McAleese targets oil and gas fleet age reduction

First half results sees newly listed firm in the red as Cootes crash hits bottom line

McAleese targets oil and gas fleet age reduction
McAleese aims to grow in the medium term

McAleese Interim Executive Chairman Mark Rowsthorn has pledged to have a very youthful fleet in the oil and gas arm that includes the troubled Cootes Transport business.

The promise comes as McAleese Group’s bruising past few months since its stock market float were reflected in its first-half results, with a net loss after tax of $37.9 million on revenues of $389.6 million.

But while financial headlines have focused on the Cootes Transport disaster repercussions − without the costs of which, the group reports, the loss would have been $300,000 – high costs, market downturns and bad weather have challenged McAleese’s other divisions.

The McAleese Resources arm experienced higher start-up costs linked to an accelerated Atlas Iron production ramp up at Abydos and weather events including Cyclone Christine. Bad weather in Kalgoorlie and Port Hedland last month led to a loss of 27 per cent of all shifts for the month.

The Abydos costs are in the order of $3-$4 million and the weather at $5 million, of which $1 million came in the first half.

The McAleese Specialised Transport & Lifting arm saw softer volumes in project heavy haulage but gained from increased demand due to Queensland LNG projects. The second-half outlook is coloured by reduced demand from project and maintenance work.

The company marks the loss of contracts in the McAleese Oil & Gas arm as a $33.3 million impairment. It put costs associated with the Mona Vale accident at $11.3 million, noting that: "Most of the impairment charges and some of the Mona Vale costs are non-deductible for tax purposes."

Recorded also is a write-down of Cootes goodwill of $23 million.

Cootes restructure costs, such as redundancies and $1.1 million in onerous leases – the provisioning for a leasing arrangement that may not be taken up and which may incur a cost as a result – will be reported in the second-half and full year results.

Rowsthorn reiterated that the level scrutiny on Cootes was greater than he had seen in his 40 years in the transport industry but was "wholly understandable, given the circumstances".

MD and CEO Paul Garaty will be in charge of the restructure of Cootes which should be completed by March 31 and which is likely to involve the downsizing and rebranding of the fleet as it exits its Shell, BP NSW and 7-Eleven duties in NSW and Queensland as quickly as possible.

The group expects the restructure will reduce capital expenditure by $12.6 million for the financial year before any proceeds from the sale of surplus equipment, while Cootes-related depreciation will fall by about $6 million a year.

The restructure is subject to the retention of the Caltex contract due to expire in March next year and the Origin LPG contract currently under tender.

"In terms of the revised fleet going forward, we’ll have a very viable business still in oil and gas but predominantly gas, with Caltex . . . the average age of the fleet will drop to 4.5 years," Rowsthorn says.

"The fuel tankers will average 3.8 years, which really would be one of the youngest, if not the youngest oil and gas fleets in the country."

The process will likely see a reduction in the average age of its 217 LPG tankers, at 22.2 years, that will see a complete overhaul and testing every five years "in accordance with regulatory requirements", the company says.

Despite its troubles, Rowsthorn says the group will stick with its strategy to" build a significant transport business" and to "continue to diversify across a range of activities, geographies and industries" in the medium term, including acquisitions.

The group says there is "a range of opportunities in an industry that is highly fragmented and dominated by two major players".

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