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“The reasons for this variable performance can be broadly summarised as a lack of confidence in the marketplace, the impact of an attempted group restructuring during the middle of the year which produced totally unsatisfactory results, margin erosion, delayed commencement of projects and some bad luck,” AJ Lucas chairman Allan Campbell said at the company’s AGM.

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“Fortunately, the majority of these events can be viewed as one-off and largely behind us.”

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Campbell said while the acquisition of Mitchell Drilling was sound, the cultural fit had been a challenge.

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The integration difficulties had manifested themselves in safety, occupational health, safety and environment, and plant maintenance.

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“The company is very busy at the moment but the requirements of the marketplace and lack of sustained business confidence is making it difficult to consistently achieve expected margins,” he said.

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“Deferment of projects and stop-start drilling operations does not allow us to defer the fixed operational costs of personnel and equipment and this is impacting margins substantially.

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“In addition, considerable expense is being incurred in responding to market enquiries for projects which may or may not take place and, if they do, are not likely to take place until the next or succeeding financial years.”

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Despite the trouble, Campbell said a return in business confidence, a more regular and sustainable order book, and better plant utilisation would see drilling services return the profit expected when AJ Lucas first bought the business.

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He said on account of the delays and performance below expectations for the first four months of the year, the 2010 financial year was likely to be played out in two halves.

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“This time a very poor half but followed by a much improved second half as work commences in earnest at Gorgon.”