Press release from Marketwire
Canadian Energy Services & Technology Corp. Announces Results for the First Quarter and Declares Cash Dividend
Wednesday, May 11, 2011
Canadian Energy Services & Technology Corp. Announces Results for the First Quarter and Declares Cash Dividend21:45 EDT Wednesday, May 11, 2011CALGARY, ALBERTA--(Marketwire - May 11, 2011) - Canadian Energy Services & Technology Corp. ("CES" or the "Company") (TSX:CEU) is pleased to report on its financial and operating results for the three months ended March 31, 2011. CES also announced today that it will pay a cash dividend of $0.12 per common share on June 15, 2011 to the shareholders of record at the close of business on May 31, 2011.CES' Q1 2011 results reflect an increase in activity and revenue across all of CES' business segments. CES' dominant business line, the drilling fluids segment, experienced the most significant gains over 2010 as a result of increased industry activity, the completion and integration of two accretive acquisitions in the United States ("US") and a continuing industry trend to drill more complex, horizontal wells.CES generated gross revenue of $111.5 million during the first quarter of 2011, compared to $49.0 million for the three months ended March 31, 2010 an increase of $62.5 million or 128% on a year-over-year basis. For the three month period ended March 31, 2011, CES recorded gross margin of $32.6 million or 29% of revenue, compared to gross margin of $14.7 million or 30% of revenue generated in the same period last year which is consistent to the prior year comparison on a percentage basis.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, 2011, was $20.8 million as compared to $9.5 million for the three months ended March 31, 2010, representing an increase of $11.3 million or 118%. Included in EBITDAC for the three months ended March 31, 2011, is a realized foreign exchange loss of $0.4 million which relates to the settlement of certain intercompany working capital balances between CES and its US subsidiary, AES. Excluding the respective intercompany foreign exchange losses, EBITDAC would have been $21.2 million. CES recorded EBITDAC per share of $1.15 ($1.12 diluted) for the three months ended March 31, 2011 versus EBITDAC per share of $0.71 ($0.70 diluted) in 2010.CES recorded net income of $11.8 million for the three month period ended March 31, 2011, as compared to net income of $18.5 million in the prior year. CES recorded net income per share of $0.65 ($0.64 diluted) for the three months ended March 31, 2011 versus net income per share of $1.38 ($1.37 diluted) in 2010. As a part of the corporate conversion transaction completed by CES in January 2010, CES acquired Canadian tax shelter in the form of non-capital and capital loss pools. As a result of the transition to International Financial Reporting Standards ("IFRS"), the calculated full future benefit of the acquired non-capital losses has been recorded in the Q1 2010 comparative period and the resulting increase to net income has been credited to retained earnings in Q1 2010. This accounting under IFRS has significantly altered the Q1 2010 comparative figures with respect to net income and earnings per share calculations as a result of an increase to net income for comparable Q1 2010 of $10.9 million.Revenue from drilling fluids related sales of products and services in the Western Canadian Sedimentary Basin ("WCSB"), gross of intercompany eliminations, was $45.1 million for the three months ended March 31, 2011, compared to $33.7 million for the three months ended March 31, 2010, representing an increase of $11.4 million or 34%. Daily average revenue per operating day for the three months ended March 31, 2011, was $3,286 compared to $3,264 for the three months ended March 31, 2010, representing an increase of 0.2%. CES' estimated Canadian Market Share was approximately 29% for the three months ended March 31, 2011, up from 26% for the three months ended March 31, 2010. CES' operating days in the WCSB were estimated to be 13,731 for the three month period ended March 31, 2011, an increase of 34% from 10,253 operating days during the same period last year. Overall industry activity increased approximately 24% from an average monthly rig count in the first quarter of 2010 of 431 to 534 during the first quarter of 2011 based on CAODC published monthly data for Western Canada.For the three months ended March 31, 2011, revenue generated in the United States ("US") from drilling fluid sales of products and services, gross of intercompany eliminations, was $55.1 million as compared to Q1 2010 revenue of $7.5 million, an increase of $47.6 million or 635% on a year-over-year basis. Operating days in the US were estimated to be 9,702 operating days for the three month period ended March 31, 2011, an increase of 355% from 2,133 operating days during the same period last year. CES' US Market Share for the three months ended March 31, 2011, was estimated to be 6%, up from 2% for the three months ended March 31, 2010. The significant year- over-year increase in the Company's US results is due to the inclusion of Fluids Management activity (Fluids Management was acquired at the end of Q2 2010) and the organic growth achieved from Champion Drilling Fluids and Fluids Management divisions subsequent to their respective acquisitions. Daily average revenue per operating day for the three months ended March 31, 2011, was $5,684 compared to $3,527 for the three months ended March 31, 2010, representing an increase of 62%.EQUAL Transport's ("EQUAL") trucking revenue for the three month period ended March 31, 2011, gross of intercompany eliminations, totalled $5.8 million, an increase of $1.8 million or 45% from the $4.0 million for the three months ended March 31, 2010. 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 Saskatchewan.Clear Environmental Solutions division ("Clear") generated $5.6 million of revenue for the three month period ended March 31, 2011, compared to $4.0 million during the prior year representing an increase of $1.6 million or 40%. 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.In Q1 2011, CES declared monthly dividends of $0.10 for each of the month's of January and February and increased the monthly dividend to $0.12 for the month of March for a total of $0.32 per share for the quarter. CES also announced today that it has declared a cash dividend of $0.12 per common share to shareholders of record on May 31, 2011. CES expects to pay this dividend on or about June 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."Q1 2011 was a very successful quarter for CES, and each of our business units made significant contributions to the results achieved" said Tom Simons, the President and Chief Executive Officer of Canadian Energy Services & Technology Corp. "We will continue to stay focused on delivering quality service, effective products, and leading technologies for our customers as we build out our North American business"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, 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, 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 located strategically 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 from its head office in Denver, Colorado; in the mid-continent region through its Champion Drilling Fluids division which is headquartered in Norman, 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 fourteen states with stock point facilities located in Oklahoma, Texas, Pennsylvania, Michigan, Colorado, North Dakota, Louisiana, and Utah.Financial Highlights Three Months EndedSummary Financial Results March 31,($000's, except per share amounts)20112010Revenue111,53949,038Gross margin (1)32,62414,723Income before taxes17,3818,089per share– basic0.960.61per share – diluted0.930.60Net income11,81518,468per share– basic0.651.38per share – diluted0.641.37EBITDAC (1)20,7929,530per share– basic1.150.71per share – diluted1.120.70Funds flow from operations (1)18,7659,328per share– basic1.030.70per share – diluted1.010.69Dividends declared5,8072,414per share0.320.18Three Months EndedMarch 31,Shares Outstanding20112010End of period18,159,99513,469,809Weighted average- basic18,141,91413,367,833- diluted18,603,25013,519,021March 31,December 31,Financial Position ($000's)20112010Net working capital41,00934,117Total assets312,204287,870Long-term financial liabilities (2)5,2405,278Shareholders' equity182,974179,017Notes:1CES 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, 2011.2Includes vehicle financing loans, term loans, and finance lease facilities excluding current portions. Outlook Crude oil prices have rebounded off their lows of 2009 and 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 and unconventional gas. In the US, this same trend is evident and areas such as the Marcellus shale continue to attract 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' Q1 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™/PolarBond, ABS40™, PureStar™ and Liquidrill™/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. At this time, Clear's activity levels are expected to remain healthy throughout 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 statement of financial position 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 May 31, 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 Q1 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.FOR FURTHER INFORMATION PLEASE CONTACT: Tom SimonsCanadian Energy Services & Technology Corp.President and Chief Executive Officer(403) 269-2800ORCraig F. Nieboer, CACanadian Energy Services & Technology Corp.Chief Financial Officer(403) firstname.lastname@example.org.CanadianEnergyServices.comTHE TORONTO STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.