Canadian Energy Services & Technology Corp. ("CES" or the "Company") (TSX:CEU)
is pleased to report on its financial and operating results for the three and
nine months ended September 30, 2011. CES also announced today that it will pay
a cash dividend of $0.045 per common share on December 15, 2011 to the
shareholders of record at the close of business on November 30, 2011,
representing an increased dividend of $0.005 per common share or 12.5% to the
monthly dividend.
CES generated gross revenue of $122.0 million during the third quarter of 2011,
compared to $78.4 million for the three months ended September 30, 2010, an
increase of $43.6 million or 56% on a year-over-year basis. For the three month
period ended September 30, 2011, CES recorded gross margin of $30.5 million or
25% of revenue, compared to gross margin of $21.7 million or 28% of revenue
generated in the same period last year.
Net earnings before interest, taxes, amortization, loss on disposal of assets,
goodwill impairment, unrealized foreign exchange gains and losses, unrealized
derivative gains and losses, and stock-based compensation ("EBITDAC") for the
three months ended September 30, 2011, was $18.6 million as compared to $13.5
million for the three months ended September 30, 2010, representing an increase
of $5.1 million or 38%. CES recorded EBITDAC per share of $0.34 ($0.33 diluted)
for the three months ended September 30, 2011 versus EBITDAC per share of $0.29
($0.26 diluted) in 2010.
CES recorded a net income of $9.5 million for the three month period ended
September 30, 2011, as compared to $7.2 million in the prior year. CES recorded
net income per share of $0.17 ($0.17 diluted) for the three months ended
September 30, 2011 versus $0.15 ($0.14 diluted) in 2010.
Revenue from drilling fluids related sales of products and services in Western
Canada was $50.2 million for the three months ended September 30, 2011, compared
to $27.6 million for the three months ended September 30, 2010, representing an
increase of $22.6 million or 82%. Daily average revenue per operating day for
the three months ended September 30, 2011, was $4,341 compared to $3,364 for the
three months ended September 30, 2010, representing an increase of 29%. CES'
estimated Canadian Market Share was approximately 28% for the three months ended
September 30, 2011, consistent with 28% for the three months ended September 30,
2010. CES' operating days were estimated to be 11,565 for the three month period
ended September 30, 2011, an increase of 41% from 8,208 operating days during
the same period last year. Overall industry activity increased approximately 40%
from an average monthly rig count in Q3 2010 of 323 to 454 based on CAODC
published monthly data for Western Canada.
Revenue generated in the United States ("US") from drilling fluid sales of
products and services for the three months ended September 30, 2011, was $61.8
million as compared to last year's revenue of $44.3 million, representing an
increase of $17.5 million or 39% on a year-over-year basis. Daily average
revenue per operating day for the three months ended September 30, 2011, was
$6,320 compared to $5,809 for the three months ended September 30, 2010,
representing an increase of 9%. CES' US Market Share for the three months ended
September 30, 2011, was estimated to be 6%, up from 5% for the three months
ended September 30, 2010. Operating days in the US were estimated to be 9,771
operating days for the three month period ended September 30, 2011, an increase
of 28% from 7,634 operating days during the same period last year.
EQUAL Transport's ("EQUAL") trucking revenue for the three month period ended
September 30, 2011, gross of intercompany eliminations, totalled $5.5 million,
an increase of $1.5 million or 38% from the $4.0 million for the three months
ended September 30, 2010.
Clear Environmental Solutions division ("Clear") generated $4.7 million of
revenue for the three month period ended September 30, 2011, compared to $2.8
million during the prior year representing an increase of $1.9 million or 68%.
Year-over-year, the Clear Environmental division has seen higher overall
activity levels and continues to benefit from increased integration with the
drilling fluids division, from diversification strategies into oil sands and
horizontal drilling, and general improvement in industry activity levels.
CES also announced today that it has declared a cash dividend of $0.045 per
common share to shareholders of record on November 30, 2011. CES expects to pay
this dividend on or about December 15, 2011. CES' business model has
historically shown it can support a large proportion of cash flow from operating
activity being paid out as a dividend or distribution as the long-term capital
investments required and maintenance capital expenditures required for CES to
execute its business plan are not significant.
The core business of CES is to design and implement drilling fluid systems for
the North American oil and natural gas industry. CES operates in the Western
Canadian Sedimentary Basin ("WCSB") and in various basins in the US, with an
emphasis on servicing the ongoing major resource plays. The drilling of those
major resource plays includes wells drilled vertically, directionally, and, with
increasing frequency, horizontally. Horizontal drilling is a technique utilized
in tight formations like tight gas, tight oil, heavy oil, and in the oil sands.
The designed drilling fluid encompasses the functions of cleaning the hole,
stabilizing the rock drilled, controlling subsurface pressures, enhancing
drilling rates, and protecting potential production zones while conserving the
environment in the surrounding surface and subsurface area. CES' drilling fluid
systems are designed to be adaptable to a broad range of complex and varied
drilling scenarios, to help clients eliminate inefficiencies in the drilling
process, and to assist them in meeting operational objectives and environmental
compliance obligations. CES markets its technical expertise and services to oil
and natural gas exploration and production entities by emphasizing the
historical success of both its patented and proprietary drilling fluid systems
and the technical expertise and experience of its personnel.
Clear, CES' environmental division, provides environmental and drilling fluids
waste disposal services primarily to oil and gas producers active in the WCSB.
The business of Clear involves determining the appropriate processes for
disposing of or recycling fluids produced by drilling operations and to carry
out various related services necessary to dispose of drilling fluids.
EQUAL, CES' transport division, provides its customers with trucks and trailers
specifically designed to meet the demanding requirements of off-highway oilfield
work, and trained personnel to transport and handle oilfield produced fluids and
to haul, handle, manage and warehouse drilling fluids. EQUAL operates from two
terminals and yards located in Edson, Alberta and Carlyle, Saskatchewan.
PureChem Services ("PureChem"), CES' drilling fluid and production chemical
manufacturing division, designs, manufactures and sells specialty drilling
fluids for CES and production chemicals for operators. The PureChem facility is
strategically located in Carlyle, SK.
CES' head office and the sales and services headquarters are located in Calgary,
Alberta and its stock point facilities and other operations are located
throughout Alberta, British Columbia, and Saskatchewan. CES' indirect wholly-
owned subsidiary, AES Drilling Fluids, LLC ("AES"), conducts operations in the
United States in the Rockies region from its office in Denver, Colorado; in the
mid-continent region through its AES East division from its office in Norman,
Oklahoma and through its Champion Drilling Fluids division which is
headquartered in Elk City, Oklahoma; and in Texas, Louisiana, off-shore Gulf of
Mexico, and Northeast US through its Fluids Management division headquartered in
Houston, Texas. AES has operations in twelve states with stock point facilities
located in Oklahoma, Texas, Pennsylvania, West Virginia, Colorado, North Dakota,
Louisiana, and Utah.
Financial Highlights
----------------------------------------
Three Months Nine Months
Ended September Ended September
Summary Financial Results 30, 30,
------------------------------------
($000's, except per share amounts) 2011 2010 2011 2010
----------------------------------------------------------------------------
Revenue 121,958 78,398 320,464 154,648
Gross margin (1) 30,520 21,695 86,115 42,125
Income before taxes 14,250 10,563 40,580 18,164
per share - basic (2) 0.26 0.23 0.74 0.43
per share - diluted (2) 0.25 0.20 0.72 0.41
Net income 9,501 7,184 26,822 24,882
per share - basic (2) 0.17 0.15 0.49 0.59
per share - diluted (2) 0.17 0.14 0.48 0.56
EBITDAC (1) 18,601 13,453 51,895 24,360
per share - basic (2) 0.34 0.29 0.95 0.57
per share - diluted (2) 0.33 0.26 0.93 0.55
Funds flow from operations (1) 17,315 12,784 45,958 23,180
per share - basic (2) 0.32 0.27 0.84 0.55
per share - diluted (2) 0.31 0.24 0.82 0.52
Dividends declared 6,582 3,786 18,962 8,998
per share (2) 0.12 0.08 0.35 0.21
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Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------
Shares Outstanding 2011 2010 2011 2010
----------------------------------------------------------------------------
End of period 54,842,035 53,202,537 54,842,035 53,202,537
Weighted average
- basic 54,834,583 46,656,015 54,659,033 42,429,851
- diluted 56,244,549 52,651,985 56,015,520 44,672,256
----------------------------------------------------------------------------
Financial Position ($000's) September 30, 2011 December 31, 2010
----------------------------------------------------------------------------
Net working capital 52,532 34,117
Total assets 352,254 287,870
Long-term financial liabilities (3) 5,903 5,278
Shareholders' equity 197,217 179,017
----------------------------------------------------------------------------
Notes:
(1) CES uses certain performance measures that are not recognizable under
International Financial Reporting Standards ("IFRS"). These performance measures
include earnings before interest, taxes, amortization, goodwill impairment,
stock- based compensation ("EBITDAC"), gross margin, funds flow from operations
and distributable funds. Management believes that these measures provide
supplemental financial information that is useful in the evaluation of CES'
operations. Readers should be cautioned, however, that these measures should not
be construed as alternatives to measures determined in accordance with IFRS as
an indicator of CES' performance. CES' method of calculating these measures may
differ from that of other organizations and, accordingly, these may not be
comparable. Please refer to the Non-GAAP measures section of CES' MD&A for the
three months ended September 30, 2011.
(2) Pursuant to the three-for-one split of CES' outstanding common shares
effective July 13, 2011 all per share data has been retroactively adjusted to
reflect the stock split.
(3) Includes vehicle financing loans, term loans, and finance lease facilities
excluding current portions.
Outlook
Crude oil prices have rebounded off their lows of 2009 and, despite the most
recent price fluctuations, appear to have stabilized in a profitable band for
operators. Natural gas prices continue to remain relatively weak in context to
oil prices and recent history, making the economics of drilling for dry natural
gas challenging. In the WCSB, operators have diverted capital to drilling for
oil or liquids rich gas or unconventional natural gas. In the US, this same
trend is evident however areas such as the Marcellus shale continue to attract
significant capital to dry gas drilling.
Beginning in the fourth quarter of 2009, drilling activity levels began to
rebound in both the WCSB and the US. This upward trend in activity has continued
throughout 2010 and to date in 2011. CES' 2011 results reflect the increase in
activity with corresponding revenue gains across all of CES' business segments.
As a result of the increased industry activity and a continuing trend by
operators to drill more complex horizontal wells, CES' dominant business line,
the drilling fluids segment, has experienced the most material gains over
comparable results from 2009 and 2010. CES has capitalized on this in the WCSB
through its leading market share position and in the US by completing two
accretive acquisitions, the Champion acquisition on November 30, 2009 and the
Fluids Management Acquisition completed at the end of Q2 2010. The US
Acquisitions, coupled with the organic growth that the Company has been able to
generate off of these acquired platforms, has established CES as a truly North
American company with a wide footprint and a significant presence in the
majority of the key basins of activity throughout North America.
CES' strategy is to utilize its patented and proprietary technologies and
superior execution to increase market share in North America. CES' exposure to
the key resource plays and the growth in the number of horizontal wells being
drilled bodes well for future growth. A larger percentage of the wells being
drilled require more complex drilling fluids to best manage down hole
conditions, drilling times and costs and its unique products like Seal-
AX(TM)/PolarBond, ABS40(TM), PureStar(TM) and Liquidrill(TM)/Tarbreak, combined
with our concerted focus on providing superior service, positions CES well in
this increasingly technically competitive environment. CES believes that its
unique value propositions in the increasingly complex drilling environment makes
it the premier independent drilling fluids provider in the North American
market.
The EQUAL Transport division has experienced significant growth, particularly in
south-eastern Saskatchewan where the business hauls drilling fluids and products
to drilling locations and also provides other oilfield hauling services to our
customers including the hauling of produced fluids. With increased activity
throughout the WCSB, it is expected this business will continue to be
economically attractive and may expand further as viable opportunities emerge.
The PureChem Services division manufactures and sells both drilling fluid
chemicals and production chemicals. The construction of the PureChem facility in
Carlyle, Saskatchewan was completed in February 2011 and operations have
commenced. PureChem is a complimentary business to both CES' drilling fluids
business and EQUAL's production hauling businesses in Canada. In the US, the
Fluids Management division also produces and blends its own set of proprietary
drilling fluid products which provides synergies and experience to PureChem
going forward.
The Clear Environmental Solutions division continues to complement CES' core
drilling fluids business. The Environmental Services division has focused on
expanding its operational base in the WCSB and is pursuing opportunities in the
oil sands and horizontal drilling markets. Clear has experienced an increase in
activity which began in the fourth quarter of 2009 and has continued throughout
2010 and into 2011.
As drilling has become more complex, applied down-hole technologies are becoming
increasingly important in driving success for operators. CES will continue to
invest in research and development to be a leader in technology advancements in
the drilling fluids market. In addition, CES continues to assess integrated
business opportunities that will keep CES competitive and enhance profitability,
while at the same time closely manage its dividend levels and capital
expenditures in order to preserve its financial strength and liquidity position.
Except for the historical and present factual information contained herein, the
matters set forth in this news release, may constitute forward- looking
information or forward-looking statements (collectively referred to as
"forward-looking information") which involves known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of CES, or industry results, to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking information. When used in this press release, such information
uses such words as "may", "would", "could", "will", "intend", "expect",
"believe", "plan", "anticipate", "estimate", and other similar terminology. This
information reflects CES' current expectations regarding future events and
operating performance and speaks only as of the date of this press release.
Forward-looking information involves significant risks and uncertainties, should
not be read as a guarantee of future performance or results, and will not
necessarily be an accurate indication of whether or not such results will be
achieved. A number of factors could cause actual results to differ materially
from the results discussed in the forward- looking information, including, but
not limited to, the factors discussed below. The management of CES believes the
material factors, expectations and assumptions reflected in the forward-looking
information and statements are reasonable but no assurance can be given that
these factors, expectations and assumptions will prove to be correct. The
forward-looking information and statements contained in this press release speak
only as of the date of the press release, and CES assumes no obligation to
publicly update or revise them to reflect new events or circumstances, except as
may be required pursuant to applicable securities laws or regulations.
In particular, this press release contains forward-looking information
pertaining to the following: future estimates as to dividend levels, including
the payment of a dividend to shareholders of record on November 30, 2011;
capital expenditure programs for oil and natural gas; supply and demand for CES'
products and services; industry activity levels; commodity prices; treatment
under governmental regulatory and taxation regimes; dependence on equipment
suppliers; dependence on suppliers of inventory and product inputs; equipment
improvements; dependence on personnel; collection of accounts receivable;
operating risk liability; expectations regarding market prices and costs;
expansion of services in Canada, the United States, and internationally;
development of new technologies; expectations regarding CES' growth
opportunities in the United States; expectations regarding the performance or
expansion of CES' environmental and transportation operations; expectations
regarding demand for CES' services and technology if drilling activity levels
increase; investments in research and development and technology advancements;
access to debt and capital markets; and competitive conditions.
CES' actual results could differ materially from those anticipated in the
forward-looking information as a result of the following factors: general
economic conditions in Canada, the United States, and internationally; demand
for oilfield services for drilling and completion of oil and natural gas wells;
volatility in market prices for oil, natural gas, and natural gas liquids and
the effect of this volatility on the demand for oilfield services generally;
competition; liabilities and risks, including environmental liabilities and
risks inherent in oil and natural gas operations; sourcing, pricing, and
availability of raw materials, consumables, component parts, equipment,
suppliers, facilities, and skilled management, technical and field personnel;
ability to integrate technological advances and match advances of competitors;
availability of capital; uncertainties in weather and temperature affecting the
duration of the oilfield service periods and the activities that can be
completed; changes in legislation and the regulatory environment, including
uncertainties with respect to programs to reduce greenhouse gas and other
emissions and tax legislation; reassessment and audit risk associated with the
corporate conversion; changes to the royalty regimes applicable to entities
operating in the WCSB and the US; access to capital and the liquidity of debt
markets; future changes as a result of IFRS adoption; fluctuations in foreign
exchange and interest rates and the other factors considered under "Risk
Factors" in CES' Annual Information Form for the year ended December 31, 2010
and "Risks and Uncertainties" in CES' MD&A.
Without limiting the foregoing, the forward-looking information contained in
this press release is expressly qualified by this cautionary statement.
CES has filed its Q3 2011 condensed consolidated financial statements and notes
thereto and accompanying management discussion and analysis in accordance with
National Instrument 51-102 - Continuous Disclosure Obligations adopted by the
Canadian securities regulatory authorities. Additional information about CES
will be available on CES' SEDAR profile at www.sedar.com and CES' website at
www.CanadianEnergyServices.com.
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