Canadian Energy Services & Technology Corp. ("CES" or the "Company")
(TSX:CEU)(OTCQX:CESDF) is pleased to report on its financial and operating
results for the three months ended March 31, 2012. CES also announced today that
it will pay a cash dividend of $0.05 per common share on June 15, 2012 to the
shareholders of record at the close of business on May 31, 2012.
CES' Q1 2012 results reflect an increase in activity and revenue across all of
CES' business segments over 2011. CES generated gross revenue of $156.6 million
during the first quarter of 2012, compared to $111.5 million for the three
months ended March 31, 2011, an increase of $45.1 million or 40% on a
year-over-year basis. For the three month period ended March 31, 2012, CES
recorded gross margin of $37.4 million or 24% of revenue, compared to gross
margin of $32.6 million or 29% 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 March 31, 2012, $24.8 million as compared to $20.8 million
for the three months ended March 31, 2011, representing an increase of $4.0
million or 19%. CES recorded EBITDAC per share of $0.45 ($0.43 diluted) for the
three months ended March 31, 2012 versus EBITDAC per share of $0.38 ($0.37
diluted) in 2011, an increase of 18%. The increase in EBITDAC per share
demonstrates CES' ability to grow the business with limited dilution to
shareholders.
CES recorded net income of $13.7 million for the three month period ended March
31, 2012, as compared to $11.8 million in the prior year, representing an
increase of $1.9 million or 16%. CES recorded net income per share of $0.25
($0.24 diluted) for the three months ended March 31, 2012 versus $0.22 ($0.21
diluted) in 2011, representing an increase of 14%.
Revenue from drilling fluids related sales of products and services in the
Western Canadian Sedimentary Basin ("WCSB") was $68.1 million for the three
months ended March 31, 2012 compared to $45.1 million for the three months ended
March 31, 2011, representing an increase of $23.0 million or 51%. Average
revenue per operating day for the three months ended March 31, 2012, was $4,407
compared to $3,286 for the three months ended March 31, 2011, representing an
increase of 34%. Estimated Canadian market share was approximately 31% for the
three months ended March 31, 2012, up from 29% for the three months ended March
31, 2011. 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 15,446 for the
three month period ended March 31, 2012, an increase of 12% from 13,731
operating days during the same period last year. Overall industry activity
increased approximately 1% from an average monthly rig count in Q1 2011 of 534
to 540 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 March 31, 2012, was $77.1
million as compared to the first quarter of 2011 with revenue of $55.1 million,
representing an increase of $22.0 million or 40% on a year-over-year basis.
Daily average revenue per operating day for the three months ended March 31,
2012, was $7,356 compared to $5,684 for the three months ended March 31, 2011,
representing an increase of 29%. 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 March 31, 2011. US operating days were estimated to be 10,478
operating days for the three month period ended March 31, 2012, an increase of
8% from 9,702 operating days during the same period last year.
EQUAL Transport's ("EQUAL") trucking revenue for the three month period ended
March 31, 2012, gross of intercompany eliminations, totalled $6.0 million, an
increase of $0.2 million or 3% from the $5.8 million for the three months ended
March 31, 2011. The respective year-over-year increase is due primarily to
increased industry activity.
Clear Environmental Solutions division ("Clear") $5.62 million of revenue for
the three month period ended March 31, 2012, consistent with $5.59 million
during the prior year.
CES also announced today that it has declared a cash dividend of $0.05 per
common share to shareholders of record on May 31, 2012. CES expects to pay this
dividend on or about June 15, 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 United States, 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 to CES, as well as stimulation and production chemicals to operators. The
PureChem production facility is strategically located in Carlyle, Saskatchewan.
CES' corporate head office and its 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.
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Financial Highlights
Three Months Ended
March 31,
---------------------------
($000's, except per share amounts) 2012 2011
----------------------------------------------------------------------------
Revenue 156,557 111,539
Gross margin (1) 37,358 32,624
Income before taxes 20,256 17,381
per share - basic 0.37 0.32
per share - diluted 0.35 0.31
Net income 13,702 11,815
per share - basic 0.25 0.22
per share - diluted 0.24 0.21
EBITDAC (1) 24,759 20,792
per share - basic 0.45 0.38
per share - diluted 0.43 0.37
Funds flow from operations (1) 17,828 18,765
per share - basic 0.32 0.34
per share - diluted 0.31 0.34
Dividends declared 7,741 5,807
per share 0.14 0.11
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Three Months Ended
March 31,
---------------------------
Shares Outstanding 2012 2011
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End of period 55,381,861 54,479,985
Weighted average
- basic 55,255,804 54,425,742
- diluted 57,102,551 55,809,750
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Financial Position ($000's) March 31, 2012 December 31, 2011
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Net working capital 139,371 153,660
Total assets 398,385 385,351
Long-term financial liabilities (2) 80,503 96,779
Shareholders' equity 211,291 204,060
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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 March 31, 2012.
(2) Includes long-term portion of the Senior Facility, vehicle financing loans,
and finance leases, excluding current portions.
Outlook
Despite some price fluctuations, crude oil prices and the various natural gas
liquids which are priced in relation to crude oil, appear to have stabilized in
a profitable band for operators. Natural gas prices continue to remain very
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.
CES' Q1 2012 results reflect an increase in activity and revenue across all of
CES' business segments over the comparable period in 2011. 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 and any decline in crude oil prices may yet dampen the overall
prospects of 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 growth. It is expected this business will continue to be
economically viable and may be expanded further as attractive opportunities
emerge.
The PureChem Services division manufactures and sells drilling fluid chemicals
and production chemicals. PureChem began operations a little over 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 May 31, 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 Q1 2012 condensed consolidated financial statements and notes
thereto as at and for the three months ended March 31, 2012, 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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