Press release from Marketwire
Canadian Energy Services & Technology Corp. Announces Results for the Third Quarter Ended September 30, 2013 and Declares Increased Cash Dividend
Thursday, November 07, 2013
Canadian Energy Services & Technology Corp. Announces Results for the Third Quarter Ended September 30, 2013 and Declares Increased Cash Dividend17:38 EST Thursday, November 07, 2013
CALGARY, ALBERTA--(Marketwired - Nov. 7, 2013) - 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/
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.
|Three Months Ended||Nine Months Ended|
|September 30,||September 30,|
|($000's, except per share amounts)||2013||2012||2013||2012|
|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|
|per share - basic||0.19||0.14||0.39||0.45|
|per share - diluted||0.19||0.14||0.38||0.44|
|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|
|Three Months Ended||Nine Months Ended|
|September 30,||September 30,|
|End of period||66,546,509||55,873,073||66,546,509||55,873,073|
|Financial Position ($000's)||September 30, 2013||December 31, 2012|
|Net working capital||164,975||114,899|
|Long-term financial liabilities (2)||292,157||71,575|
|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.|
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.
President and Chief Executive Officer
Canadian Energy Services & Technology Corp.
Craig F. Nieboer, CA
Chief Financial Officer