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 Ended
Summary Financial Results March 31,
------------------------------
($000's, except per share amounts) 2011 2010
---------------------------------------------------------------------------
Revenue 111,539 49,038
Gross margin (1) 32,624 14,723
Income before taxes 17,381 8,089
per share- basic 0.96 0.61
per share - diluted 0.93 0.60
Net income 11,815 18,468
per share- basic 0.65 1.38
per share - diluted 0.64 1.37
EBITDAC (1) 20,792 9,530
per share- basic 1.15 0.71
per share - diluted 1.12 0.70
Funds flow from operations (1) 18,765 9,328
per share- basic 1.03 0.70
per share - diluted 1.01 0.69
Dividends declared 5,807 2,414
per share 0.32 0.18
----------------------------------------------------------------------------
Three Months Ended
March 31,
------------------------------
Shares Outstanding 2011 2010
----------------------------------------------------------------------------
End of period 18,159,995 13,469,809
Weighted average
- basic 18,141,914 13,367,833
- diluted 18,603,250 13,519,021
----------------------------------------------------------------------------
March 31, December 31,
Financial Position ($000's) 2011 2010
----------------------------------------------------------------------------
Net working capital 41,009 34,117
Total assets 312,204 287,870
Long-term financial liabilities (2) 5,240 5,278
Shareholders' equity 182,974 179,017
----------------------------------------------------------------------------
Notes:
(1) CES uses certain performance measures that are not recognizable under
International Financial Reporting Standards ("IFRS"). These performance
measures include earnings before interest, taxes, amortization, goodwill
impairment, stock- based compensation ("EBITDAC"), gross margin, funds
flow from operations and distributable funds. Management believes that
these measures provide supplemental financial information that is useful
in the evaluation of CES' operations. Readers should be cautioned,
however, that these measures should not be construed as alternatives to
measures determined in accordance with IFRS as an indicator of CES'
performance. CES' method of calculating these measures may differ from
that of other organizations and, accordingly, these may not be
comparable. Please refer to the Non-GAAP measures section of CES' MD&A
for the three months ended March 31, 2011.
(2) Includes 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(TM)/PolarBond, ABS40(TM), PureStar(TM) and Liquidrill(TM)/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.
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