OREANDA-NEWS. August 25, 2011. Today (25 Aug) Eurasia Drilling Company has reported 1H11 results which exceeded our and consensus estimates. Revenue increased by 46.8% YoY to USD 1,265mn mostly on the back of a 17.7% drilling volume increase, drilling services price growth and rouble appreciation.

1H11 EBITDA margin decreased by 2.8 ppts YoY due to a rapid increase in the costs of subcontractor services (+87% YoY), materials (+51% YoY) and fuel and energy (+48%). On the positive side the company demonstrated good  control over SG&A costs which increased by only 16% YoY.

Net income increased by 43.7% YoY to USD 150.6mn beating our and consensus estimates by 2.7% and 8.3%, respectively. The unexpected growth in net income was thanks to a USD 32.8mn gain on an asset swap with Schlumberger. Another reason for the better-than-expected bottom line results is a slight decrease in profit tax expenses of 1% YoY.

Bottom line

Although the company’s results beat our and consensus estimates on the top line we believe that investors may be disappointed by the deterioration in EDC’s margins. Therefore we believe the results are neutral for EDC’s stocks.