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
twelve months ended December 31, 2011. CES also announced today that it will pay
a cash dividend of $0.05 per common share on April 13, 2012 to the shareholders
of record at the close of business on March 30, 2012, representing an increased
dividend of $0.005 per common share or 11% to the monthly dividend. This is the
fifth dividend increase announced by CES since converting to a corporate
structure on January 1, 2010.
CES' 2011 annual results reflect an increase in activity and revenue across all
of CES' business segments over 2010. CES' dominant business line, the drilling
fluids segment, experienced the most material gains as a result of increased
industry activity and a continuing industry trend to drill more complex, deeper
and longer horizontal wells. CES' has benefited from this trend as these types
of wells require more fluids in general, but also more technically advanced
fluids in order to be successfully drilled and cased. The result is the drilling
fluids portion of the typical well cost has increased, while the average well
cost has also increased. CES has capitalized on this trend in the Western
Canadian Sedimentary Basin ("WCSB") through its leading market share position
and in the United States ("US") by organically expanding off its two acquired
platforms.
CES generated gross revenue of $138.8 million during the fourth quarter of 2011,
compared to $94.5 million for the three months ended December 31, 2010, an
increase of $44.3 million or 47% on a year-over-year basis. For the three month
period ended December 31, 2011, CES recorded gross margin of $37.3 million or
27% of revenue, compared to gross margin of $26.3 million or 28% of revenue
generated in the same period last year. For 2011, gross revenue totalled $459.3
million, compared to $249.1 million last year, representing an increase of
$210.1 million or 84% on a year-over-year basis. For 2011, gross margin totalled
$123.4 million or 27% of revenue as compared to $68.4 million or 27% in 2010.
During the fourth quarter of 2011, the payout ratio averaged 33% as compared to
32% in 2010, representing an increase of 2%. For 2011, the payout ratio averaged
39% as compared to 38% in 2010.
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 December 31, 2011, was $24.4 million as compared to $17.1
million for the three months ended December 31, 2010, representing an increase
of $7.3 million or 43%. For the twelve month period ended December 31, 2011,
EBITDAC totalled $76.3 million as compared to $41.5 million in 2010 representing
an increase of $34.8 million or 84%. CES recorded EBITDAC per share of $0.44
($0.43 diluted) for the three months ended December 31, 2011 versus EBITDAC per
share of $0.32 ($0.31 diluted) in 2010, an increase of 38%. For 2011, CES
recorded EBITDAC per share of $1.39 ($1.35 diluted) versus EBITDAC per share of
$0.92 ($0.89 diluted) in 2010, an increase of 51%. The increase in EBITDAC per
share demonstrates CES' ability to grow the business with limited dilution to
shareholders.
CES recorded net income of $14.9 million for the three month period ended
December 31, 2011, as compared to $9.4 million in the prior year. CES recorded
net income per share of $0.27 ($0.26 diluted) for the three months ended
December 31, 2011 versus $0.18 ($0.17 diluted) in 2010. For the twelve month
period ended December 31, 2011, CES recorded net income of $41.7 million,
compared with the $34.3 million generated for the same period last year (2009 -
$7.5 million).
Revenue from drilling fluids related sales of products and services in the WCSB
was $54.9 million for the three months ended December 31, 2011, compared to
$35.0 million for the three months ended December 31, 2010, representing an
increase of $19.9 million or 57%. For the twelve month period ended December 31,
2011, revenue from drilling fluids related sales of products and services in the
WCSB was $173.0 million compared to $112.3 million for the twelve months ended
December 31, 2010, representing an increase of $60.7 million or 54%. Estimated
Canadian market share was approximately 30% for the three months ended December
31, 2011, up from 28% for the three months ended December 31, 2010. For full
year 2011, estimated Canadian market share averaged 28% up from 27% during 2010.
CES' estimated Canadian market-share has remained relatively constant year-over-
year but CES' operating days in the WCSB have increased as market activity has
increased. CES' operating days were estimated to be 13,156 for the three month
period ended December 31, 2011, an increase of 31% from 10,054 operating days
during the same period last year. Despite challenging weather conditions in the
second quarter of 2011, which created an extended break-up, operating days in
the WCSB were estimated to total 42,702 for 2011 compared to 32,313 during the
same period last year, representing an increase of 32%. In Q4 2011, overall
industry activity increased approximately 23% from an average monthly rig count
in Q4 2010 of 398 to 489 based on CAODC published monthly data for the WCSB. For
2011, the CAODC average monthly rig count for the WCSB has averaged 417 as
compared to 327 in 2010, representing a year-over-year increase of 28%. Average
revenue per operating day for the three months ended December 31, 2011, was
$4,176 compared to $3,581 for the three months ended December 31, 2010,
representing an increase of 17%. For 2011, daily average revenue per operating
day was $4,050 compared to $3,478 in 2010, representing a year-over-year
increase of 16%.
Revenue generated in the US from drilling fluid sales of products and services
for the three months ended December 31, 2011, was $73.4 million as compared to
the fourth quarter of 2010 with revenue of $49.3 million, representing an
increase of $24.1 million or 49% on a year-over-year basis. For 2011, revenue
generated in the US totalled $250.2 million as compared to $109.7 million in the
previous year representing an increase of $140.5 million or 128%. Estimated US
market share for the three months ended December 31, 2011, was estimated to be
6%, consistent with 6% for the three months ended December 31, 2010. For full
year 2011, estimated US market share averaged 6% as compared to 4% in 2010. US
operating days were estimated to be 10,520 operating days for the three month
period ended December 31, 2011, an increase of 20% from 8,780 operating days
during the same period last year. US operating days during full year 2011 were
39,013 as compared to 21,091 operating days in 2010, representing an increase of
85%. Daily average revenue per operating day for the three months ended December
31, 2011, was $6,973 compared to $5,615 for the three months ended December 31,
2010, representing an increase of 24%. For 2011, daily average revenue per
operating day was $6,414 compared to $5,201 in 2010, representing a
year-over-year increase of 23%.
Average revenue per operating day, in both the WCSB and the US, has trended
upward over the last several years as operators continue to drill more complex,
deeper and longer horizontal wells. As noted above, these types of wells require
more fluids in general but also more technically advanced fluids in order for
the wells to be successfully drilled and cased.
EQUAL Transport's ("EQUAL") trucking revenue for the three month period ended
December 31, 2011, gross of intercompany eliminations, totalled $5.6 million, an
increase of $0.9 million or 18% from the $4.7 million for the three months ended
December 31, 2010. For 2011, revenue from trucking operations totalled $19.4
million as compared to $15.3 million during 2010 representing an increase of
$4.1 million or 27%. The respective year-over- year increase is due primarily to
the increased industry activity in Edson and the continued expansion of the
Company's trucking operations in both Edson and Saskatchewan.
Clear Environmental Solutions division ("Clear") generated $5.1 million of
revenue for the three month period ended December 31, 2011, compared to $5.7
million during the prior year representing a decrease of $0.6 million or 10%.
Clear's revenue in the fourth quarter of 2011 was lower than expected as a
result of warm weather in the oilsands region of Alberta that delayed several
planned projects from starting on time. Revenue from Clear for the twelve month
period ended December 31, 2011 totalled $17.4 as compared to $14.0 million for
the same period in 2010, representing an increase of $3.4 million or 25%.
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.
On December 21, 2011, CES entered into a new three year credit agreement with a
Canadian commercial bank and its US based affiliate providing for the New Senior
Credit Committed Facility (the "Committed Facility"), permitting it in aggregate
to borrow up to $120.0 million, subject to the value of certain accounts
receivable, inventory, and capital assets. In conjunction with the new Committed
Facility, the Company repaid its demand operating facility and its outstanding
long-term loan facilities balances on December 23, 2011. The maximum available
draw on the Committed Facility at December 31, 2011 was $120.0 million. The
balance outstanding on the Committed Facility at December 31, 2011 was $93.4
million. The amount due and payable under the Committed Facility in the twelve
month period ended December 31, 2012 is $nil. As such, at December 31, 2011 the
entire amount outstanding under the Committed Facility has been classified as
long-term debt on the Consolidated Statements of Financial Position. By retiring
the demand operating facility and replacing it with the Committed Facility CES
has managed to upsize its credit capacity, receive a three year term, and lower
the interest costs associated with borrowing.
CES also announced today that it has declared a cash dividend of $0.05 per
common share to shareholders of record on March 30, 2012. CES expects to pay
this dividend on or about April 13, 2012.
CES' business model is focused on the design and delivery of technically
advanced fluids for the oil and gas industry. CES' business model requires
limited re-investment capital to grow. As a result, CES has been able to
capitalize on the growing market demand for drilling and production fluids in
North America while generating free cash flow. CES returns much of this free
cash flow back to shareholders through its monthly dividend.
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 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,
liquids rich 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, as well as stimulation and production chemicals for operators.
The PureChem production facility is strategically located in Carlyle, SK.
CES' corporate 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 through four regional divisions. The Rocky Mountain
division from its office in Denver, Colorado; the Mid- Continent division from
its office in Norman, Oklahoma; the Northeast division from its office in
Pittsburgh, PA and the Gulf Coast division from its office in Houston, Texas.
The Houston office also serves as the corporate headquarters for AES. AES has
operations in thirteen states with stock point facilities located in Oklahoma,
Texas, Pennsylvania, West Virginia, Colorado, North Dakota, Louisiana, and Utah.
Financial Highlights
Three Months Ended Year Ended
Summary Financial Results December 31, December 31,
------------------------------------------------
($000's, except per share
amounts) 2011 2010 2011 2010
----------------------------------------------------------------------------
Revenue 138,793 94,468 459,257 249,116
Gross margin (1) 37,300 26,281 123,415 68,406
Income before taxes 20,565 13,590 61,145 31,754
per share - basic (2) 0.37 0.25 1.12 0.70
per share - diluted (2) 0.36 0.25 1.08 0.68
Net income 14,873 9,427 41,695 34,309
per share - basic (2) 0.27 0.18 0.76 0.76
per share - diluted (2) 0.26 0.17 0.74 0.74
EBITDAC (1) 24,426 17,124 76,320 41,481
per share - basic (2) 0.44 0.32 1.39 0.92
per share - diluted (2) 0.43 0.31 1.35 0.89
Funds flow from operations
(1) 22,705 16,381 68,663 39,561
per share - basic (2) 0.41 0.30 1.25 0.87
per share - diluted (2) 0.40 0.30 1.22 0.85
Dividends declared 7,156 5,042 26,118 14,040
per share (2) 0.13 0.10 0.48 0.31
----------------------------------------------------------------------------
Three Months Ended Year Ended
December 31, December 31,
------------------------------------------------
Shares Outstanding 2011 2010 2011 2010
----------------------------------------------------------------------------
End of period (2) 55,138,435 54,395,487 55,138,435 54,395,487
Weighted average
- basic (2) 55,001,647 53,776,982 54,745,391 45,289,950
- diluted (2) 56,870,630 54,504,694 56,483,369 46,627,046
----------------------------------------------------------------------------
Financial Position ($000's) December 31, 2011 December 31, 2010
----------------------------------------------------------------------------
Net working capital (4) 153,660 34,117
Total assets 385,351 287,870
Long-term financial liabilities (3) (4) 96,779 5,278
Shareholders' equity 204,060 179,017
----------------------------------------------------------------------------
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
year ended December 31, 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 long-term portion of the Committed Facility, vehicle financing
loans, committed loans, and finance leases, excluding current portions.
(4)On December 21, 2011, the Company entered into the Committed Facility and
repaid its demand operating facility and other outstanding long-term loan
facilities balances on December 23, 2011. The entire amount outstanding under
the Committed Facility is classified as long-term debt.
Outlook
Crude oil prices have rebounded off their lows of 2009 and, despite price
fluctuations, appear to have stabilized in a profitable band for operators.
Natural gas prices continue to remain weak, making the economics of drilling for
dry natural gas very challenging. In the WCSB, operators have diverted
significant capital to drilling for oil or liquids rich gas targets. In the US,
this same trend is evident; however, areas such as the Marcellus shale continue
to be active in dry gas drilling.
CES' 2011 annual results reflect an increase in activity and revenue across all
of CES' business segments over 2010. CES' dominant business line, the drilling
fluids segment, experienced the most material gains as a result of increased
industry activity and a continuing industry trend to drill more complex, deeper
and longer horizontal wells. CES' has benefited from this trend as these types
of wells require more fluids in general, but also more technically advanced
fluids in order to be successfully drilled and cased. The result is the drilling
fluids portion of the typical well cost has increased, while the average well
cost has also increased. Based on the reported well economics of the different
North American play types and the reported drilling plans of operators, this
trend looks to continue in 2012. However, weak natural gas prices may yet dampen
the overall growth in the drilling market.
CES' strategy is to utilize its patented and proprietary technologies and
superior execution to increase market share in North America. As a larger
percentage of the wells being drilled require more complex drilling fluids to
best manage down hole conditions, drilling times and costs, CES will leverage
its superior customer service and its unique products like its patented
Seal-AX(TM) and PolarBond(TM) lines along with its proprietary ABS40(TM),
PureStar(TM) and Liquidrill(TM)/Tarbreak products to demonstrate its superior
performance. CES believes that its unique value proposition in this increasingly
complex drilling environment makes it the premier independent drilling fluids
provider in North American.
With the increase in activity in the WCSB, the EQUAL Transport division has also
experienced significant growth. 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 drilling fluid chemicals
and production chemicals. PureChem began operations one year ago with the
opening of its chemical blending facility in February 2011. PureChem is a
complimentary business to both CES' drilling fluids business and EQUAL's
production hauling businesses in Canada. CES' strategy is to continue to build
out PureChem from its southeast Saskatchewan roots, through both organic growth
off of our established North American platforms and through strategic fit
acquisitions.
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.
As drilling has become more complex, advanced 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 and production chemical markets. CES
operates three separate lab facilities located in Carlyle, Saskatchewan;
Calgary, Alberta; and Houston, Texas. CES also leverages third party partner
relationships to drive innovation in the fluids business.
On a corporate level, CES continually assesses integrated business opportunities
that will keep CES competitive and enhance profitability. However, all
acquisitions must meet our stringent financial and operational metrics. CES will
also closely manage its dividend levels and capital expenditures in order to
preserve its financial strength, its low capital re-investment model and its
strong 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 March 30, 2012; 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; 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, 2011, 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 2011 annual report and consolidated financial statements and
notes thereto as at and for the year ended December 31, 2011, 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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