Press release from Marketwire
Canadian Energy Services & Technology Corp. Announces Results for the Fourth Quarter and the Year Ended December 31, 2011, and Declares Increased Cash Dividend
Thursday, March 08, 2012
Canadian Energy Services & Technology Corp. Announces Results for the Fourth Quarter and the Year Ended December 31, 2011, and Declares Increased Cash Dividend16:19 EST Thursday, March 08, 2012CALGARY, ALBERTA--(Marketwire - March 8, 2012) - 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 HighlightsThree Months EndedYear EndedSummary Financial ResultsDecember 31,December 31,($000's, except per share amounts)2011201020112010Revenue138,79394,468459,257249,116Gross margin (1)37,30026,281123,41568,406Income before taxes20,56513,59061,14531,754per share - basic (2)0.3126.96.36.199per share - diluted (2)0.360.251.080.68Net income14,8739,42741,69534,309per share - basic (2)0.270.180.760.76per share - diluted (2)0.260.170.740.74EBITDAC (1)24,42617,12476,32041,481per share - basic (2)0.440.321.390.92per share - diluted (2)0.430.311.350.89Funds flow from operations (1)22,70516,38168,66339,561per share - basic (2)0.410.301.250.87per share - diluted (2)0.400.301.220.85Dividends declared7,1565,04226,11814,040per share (2)0.130.100.480.31 Three Months Ended Year Ended December 31, December 31,Shares Outstanding2011201020112010End of period (2)55,138,43554,395,48755,138,43554,395,487Weighted average- basic (2)55,001,64753,776,98254,745,39145,289,950- diluted (2)56,870,63054,504,69456,483,36946,627,046Financial Position ($000's)December 31, 2011December 31, 2010Net working capital (4)153,66034,117Total assets385,351287,870Long-term financial liabilities (3) (4)96,7795,278Shareholders' equity204,060179,017Notes: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 year ended December 31, 2011.2Pursuant 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.3Includes long-term portion of the Committed Facility, vehicle financing loans, committed loans, and finance leases, excluding current portions.4On 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™ and PolarBond™ lines along with its proprietary ABS40™, PureStar™ and Liquidrill™/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.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.