well into the foreseeable future.
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The challenge for the Company is to ensure that we provide a comprehensive, first class,
service to our clients, and that we have the resources to continue to do so.
Keeping up with these challenges is, and will continue to, produce very considerable
strains on the Company. We have a good senior management team in place to cope with
this and I expect that this will be strengthened during 2008; as the Company’s activities
spread geographically and the scope of the services offered broadens. For instance, two
years ago Lucas’ offices comprised a head office in Sydney and a small office in
Moranbah. Today, the Company operates out of major offices in each of Melbourne,
Sydney and Brisbane and five other offices up and down the eastern seaboard. During
2008 we expect to expand the Brisbane office substantially and open an office in Perth. In
December 2007, the drilling division will be relocated to new premises that the Company
recently acquired in Wyong in the lower Hunter Valley.
The Company will shortly complete a review of our operations, structure and systems as a
prelude to further planned growth.
This also involves an expansion of the range of
services offered. This will largely be by way of organic growth, although we do not rule out
further acquisitions. We are particularly interested in growing our activities in trenchless
technology, coal seam gas services and the services business generally. We have now
commenced the next stage (Stage IV) of Lucas’ growth.
In addition, the Company continues to work on and develop its strategy with respect to
water and waste water. In this connection, we are more advanced than may appear and
expect to announce a number of significant developments during calendar 2008.
Human Resources
Without question, the biggest issue facing the Company is the attraction and retention of
skilled, quality people at all levels within the organisation.
Lucas is working very hard at present on this aspect of our business. While it is true that
we are considered a good employer, we must do better during these challenging times.
Challenging, because we are in the middle of the biggest infrastructure and resources
boom Australia has ever seen. We do not consider this will abate within the immediate to
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short term and it is quite clear that there are insufficient resources within Australia to deal
with this. We must grow our own.
We have initiated a number of developments in this area in recent times.

A comprehensive Employee Incentive Scheme has been introduced incorporating
short term and long term incentives as a means, not only to reward staff, but to
provide appropriate incentives over a five year period. The executive directors have
been included in this scheme and are the subject of three resolutions to be
considered later today.

A training and personnel development programme across the Company. We are
paying particular attention to the drilling operations to ensure that Lucas people are
the best trained in the industry.

A renewed and much up-scaled emphasis on safety throughout the Company,
reporting directly to the Board of Directors.
The issue of safety cannot be
underestimated and it is the intention of Lucas to continue the best safety and
industrial relations record in the industry.

A tailored programme to deal with the continuing education and management
training of our senior middle managers, having regard to succession planning within
the next five years.
Prospects
Lucas’ outlook is good. The current order backlog amounts to $356 million and we now
project this year’s revenue at around $370 million, an increase of 70% to that achieved last
financial year.
We re-capitalised the Company in June 2007 through a new issue of
convertible notes so the Company now has the resources and liquidity to maintain its
growth. Indeed, we are budgeting to spend up to $20 million on coal seam gas exploration
this year; funded entirely out of cash flow. Although we have significant un-drawn funding
facilities, we may consider a capital raising depending on the amount of investment
required in this area.
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My comments above regarding the monies we are spending this year on coal seam gas,
most particularly at Gloucester Basin, is indicative of the high priority we now place on this
area. Part of the Group’s recapitalisation undertaken in June 2007 was made to provide
additional capital for this project. We hope to be in a position to announce our first formal
estimate of proven reserves early in the next calendar year.
We intend to focus on the corporate finance aspects of the Company as a listed entity,
commencing 2008. This aspect, while not necessarily having been neglected in the past,
certainly has been de-emphasised. The Company is now strong enough for it to stand up
and be counted and we have a programme to initiate broker analyst coverage and
increase investor awareness – Lucas is now becoming an interesting investment
proposition.
Lucas’ strategy of utilising the inbuilt in-house intellectual horse power which exists as a
matter of course for our day to day business, together with the high cash flow generated,
to invest in and/or create entrepreneurial situations in which we have a detailed
understanding still remains.
significant capital assets.
Employing this strategy we can potentially produce very
During the next two years, we will be investing in water
opportunities, infrastructure opportunities and other one-off situations where we can spot
an opportunity and add value.
The Group’s financial performance for the first quarter is currently very much as expected.
Capricorn Weston has been successfully integrated and we are working on a large number
of infrastructure and drilling prospects.
The ongoing level of revenue during the next three years will however be very much
dependent upon the Company’s ability to continue to participate in the major infrastructure
(particularly water infrastructure) projects being generated at government, local
government as well as the private level as well as the Company’s ability to grow its
services as referred to above.
Operating margins are expected to improve due to a
number of reasons: we are managing the projects better; more equitable contractual
conditions exist (particularly with HDD and SIS); we are managing plant and equipment
better and a lot of the legacies of the past have now been dealt with.
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It remains Lucas’ strategy to position the Company within high growth sectors offering
specialised, focused services which require a high degree of skill, technical knowledge,
technology and engineering expertise to generate an integrated, maintainable revenue
stream which is balanced across the Group’s activities and which generates high margins
and substantial cash flow.
In closing, I would like to again thank all of our employees for their dedicated and loyal
service. We have asked a lot; indeed, are asking too much of the staff at the moment and
they have responded magnificently. Many labour in difficult and demanding conditions yet
with never a complaint – a tribute to the culture of the Company. This is why we wish to
reward them with the various incentives now offered. I am grateful to all of them as well as
my fellow Board members for their sage advice and support.
Allan S Campbell
Chairman
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AJ LUCAS GROUP LIMITED
Annual General Meeting
23 November 2007
Summary 2007 financials
2006
2007
Growth
$171.2m
$216.4m
26%
EBITDA
$8.4m
$14.9m
77%
EBIT
$3.1m
$5.9m
91%
NPAT
$3.0m
$6.4m
111%
5.9¢
11.9¢
102%
Turnover
EPS
Expansion of Services Offered
•
DRILLING – underground, vertical, SIS, well head
completions 52 rigs → 58 rigs
→ workovers, well head servicing
•
TRENCHLESS TECHNOLOGY – horizontal directional drilling (HDD),
→ Direct Pipe®, Micro Tunnelling
•
PIPELINES – cross country, urban, water/waste water, oil and gas
•
GAS ENGINEERING & CONSTRUCTION – gas gathering systems,
compressor stations and gas facilities
•
CONSTRUCTION – building, construction and civil, project management
•
INFRASTRUCTURE – major civil engineering projects
•
SERVICES – → facilities management, operation and maintenance
Lucas Development – Stage IV
• Consolidate, regroup, and move forward
• Round out services offered – well balanced business
• Investigate overseas opportunities – Middle East? China?
• Strengthen management, structure and systems
• Develop and expand entrepreneurial investments
Major Priorities 2008 / 2009
• Upgrade OH&S systems. Safety: major priority
• Major focus on staff development and training – home grown
resources
• Complete Stage IV Strategy
• Crystallise gas investments and commence/develop water
business
• Plan Stage V Strategy, including succession planning
Key Sectors
•
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Water and Wastewater
Oil and Gas
Resources
Property
Investment Classes
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Coal Seam Gas
Water and Wastewater
Infrastructure Assets
Other - Property
AJ LUCAS GROUP LIMITED
Annual General Meeting
23 November 2007
MAJOR PROJECTS
• Pipelines
• Drilling
• Building
PIPELINE PROJECTS
• Western Corridor – Brisbane
• Bonaparte – Northern Territory
• Brooklyn Lara – Melbourne
• Goro Nickel – New Caledonia
Western Corridor Water – QLD
Co-ordinator General
BRISBANE
Bonaparte Pipelines – NT
APA Holdings
DARWIN
BAM BAM SPRINGS
WADEYE
Brooklyn Lara Pipeline – VIC
APA Holdings
MELBOURNE
GEELONG
Goro Nickel Water Pipeline – New Caledonia
GORO
DRILLING PROJECTS
• Exploration
• Coal Seam Gas and Coal Mine Methane
• Horizontal Directional Drilling
NSW – CLIENTS & No. of RIGS
EASTERN STAR
GAS
BHP
RIO TINTO
BHP
Gunnedah Basin
5 rigs
AGL/SGL
Caroona
2 rigs
LUCAS
ENERGY
7 rigs
Gloucester Basin
GLOUCESTER COAL
Hunter Valley
Mt Thorely
Glennies Creek
Bengalla
Mandalong
15.5 rigs
DONALDSON COAL
Tahmoor
Springvale
1 rigs
XSTRATA
TOTAL RIGS - 32
Camden
21.5 rigs
Illawarra
7 rigs
UNDERGROUND
AGL/SGL
BHP
Vertical Drilling
Coal Seam Gas or SIS
Underground
QLD – CLIENTS & No. of RIGS
ANGO
COAL
Vertical Drilling
ARROW
ENERGY
4 rigs
Coal Seam Gas or SIS
1 rig
AMCI –
American Metals and
Coal International
Underground
HDD
BMA – Billiton
Mitsibishi Alliance
7 rigs
XSTRATA
1 rig
Moranbah Gas
Moranbah North
Carborough Downs
Peak Downs
Oaky Creek
Goonyella Riverside
Norwich Park
7 rigs
TOTAL RIGS - 18
1 rig
Kestral
Blackwater
ANGO
COAL
1 rig
Callide
BMA – Billiton Mitsibishi
Alliance
RIO TINTO
Dawson
4 rigs
Brisbane
WESTERN
CORRIDOR
2 rigs
Coal Seam Gas and Coal Mine Methane
• Arrow Energy
• AGL/SGL
• Lucas Energy
• Eastern Star
Horizontal Directional Drilling Projects
Cascades
Hunter Water
Building Projects
Hyundai
Headquarters
Kent Street
Ivy
Alliance
Building Projects
Hyundai
Headquarters
Kent Street
Ivy
Slipways
Lucas Energy
Paul Bilston – General Manager
23 November 2007
Lucas Energy - Overview
• 100% owned by Lucas Group
• Established to identify, develop and commercialise CBM &
other unconventional gas assets.
• New management team established in Melbourne Feb 2007.
• Separate advisory board
–
–
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Garry O’Meally (Chairman)
Paul Bilston (GM)
Allan Campbell
Andy Lucas
John Bidwell
• Intention to spin off and separately capitalise within the next
12 months.
Lucas Energy – Overview (2)
Three initial investments.
• PEL 285 – Gloucester Basin
– Key focus for Lucas Energy
– 1,050 km2 including approx 200 km2of coal measures
– Lucas operator & 70% owner (30% Molopo)
• ATP 651 – Woleebee Creek
– 375 km2 in the Walloons Fairway
– Lucas 15% owner, (QGC 85% & Operator)
• Arawn Energy (BC) Limited
– 55% of Canadian Investment Vehicle
– Jointly owned with Chris Cornelius & Mark Bustin (45%)
– Arawn earning 43,390 Acres in Grizzly & Red Deer prospects in Eastern
British Columbia (near Fort St John).
Gloucester Basin - Overview
•
Acquired in 2002 - Pacific Power.
– Rural location 100 km north of
Newcastle (NSW)
•
Coal properties
200 km2 Coal bearing sequence.
11 major seams >2.5 m thick.
Average total thickness 30–40 m.
Gas Contents 12 – 20 m3/t (daf).
Permeability 300mD – 1mD in the
depth window 100 – 500 m.
– Steeply dipping
–
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–
–
Gloucester Basin – Exploration
•
History prior to 2007
–
–
–
–
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More than 2400 coal core holes.
380 km of minisosie seismic.
9 Pacific Power bore holes.
2 LMG core holes.
1 production well (LMG03).
Trial SIS well ( not completed).
2007 to date
– Community consultation.
– Collating and interpreting existing
data set, including existing log
and seismic data.
– Approval for 13 exploration
holes.
– Drilled 3 new core holes.
– Drilled 1 new stratigraphic hole.
Gloucester Basin – Exploration (2)
•
2007 Key Drilling Results
– Confirmed presence of CH4 in
approximately 10.8 metres of
Wiesmantel area (different coal
measures to Stratford area).
– Confirmed gas content trends
across the basin are consistent
with Stratford area.
– Extended the understanding of
the basin structure and coal
distribution significantly.
– 2 further core holes planned for
2007, and 5-6 stratigraphic
holes for early 2008.
Coal from Wiesmantel Seam
Gloucester Basin – Production Testing
•
Stratford Pilot (under construction)
– REF approved by DPI (Aug 07).
– Located at Stratford on land.
purchased by the JV (Aug 07)
– 5 new vertical fracced wells
– 1 existing well (LMG03).
– Gas & water gathering system.
– Enclosed flare system.
– Produced water used for irrigation.
– Online Dec/Jan.
•
LMG03 (existing well)
– W/O & returned to test 28 Aug
– Gently ramping up production,
currently approx 300 mcfd & 400500 bbl/day.
•
Weismantel Pilot - Planned Feb 08
Gloucester Basin – Commercialisation
•
Reserves certification
– NSAI engaged with first report
expected by end 2007, subject to
further review as pilot production
and other results are incorporated
in 2008.
•
Pipeline to Hexham
– Route selection & refinement
underway
– Consultants for approvals engaged.
•
Gas sales agreement
– Reviewing potential for small scale
Power generation at Stratford.
– In discussion with a number of
potential offtakers.
– Ramping up focus in 2008.
•
Target first gas to Hexham 2010.
ATP 651 - Overview
•
Lucas Energy 15% (QGC 85% &
Operator)
– Approximately 375 km2 located
in the Walloons fairway .
– Previously drilled 5 wells in the
permit with encouraging results.
– JV approval for $14.0m
expenditure in 2006/07.
– Subject to ongoing success, JV
plans include drilling 2 x 5 well
pilots and 2 core holes across the
permit.
– Drilling due to commence in early
2008.
Source : QGC
Arawn Energy - Overview
•
Arawn Energy (BC) Limited
–
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Rational
–
•
Lucas - 55%.
Chris Cornelius & Marc Bustin who
are both highly regarded as experts in
CBM & unconventional gas - 45%
Investment vehicle for Lucas in Nth
America, and access to Chris & Marc
for technical support.
Foundation Investment
–
–
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Farmout from Encana & Burlington
resources.
Arawn earning 43,390 Acres in
Grizzly & Red Deer prospects in
Eastern British Columbia (near Fort St
John), for 2 coreholes*.
Coal thickness in the range 15 –
35m. Gas Content is in the range 7 12 m3/ton
Drilling farmin wells Feb/Mar 2008.
* Subject to ongoing obligations to develop if successful
Lucas Energy
Paul Bilston – General Manager
23 November 2007