Sovereign’s financial woes worsen

Sovereign Oilfield Group saw its shares dive 50% yesterday after warning investors it was uncertain its future trading performance would be able to support current debt levels.

The Aberdeen-based oilfield service business said the board was reviewing its strategic options, which included a debt-for-equity swap, a capital injection, and disposals of some or all of its operating subsidiaries.

The group added that it was in discussions with its lenders on covenant breaches on its existing facilities.

It said it was also in talks on the continued support required from its lending consortium so that it could still trade, and said that support was continuing to be provided.

Sovereign said it was also continuing an aggressive cost-reduction plan and had closed loss-making subsidiaries RDT Precision Engineers, of East Kilbride and its holding company, Fingolden, with the loss of 25 jobs. It said that, in addition, it had entered into a “heads of agreement” for the disposal of drilling service unit Maxwell Downhole Technology, which is based at Westhill, near Aberdeen, and was in discussions for the disposal of another drilling service business, Serco, in France.

Sovereign added that its fabrication division continued to trade profitably and generate cash.

The company also announced the immediate resignation of Christopher McGeehan as a non-executive director.

Mr McGeehan became interim chief executive after the resignation of chairman and chief executive Graham Burgess, one of the group’s founders, in early December, but new chief executive John Strachan was appointed later that month.

Finance director Julie Cowie resigned at the same time as Mr Burgess.

Sovereign has already sold some subsidiaries and properties in the past 18 months to raise £13million to reduce its debt and in line with its strategy of refocusing as a fabrication business.

Disposals have included Diamant Drilling Services, Vertec Engineering, the offshore-cabin rental business of Labtech, Prodrill Engineering, some of the assets of oilfield fishing and repair subsidiary Sovereign Fishing and Remedial Services and four properties.

Sovereign, which employs about 600 across the group at five trading subsidiaries in Scotland, one in France and two in the Middle East, plunged deeper into financial trouble yesterday as its shares halved in value to a 52-week low of just 3.25p. Shares have been as high as 20p in the past 12 months.

The latest share price puts Sovereign’s market capitalisation at £547,950.

The group revealed in December that it made pre-tax losses of £3.3million in the six months to September 30. This compared with a pre-tax deficit of £1.8million a year earlier.