Company Report: Sovereign Oilfield Group Plc
Sovereign Oilfield Group Plc Sovereign is a newish player in the field of oil and gas exploration and exploitation, however it has already secured itself a firm and sustainable position as a supplier of engineering services to contractors in the UK and internationally

Sovereign was established on October 29 2003 by Graham Burgess and Dr Peter Felter, both of them highly experienced oil industry executives. Felter, a lawyer by profession, had headed up the Energy Group at the international law firm Clyde & Co and had been Chairman of Cliveden Petroleum Co. Ltd and MOS International Plc, the rig equipment group. Graham Burgess was also on the board of MOS as its CEO just before founding Sovereign - he is something of a serial entrepreneur in the industry, having founded Star energy Ltd in 1998. The two founders held between them 90 percent of the shares.

Sovereign was set up specifically to develop an oilfield service company focused on providing an integrated fabrication service and integrated drilling and engineering services to oil and gas companies and to make use of innovative and high tech methods for enhancing oil and gas drilling and production, says graham Burgess. " We made our first acquisition, Prodrill, in May 2004; then we bought Diamant Drilling Services in October 2004 and Caledonian Petroleum Services in April 2005."

The pre-flotation acquisitions
Aberdeen-based Prodrill Engineering Ltd focuses on the provision of engineering personnel to the international oil and gas industries, and has annual sales in the region of £12 million. It has contracts with many of the leading companies within the industry, including in its client base customers such as BP, ExxonMobil, Total, Talisman and Centrica. Having been established over 20 years ago, it has a solid reputation throughout the world and has at its disposal more than 3,500 high calibre professionals from whom it supplies both permanent managers and interim consultants. In June 2004 it was amalgamated with another personnel company acquired by Sovereign called North Star.

Prodrill services the direct drilling side of the industry, and the second acquisition DDS is also on this side of the industry. This company's main manufacturing plant and its research and development team is based in Fleurus, Belgium, and it has additional manufacturing facilities in Reghaia, Algeria operated as a joint venture company with a local partner Sonatrach. It was founded in 2000 at Fleurus in Belgium by Dr. Robert Delwiche, a pioneer in the design of fixed cutter drill bit technology and other former employees of Diamant Boart, a Halliburton company.

It certainly fits the technology aspirations of Sovereign. "DDS manufactures diamond fixed cutter drill bits, explains Burgess. "These have no moving parts: the cutters are made of polycrystalline diamond compact, which means that industrial diamonds are put into a mould and exposed to very high temperatures and pressure. This makes them crystallise together as a single diamond in the shape you want." The company employs 38 people at Fleurus and a further 27 contracted sales personnel in 21 countries in Europe, South America, Asia Pacific, Middle East, North Africa and North America.
DDS supplies fixed cutter drill bits to oil operators around the world such as Total, Agip, Apache, ADCO, ADMO BP, BHP Billiton, British Gas, ConocoPhillips, Dolphin, Saudi Aramco, Shell, Sonatrach, Statoil, Talisman and Total. In addition to manufacturing drill bits, the DDS research and development team has designed and built an instrumented tool which is designed to fit behind the drill bit during the drilling process and record precisely what happens during the drilling process.
The drilling process is the key cost parameter influencing the cost of an oil well, and Sovereign believes this tool will be the basis of a step change in the efficiency of the drilling process. DDS has undertaken drilling tests with prototype tools in conjunction with Total, and these test runs are successfully demonstrating that the data that can be gathered and interpreted provide opportunities for improving the drilling process. Many of DDS's clients have achieved record drill runs using the company's bits. Its turnover is between £6.5 and £7 million annually.
The group's first fabrication company CPS is an engineering and fabrication business based in Aberdeen and employing 120 full-time staff. The business was established in 1989, the core business being the construction of well service equipment and other small scale fabrication. In December 2003 it undertook a restructuring of the business that facilitated an increase in manufacturing capacity enabling it to provide offshore engineering activities and the provision of project management services to its customers in the oil and gas industry. Its core businesses are offshore unit and module manufacture, drilling rig repair maintenance and modification and offsite fabrication engineering services for a large customer base, including Apache, Petrofac, Subsea 7, Technip, GlobalSantaFe, Transocean, Weatherford, Wood Group, KBR, and Saipem.
Going public
The group floated on AIM in September 2005 with the assistance of Baker Tilly's Corporate Finance team and Orchard Solicitors, raising £14 million. At the time Graham Burgess said "Since founding the group in 2003, we have worked hard to create a group that is world renowned within the oil and gas industry. In addition to raising capital for further growth, the float will also increase awareness of us both in the UK and internationally."
Just a month after it had floated Sovereign made another overseas acquisition, this time in France. Serco SA is an oilfield directional drilling and fishing business based in Pau, which had existing contracts with Perenco SA, Gaz De France, Repsol and a series of smaller customers. Serco has a fully equipped API approved machine shop in Pau where it can manufacture and service down-hole drilling and fishing tools for the oilfields in the area and for its international customers. I am afraid I fell into the solecism of asking Graham Burgess whether fishing was not something of a non-core activity for his group. He explained what should have been obvious. In the oil and gas industry the hardware that is put down the drill holes often gets mislaid especially when a drill breaks. Fishing is the activity of getting it back out again, and a very specialised job it is too. Following the acquisition Sovereign undertook a review and reorganisation of Serco with a view to expanding its capabilities both in the down-hole tools market and in the provision of oilfield fishing services.
Thus far the only fabrication business in the group was CPS; however fabrication had always been the second leg in the strategy. Earlier in 2005, negotiations had been entered into to buy OIL Engineering, probably the oldest established fabrication company in the oil sector in Aberdeen, but these were not successful. However agreement was reached the second time around and OIL became part of the group on 15 February 2006. The company provides a full range of structural and pipework services including topsides structures and process pipework; subsea structures, spools and pipework; onshore petrochemical plant; and quayside mobilisation and seafastening services. Its turnover in 2005 was £12.5 million and since then ahs continued to win significant contracts for the fabrication of subsea manifolds for North Sea field developments and is a key supplier of subsea manifolds for the North Sea. It also has extended call-off contracts with Sigma 3, BP, CNR and AMEC.
The post-flotation round of acquisitions was rounded off with the purchase at the end of March 2006 of another drilling services company, again based in Aberdeen, Called MaxWell Downhole Technology Ltd. "MaxWell is an interesting company," says Burgess. "It makes MWD (monitoring while drilling) tools - these measure the angle and direction of the well that is being drilled so that the direction can be controlled by the drillers to make sure the reservoir is encountered at the right place. MWD tools were first put on the market in the late 1980s but MaxWell's designs have brought the technology forwards and have them more reliable and easier to run" Once again, the company was carefully selected to fit the growing portfolio of companies that give Sovereign an edge when it comes to offering its customers a wide range of the technologies they rely on to stay competitive. The design team at MaxWell offer over 50 years of combined experience in the field of downhole technology covering electronic, mechanical, computer and software engineering, however it is one of the smallest entities in the group with a turnover of less than £1 million.
Fabrication capacity
After MaxWell was acquired the group spent three months reorganising its banking arrangements, says Burgess, which time it negotiated a $50 million credit facility with the investment bank Merrill Lynch and to start negotiating for the purchase of Forfab, another fabrication company strategically based in Dunfermline. This is a more specialized business, engaged in the mechanical design and manufacture of bespoke pressure vessels, storage vessels, silos, site erected storage tanks, heat exchangers, condensers, evaporators, columns, pre-assembled units, Atex approved modular skid packages, structures, pipework systems, installations/spooling/repairs and site services.
Forfab Dunfermline, is the main facility employing approximately 110 full time multi-skilled staff incorporating a wide range of disciplines, with six manufacturing workshops, while the smaller Aberdeen site employs approximately 20 full time multi-skilled staff, at two manufacturing workshops,
The Forfab acquisition was completed in January 2007 for £4,850,000. "It gives Sovereign critical mass in both the North Sea and international fabrication markets and illustrates our continuing ability to identify earnings enhancing deals that both complement and expand the Group's range of services," says Graham Burgess. In the year ended 31 October 2005, Forfab had an audited turnover of £11.56 million, achieving a profit before taxation of £392,527: for the twelve months ended 31 October 2006, Forfab had unaudited turnover of £15.34 million and profit before taxation of £1.24 million.

A busy year to date
The story of Sovereign's intense, even aggressive programme of acquisition has actually hotted up as 2007 has progressed. The Forfab deal was followed on March 2 by the purchase of RDT Precision Engineers Ltd for £2.4 million, the same amount as its 2005 turnover, though that figure had increase by 30 percent in the eleven moths to November 2006. RDT, based in East Kilbride specialises in the supply of well heads for the oil industry. Founded in 1974 it primarily undertakes contract engineering work for FMC Energy Systems and Vetco International Limited. "That company makes BOPs , or blowout preventers, for the industry," explains Burgess adding that these are large valves that encase the oilwell at the surface within what used to be called the

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