Mitchell Services reported a $46.7 million revenue and $5.6 million EBITDA in Q2 FY25, reflecting a strategic transition phase marked by increased mobilisation for new projects in PNG and decarbonisation drilling. Despite short-term softness, the company’s strengthened balance sheet and expanded service offerings position it for growth.
- Q2 FY25 revenue of $46.7 million and EBITDA of $5.6 million
- Mobilisation underway for multi-rig PNG project starting early Q3
- Loop Decarbonisation Solutions to begin drilling in February
- Temporary dip in rig utilisation impacting short-term earnings
- Strong balance sheet with net debt of $6.2 million supports growth
Quarterly Performance Amid Transition
Mitchell Services Limited (ASX: MSV) has released its quarterly investor update for the three months ended 31 December 2024, revealing a revenue tally of $46.7 million and an EBITDA of $5.6 million. These figures, while lower than the corresponding quarter last year, reflect a deliberate transitional phase as the company ramps up mobilisation activities for newly secured contracts.
The company experienced a temporary reduction in rig utilisation during the quarter, with the rig count dropping to 61 in August 2024 before recovering to 66 in November. This dip, coupled with increased mobilisation costs, notably impacted revenue and earnings. However, the rig count is expected to rise further in Q3 as new projects commence.
Strategic Expansion into New Markets and Services
Mitchell Services is actively expanding its footprint, particularly with its entry into the Papua New Guinea (PNG) market. Mobilisation for a multi-rig, multi-year project with a global gold mining major is well underway, with drilling anticipated to start in mid-Q3. This marks a significant offshore opportunity for the company, diversifying its revenue streams beyond the domestic market.
In parallel, the company’s joint venture, Loop Decarbonisation Solutions, is accelerating faster than initially forecast. Following a successful feasibility consultation phase, Loop is set to commence drilling in February, targeting clients needing to reduce fugitive emissions under Australia’s Safeguard Mechanism reforms. Loop’s innovative decarbonisation drilling techniques position Mitchell Services at the forefront of a growing environmental compliance market.
Investment in New Service Offerings and Operational Challenges
Mitchell Services has also broadened its domestic service portfolio by entering the highly technical surface to inseam (SIS) drilling market. While this new offering requires upfront investment and has contributed to the softer earnings in the short term, it is expected to enhance the company’s competitive positioning and long-term profitability.
Operationally, the company continues to face challenges such as the ongoing closure of the Grosvenor mine following an underground fire six months ago, which has affected rig utilisation and revenue generation.
Financial Health and Outlook
Despite the transitional softness, Mitchell Services maintains a robust balance sheet with net debt of $6.2 million and an operating cash flow conversion rate of 86% of EBITDA for the quarter. The company anticipates reporting a modest post-tax loss of approximately $0.5 million for the half-year, reflecting the strategic investments made during this period.
CEO Andrew Elf emphasised the company’s strengthened position and strategic focus on optimising long-term growth through improved profitability, new service offerings, and offshore expansion. The ongoing on-market share buyback further signals confidence in the company’s future prospects.
Looking ahead, the successful mobilisation and commencement of drilling activities in PNG and with Loop Decarbonisation Solutions will be critical milestones to watch, potentially driving a recovery in utilisation rates and earnings in the coming quarters.
Bottom Line?
Mitchell Services’ current transitional phase sets the stage for growth, but execution on new contracts will be key to restoring momentum.
Questions in the middle?
- How quickly will rig utilisation rebound as new projects ramp up in Q3?
- Can Loop Decarbonisation Solutions secure additional clients to scale its drilling operations?
- What impact will the Grosvenor mine closure have on medium-term revenue and rig deployment?