Archer 2024 Annual Report14
Business and Financial Review
Financial Statements
Argentina has recently taken significant steps to support the
development of its oil and gas resources, focusing primarily
on the massive Vaca Muerta shale formation. Recent initiatives
include investments in pipeline expansion, legislative reforms
and sanctioning of LNG export infrastructure projects. These
measures aim to transform Argentina into a significant player
in the global energy market while bolstering domestic ener-
gy security. Should the government be unsuccessful in the
implementation of these measures, either through financing
constraints, policy reversal or delays in the approval processes,
there would be lower demand for Archer’s services in Argenti-
na, which could have an adverse effect on both activity levels
and profitability in the Group’s Argentinian operation.
Risks related to cessation or change of the Group’s opera-
tions in Argentina
The Group’s land drilling division provides drilling and work
over services to operators in Argentina, and these operations
account for approximately 25-30% of the Group’s total reve-
nues. A significant portion of the Group’s operational activity
in Argentina is conducted under a key contract with a signifi-
cant operator in the region. The continuation of this contract
is important for the Group’s ongoing operations and revenue
generation in Argentina. Although the Group actively seeks to
maintain strong partnerships, there is a possibility that oper-
ators may choose to terminate agreements or decide not to
renew them, which, in turn, could result in the Group need-
ing to halt or significantly alter its operations in Argentina.
For instance, one of the Group’s clients in Argentina recent-
ly cancelled contract for three (3) work over units during Q1
2025, leading to reduced activity and down manning of 90
employees. The total termination costs amounted to approx-
imately USD 4 million which, in this case, were agreed to be
reimbursed by the client. However, no assurance can be made
that such costs will be rechargeable to the Group’s customers
in the future.
A prolonged gap in operations could require adjustments to
the scale of its activities in the region. If a suitable replacement
contract or partnership cannot be secured within a reasonable
time frame, the Group may be forced to reduce or cease its ac-
tivities in Argentina entirely. This could result in idle drilling rigs
and equipment, which would have a direct negative impact on
the Group’s revenue. A complete cessation of operations could
also require the Group to shut down its local operations, includ-
ing administrative functions and the supply chain related to its
Argentine land drilling services. This would, in turn, lead to the
potential need for a large-scale reduction in workforce, as the
Group would no longer require local personnel for the contin-
uation of drilling activities. Argentina has strict labour laws, and
the Group would face substantial severance costs and other
liabilities associated with workforce reduction. These statuto-
ry obligations could include severance pay, compensation for
accrued benefits, and other legal entitlements, which would
significantly strain the Group’s financial resources.
The risk of an operational shut down or significant scaling
back of activities in Argentina could result in substantial finan-
cial losses, both from lost revenue and the costs associated
with employee termination. These costs, combined with the
potential disruption to the Group’s operations, could materially
affect its profitability, cash flow, and overall financial position.
The Group may pursue acquisitions that prove unsuccessful
or divert its resources
Acquisitions have historically been, and may continue to be,
important for the growth of the Group’s business, and the
Group may consider making strategic merger and acquisitions
to support further growth and profitability. In 2023, the Group
completed the acquisition of Romar-Abrado and the acquisi-
tion of Baker Hughes’ coiled tubing business in the UK, both
of which are included in the well services reporting segment.
During 2024, the Company acquired 65% of the shares in Ver-
tical Services AS, 100% of the shares in Moreld Ocean Wind,
100% of the shares in ADA Argentina, and an additional 10% of
the shares in Iceland Drilling. Furthermore, in November 2024,
the Company completed the acquisition of Wellbore Fishing &
Rental Tools, LLC (acquired companies), as announced on 18
November 2024. There is a risk that the Group will not be able
to successfully integrate WFR into the Group, or that any of the
other risks set out in the below paragraphs may materialize
with respect to the acquisition of acquired businesses.
Successful growth through acquisitions is dependent upon
the Company’s ability to identify suitable acquisition targets,
conduct appropriate due diligence, negotiate transactions on
favourable terms and ultimately complete such acquisitions
and integrate acquired entities, including retaining key per-
sonnel. There can be no assurance that acquisition opportu-
nities will be available on acceptable terms or at all, or that the
Group will be able to obtain necessary financing or regulatory
approvals to complete potential acquisitions. Its assessment of
and assumptions regarding acquisition targets may prove to
be incorrect, and actual developments may differ significantly
from expectations. The Group may not be able to integrate
acquisitions successfully, synergies may not be realized, and
integration may require greater investment and time than
anticipated. Additionally, any acquisitions completed by the
Group may result in unintended consequences, for example,
if significant liabilities are not identified during due diligence or
come to light after the expiration of any applicable warranty or
indemnity periods.
Additionally, the process of integrating the business of the tar-
gets may be disruptive to the Group’s operations, as a result of,
among other things, unforeseen legal, regulatory, contractual
and other issues, including or following disputes with minority
shareholders, and difficulties in realizing operating synergies,
which could adversely affect its results of operations. Moreo-
ver, successful integration of the targets may place a signif-
icant burden on management and other internal resources.
The diversion of management’s attention, and any difficulties
encountered in the transition and integration process, could
harm the Group’s business, financial condition and results of
operations.
A small number of customers account for a significant
portion of the Group’s total operating revenues
The Group derives a significant amount of its total operating
revenues from a few energy companies. In the year ended 31
December 2024, Equinor and Pan American Energy account-
ed for approximately 39.1% and 19.1% of the Group’s total oper-
ating revenues, respectively. During the year ended 31 Decem-
ber 2023, contracts from Equinor and Pan American Energy
accounted for 45.3% and 18.0% of the Group’s total operating
revenues, respectively. Consequently, the Group’s financial
condition and results of operations will be materially adversely
affected if these customers interrupt or curtail their activities,
terminate their contracts with the Group, fail to renew their ex-
isting contracts or make timely payments under existing con-
tract, or refuse to award new contracts to the Group, and the
Group is unable to enter into contracts with new customers at
comparable day rates. As such, the loss of any significant cus-
tomer could adversely affect the Group’s financial condition
and results of operations.
