Canadian Energy Services & Technology Corp. (TSX:CEU) ("CES" or the "Company")
is pleased to report on its financial and operating results for the three and
nine months ended September 30, 2013. Further, CES announced today that it will
pay a cash dividend of $0.065 per common share on December 13, 2013 to the
shareholders of record at the close of business on November 29, 2013,
representing an increased dividend of $0.005 per common share or 8% to the
monthly dividend. This is the eighth dividend increase announced by CES since
converting to a corporate structure on January 1, 2010.
During Q3 2013, CES continued to make significant strides in advancing its
strategic vision of being a leading provider of technically advanced consumable
chemical solutions throughout the full life cycle of the oilfield. CES continues
to integrate JACAM with the overall business. JACAM products have been
introduced into Canada on both the drilling fluids side and through PureChem
with very positive results. In the US, initial steps have been undertaken to
support AES' drilling fluids operations with JACAM manufactured materials and to
expand JACAM onto the established AES platform. CES sees the opportunity set for
the unique JACAM products expanding as we move forward.
In addition to the integration initiatives and the financial contribution JACAM
continues to make, the shift in activity in the US to new work in the Eagle
Ford, the addition of work in the Mississippi Lime as a result of the Mega
Fluids acquisition, and a pick-up of activity in other regions had the US
business performing well. The acquisition of Venture Mud ("AES Permian
Acquisition"), completed on July 15, 2013, with its operations focused in the
Permian basin in West Texas, has filled the last remaining geographical hole on
the US map for CES. CES sees significant opportunities in the US as we continue
to leverage our platform, product suite and infrastructure. In Canada, despite
extended wet weather that slowed July activity, the Canadian business is also
performing well and has positive momentum going into Q4 2013 and Q1 2014. In
particular the PureChem division continues to build-out across western Canada
and drilling fluid revenues have increased with new customer wins mainly
attributable to new technologies introduced over the past year.
CES generated gross revenue of $182.3 million during the third quarter of 2013,
compared to $115.6 million for the three months ended September 30, 2012, an
increase of $66.7 million or 58% on a year-over-year basis. Year-to-date, gross
revenue totaled $462.3 million, compared to $376.3 million, representing an
increase of $86.0 million or 23% on a year-over-year basis. As detailed below,
an increase in US-based revenues has driven most of the year-over-year growth,
with the largest contributors being the JACAM Acquisition and the AES Permian
Acquisition. These acquisitions have further vertically integrated CES'
business, expanded CES' product offerings across the oilfield spectrum, provided
a significant platform of infrastructure and new customers across the US, and
increased CES' ability to deliver technically advanced science based solutions
to its customers.
Revenue generated in Canada for the three months ended September 30, 2013
increased by $15.2 million or 31% compared to the third quarter of 2012, from
$49.4 million to $64.6 million. For the nine month period ended September 30,
2013, revenue in Canada was $163.7 million compared to $160.3 million,
representing an increase of $3.4 million or 2%. The increase in Canadian
revenues for both the three and nine months ended September 30, 2013 was
primarily a result of a year over year shift to a higher percentage of the
Company's drilling fluid systems being run in both the deep basin and the
oilsands. The drilling fluid systems being run in both these play types
typically are more complex and consume more specialty product resulting in
higher revenue. In addition, PureChem has also contributed to the increase in
revenues as it continued to build-out its production and specialty chemical
sales.
Revenue generated in the US for the three months ended September 30, 2013 was
$117.6 million as compared to the third quarter of 2012 with revenue of $66.2
million, representing an increase of $51.5 million or 78% on a year-over-year
basis. For the nine month period ended September 30, 2013, revenue in the US was
$298.5 million compared to $215.9 million, representing an increase of $82.6
million or 38%. This year-over-year increase is primarily a result of the JACAM
Acquisition and AES Permian Acquisition (for which there are no associated
revenues in the comparable periods in 2012). Also contributing to the increase
in US revenues is organic growth derived from AES resulting in new work in the
Rockies region; in the Eagle Ford; and in the Mid-Continent region, which more
than offset the reduced activity in the Marcellus shale region of the US.
Net income before interest, taxes, amortization, gains and losses 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, 2013 was $32.6 million as compared to
$17.3 million for the three months ended September 30, 2012, representing an
increase of $15.3 million or 88%. CES recorded EBITDAC per share of $0.50 ($0.48
diluted) for the three months ended September 30, 2013 versus EBITDAC per share
of $0.31 ($0.30 diluted) in 2012, an increase of 61% (60% diluted). For the nine
month period ended September 30, 2013, EBITDAC totalled $73.3 million as
compared to $54.9 million in 2012, representing an increase of $18.5 million or
34%. Year-to-date, CES recorded EBITDAC per share of $1.18 ($1.13 diluted)
versus EBITDAC per share of $0.99 ($0.96 diluted) in 2012.
Based on the financial results achieved in Q3 2013, CES' is reaffirming its
expected 2013 guidance last updated in August 2013. CES' expected range of
consolidated gross revenue for 2013 will be approximately $609.0 million to
$649.0 million and expected consolidated EBITDAC will be approximately $101.0
million to $111.0 million. CES is also releasing its 2014 guidance. CES'
expected range of consolidated gross revenue for 2014 will be approximately
$760.0 million to $820.0 million and expected consolidated EBITDAC will be
approximately $135.0 million to $150.0 million. The 2014 guidance reflects the
positive growth CES is experiencing across all its business units.
CES' balance sheet remains strong and its financial flexibility was greatly
enhanced with the successful placement in April of $225.0 million aggregate
principal amount 7.375% Senior Notes, and the raising of $35.0 million of equity
in the successful equity offering completed in August 2013. In addition
subsequent to the end of Q3, on October 2, 2013, CES completed a third amendment
to its existing senior lending facility. The Third Amended Senior Facility
allows CES to freely borrow up to $150.0 million with the removal of the
previously in force borrowing base requirements. In addition, subject to certain
terms and conditions, CES may increase its Third Amended Senior Facility by
$30.0 million to a maximum borrowing of $180.0 million. The Third Amended Senior
Facility has a term to maturity of three years, maturing on October 2, 2016 and
may be extended by one year upon the agreement of the lenders and CES.
CES also announced today that it will pay a cash dividend of $0.065 per common
share on December 13, 2013 to the shareholders of record at the close of
business on November 29, 2013, representing an increased dividend of $0.005 per
common share or 8% to the monthly dividend. This is the eighth dividend increase
announced by CES since converting to a corporate structure on January 1, 2010.
CES Q3 Results Conference Call
With respect to the third quarter results, CES will host a conference call /
webcast at 7 am MST (9 am EST) on Friday, November 8, 2013.
North American toll-free: 1-800-769-8320
International / Toronto callers: 416-340-8527
Link to Webcast: http://www.canadianenergyservices.com/
Outlook
Going forward, CES sees significant growth opportunities as a vertically
integrated, full cycle provider of oilfield chemical solutions. Although revenue
generated at the drill-bit and at the completions stage will remain subject to
volatility, operators continue to drill more complex, deeper, and longer
horizontal wells that require more chemicals and fluids in general, but also
more technically advanced chemical solutions in order to be successfully
drilled, cased and completed. Through both its JACAM and PureChem divisions, CES
has vertically integrated manufacturing capabilities with unutilized throughput
at both its Sterling, KS and Carlyle, SK plants. CES also has a full suite of
technically advanced solutions of production chemicals for consumption at the
wellhead or pump-jack, and specialty chemicals for the pipeline and mid-stream
market. These markets are less volatile and are growing on a year-over-year
basis as the volumes of produced hydrocarbons and the associated produced water
increases. CES believes over time it can grow its market share within each of
these sub-segments of the oilfield consumable chemical market. CES' strategy is
to utilize its patented and proprietary technologies and superior execution to
increase market share. CES believes that its unique value proposition in this
increasingly complex operating environment makes it the premier independent
provider of technically advanced consumable chemical solutions throughout the
life-cycle of the oilfield in North America.
The Clear Environmental Solutions division continues to complement CES' core
drilling fluids business and has maintained consistently strong results. 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.
The EQUAL Transport division remains profitable. It is expected this business
will continue to be instrumental in supporting the core businesses and be
economically viable.
As challenges faced by the oil and gas industry become more complex, advanced
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 consumable oilfield chemical markets.
With the addition of JACAM's state of the art laboratory in Sterling, Kansas,
CES now operates four separate lab facilities across North America which also
includes, Houston, Texas; Carlyle, Saskatchewan; and Calgary, Alberta. CES also
leverages third party partner relationships to drive innovation in the
consumable chemicals 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.
Business of CES
CES is focused on being the leading provider of technically advanced consumable
chemical solutions throughout the life-cycle of the oilfield. This includes
total solutions at the drill-bit, at the point of completion and stimulation, at
the wellhead and pump-jack, and finally through to the pipeline and midstream
market. At the drill-bit, CES' designed drilling fluids encompass 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.
At the point of completion and stimulation, CES' designed chemicals form a
critical component of fracking solutions or other forms of well stimulation
techniques. The shift to horizontal drilling and multi-stage fracturing with
long horizontal well completions has been responsible for significant growth in
the drilling fluids and completion and stimulation chemicals markets. At the
wellhead and pump-jack, CES' designed production and specialty chemicals provide
down-hole solutions for production and gathering infrastructure to maximize
production and reduce costs of equipment maintenance. Key solutions include
corrosion inhibitors, demulsifiers, H2S scavengers, paraffin control products,
surfactants, scale inhibitors, biocides and other specialty products. Further,
specialty chemicals are used throughout the pipelines and midstream industry
segment to aid in hydrocarbon movement and manage hydrocarbon challenges
including corrosion, wax build-up and H2S.
CES has been able to capitalize on the growing market demand for advanced
consumable fluids and chemical solutions for drilling fluids, production
chemicals, and other specialty chemicals used in the North American oil and gas
industry. CES' business model is relatively asset light and requires limited
re-investment capital to grow while generating significant free cash flow. CES
returns much of this free cash flow back to shareholders through its monthly
dividend.
CES operates in the Western Canadian Sedimentary Basin ("WCSB") and in several
basins throughout the United States ("US"), with an emphasis on servicing the
ongoing major resource plays. In Canada, CES operates under the trade names
Canadian Energy Services, Moose Mountain Mud ("MMM"), PureChem Services
("PureChem"), Clear Environmental Solutions ("Clear"), and EQUAL Transport
("Equal"). In the US, CES operates under the trade names AES Drilling Fluids
("AES"), AES Drilling Fluids Permian ("AES Permian"), previously referred to as
Venture Mud) and JACAM Chemicals ("JACAM").
The Canadian Energy Services, MMM, AES, and AES Permian brands are focused on
the design and implementation of drilling fluids systems for oil and gas
producers. The JACAM and PureChem brands are vertically integrated manufacturers
of advanced production and specialty chemicals for the wellhead and pump-jack,
drilling related chemicals, technically advanced fluids for completions and
stimulations, and chemical solutions for the pipeline and midstream markets. CES
has two complimentary business segments that operate in the WCSB: Clear which
provides environmental consulting and drilling fluids waste disposal services
and Equal which provides its customers with trucks and trailers specifically
designed to meet the demanding requirements of off-highway oilfield work.
Financial Highlights
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------
($000's, except per share
amounts) 2013 2012 2013 2012
---------------------------------------------------------------------------
Revenue 182,274 115,585 462,249 376,271
Gross margin (1) 50,250 27,885 119,726 88,766
Income before taxes 16,749 12,165 33,781 39,697
per share - basic 0.26 0.22 0.54 0.71
per share - diluted 0.25 0.21 0.52 0.69
Net income 12,600 7,952 24,418 25,022
per share - basic 0.19 0.14 0.39 0.45
per share - diluted 0.19 0.14 0.38 0.44
EBITDAC (1) 32,590 17,326 73,335 54,877
per share - basic 0.50 0.31 1.18 0.99
per share - diluted 0.48 0.30 1.13 0.96
Funds Flow From Operations (1) 26,842 13,073 58,088 39,631
per share - basic 0.41 0.23 0.93 0.71
per share - diluted 0.39 0.23 0.90 0.69
Dividends declared 11,491 8,367 31,589 24,447
per share 0.18 0.15 0.51 0.44
---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------
Shares Outstanding 2013 2012 2013 2012
---------------------------------------------------------------------------
End of period 66,546,509 55,873,073 66,546,509 55,873,073
Weighted average
- basic 65,212,693 55,749,999 62,343,079 55,525,233
- diluted 67,982,881 57,356,168 64,795,146 57,261,864
---------------------------------------------------------------------------
September December
Financial Position ($000's) 30, 2013 31, 2012
---------------------------------------------------------------------------
Net working capital 164,975 114,899
Total assets 745,875 354,642
Long-term financial liabilities
(2) 292,157 71,575
Shareholders' equity 339,117 215,420
---------------------------------------------------------------------------
Notes:
(1) CES uses certain performance measures that are not recognizable under
International Financial Reporting Standards ("IFRS"). These performance
measures include net income before interest, taxes, depreciation and
amortization, gains and losses on disposal of assets, goodwill impairment,
unrealized foreign exchange gains and losses, unrealized derivative gains
and losses, and stock-based compensation ("EBITDAC"), gross margin and
Funds Flow From Operations. 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 and nine
months ended September 30, 2013.
(2) Includes the long-term portion of Deferred Acquisition Consideration,
drawings under the Second Amended Senior Facility, the Senior Notes,
vehicle financing, and finance leases, excluding current portions.
Cautionary Statement
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 29 2013; capital
expenditure programs for oil and natural gas exploration, development,
production, processing and transportation; 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; the effect of the JACAM Acquisition and AES Permian Acquisition on the
Corporation, the Corporation's plans to integrate JACAM and AES Permian with the
operations of CES and management of CES' expectation of the effect of the JACAM
Acquisition and AES Permian Acquisition on CES' cash flow, revenues, EBITDAC and
net income; 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 consumable fluids and chemical oilfield services; 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; the ability
to successfully integrate and achieve synergies from the Company's acquisitions;
changes in legislation and the regulatory environment, including uncertainties
with respect to programs to reduce greenhouse gas and other emissions and
regulations restricting the use of hydraulic fracturing; reassessment and audit
risk associated with the corporate conversion and other tax filing matters;
changes to the royalty regimes applicable to entities operating in Canada 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, 2012, 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 2013 unaudited condensed consolidated financial statements
and notes thereto as at and for the three and nine months ended September 30,
2013, 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.
THE TORONTO STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT RESPONSIBILITY
FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.
FOR FURTHER INFORMATION PLEASE CONTACT:
Canadian Energy Services & Technology Corp.
Tom Simons
President and Chief Executive Officer
(403) 269-2800
info@ceslp.ca
Canadian Energy Services & Technology Corp.
Craig F. Nieboer, CA
Chief Financial Officer
(403) 269-2800
www.CanadianEnergyServices.com
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