A typical drilling contract specifies the depth of drilling required, the duration of the project and the scope and conditions of work. Customers are typically charged on a rate per-metre drilled basis. Profitability is therefore a function not only of price, but also productivity, which is driven by the drilling method, technology, efficiency of the equipment and skill and experience of the drill operators.
Management estimates that the Company enters into approximately 6,500 contracts per year, with no contract expected to represent more than 3% of FY2007 Drilling Services division pro forma revenue. The majority of the contracts undertaken by the Drilling Services division are short term in duration, which is in line with industry standards.
In the Minerals Industry some mining exploration stage contracts are as short as three months, but mining production stage contracts are generally longer and typically last up to 12 months. Approximately 75% of FY2007 Drilling Services pro forma revenue is either under framework agreements or considered by Management to be highly probable, giving the Company high earnings visibility at the beginning of each year.
Despite their relatively short duration, Minerals Industry drilling services contracts are generally reviewed annually following a negotiation or re-bid. In the case of exploration stage contracts, such work is often renewed or extended to the completion of the project following a successful strike or discovery.
In such cases, and particularly on the more remote contracts, mining companies will often prefer to leave the incumbent drilling services contractor on site to continue drilling so that the project continues with minimal disruption and the mobilisation and demobilisation costs are kept to a minimum.
In the Environmental & Infrastructure Industry, drilling services contracts are shorter in duration, generally lasting between a day and four months. An environmental drilling services contract does not generally extend beyond four months.
In the Energy Industry, the scope of work tends to be larger and contract duration is typically three to six months but can extend up to 12 months. Boart Longyear has a strong track record of contract renewal underpinned by the Company’s:
- integration of its drill operators with the
operations of the mining company; - increasing access to the exploration and
production planning schedules of the Majors; - leading safety performance and resource
availability; and - focus on a diversified blue-chip client base.
Tenders for contracts are managed at Boart Longyear’s regional offices. Only certain managers are pre-approved to submit bids for contracts. Additionally, the contract managers have a predefined bid limit, above which they must seek general management approval and written sign-off.
