Canadian Energy Services & Technology Corp. ("CES" or the "Company")
(TSX:CEU)(OTCQX:CESDF) is pleased to report on its financial and operating
results for the three months ended March 31, 2014. Further, CES announced today
that it will pay a cash dividend of $0.075 per common share on June 13, 2014 to
the shareholders of record at the close of business on May 30, 2014,
representing an increased dividend of $0.005 per common share or 7% to the
monthly dividend. This is the tenth dividend increase implemented by CES since
converting to a corporate structure on January 1, 2010. In addition, the Board
of Directors of CES has resolved to seek the approval of the shareholders for a
three for one stock split of the common shares at the annual general meeting of
the Corporation scheduled for June 19, 2014.
CES continues 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. The integration of JACAM with
the overall business is progressing successfully. 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 operations with JACAM manufactured materials and to expand JACAM's
market penetration via the established AES platform. CES sees the opportunity
for the unique JACAM products expanding as we move forward. From a manufacturing
perspective, CES is undertaking further vertical integration initiatives at the
JACAM facility with the completion of the solid chemistry line expansion, the
build-out of hydrogenation capabilities and the construction of an organo clay
plant.
In addition to the integration initiatives and the financial contribution JACAM
continues to make, CES sees other significant opportunities in the US as we
continue to leverage our platform, product suite, and infrastructure. In
particular, the AES Permian Acquisition, completed in July 2013, has filled the
last remaining geographical hole on the US map for CES. The Permian is the
busiest drilling basin in North America and is continuing to transition to a
horizontal drilling market. CES expects to capitalize on this opportunity
through its unique product offerings, the establishment of an oil based mud
plant in the Permian which was commissioned in March 2014, and the commissioning
of its new barite grinding facility in Corpus Christi which is expected to be
on-line late in Q3.
The Canadian business is also performing very well with record revenues achieved
in Q1, and has positive momentum going into the remainder of 2014. Canadian
operators have been reporting improved cash flow numbers and have seen a rise in
stock prices which should improve their access to the equity markets. This
improved cash flow is likely to translate into higher activity levels in the
back half of 2014 and into 2015. The first quarter of 2014 saw a continuation of
the drilling related market-share gains realized in Q4 2013, with new customer
wins mainly attributable to new technologies introduced over the past year. In
addition, the PureChem division continues its successful build-out across
western Canada with a growing customer base and revenues.
CES generated revenue of $231.3 million during the three months ended March 31,
2014, compared to $149.3 million for the three months ended March 31, 2013, an
increase of $82.0 million or 55%. 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
March 31, 2014, was a record $43.5 million as compared to $23.6 million for the
three months ended March 31, 2013, representing an increase of $19.9 million or
85%. CES recorded EBITDAC per share of $0.65 ($0.62 diluted) for the three
months ended March 31, 2014 versus EBITDAC per share of $0.40 ($0.39 diluted) in
2013, an increase of 63% (59% diluted). As detailed below, all facets of the
business in Canada and the US have contributed to a record quarter for revenue
and EBITDAC.
Revenue generated in Canada for the three months ended March 31, 2014 increased
by $39.6 million or 59% compared to the three months ended March 31, 2013, from
$67.4 million to $106.9 million. The increase in revenues for the three months
ended March 31, 2014, was primarily a result of a year -over-year increase in
market share and a shift to a higher percentage of the Company's drilling fluid
systems being run in both the deep basin and the oilsands. In addition, PureChem
has contributed significantly to the increase in revenues as it continued to
build-out its production and specialty chemical sales.
Despite some unusually severe winter weather conditions that hampered operators'
activity levels, revenue generated in the US for the three months ended March
31, 2014 increased by $42.4 million or 52% compared to the three months ended
March 31, 2013, from $81.9 million to $124.4 million. This year-over-year
increase is primarily a result of the continued integration of JACAM, which was
acquired March 1, 2013 for which there were no associated revenues for January
and February 2013, and AES Permian, which was acquired in July 2013 and for
which there were no associated revenues in Q1 2013. JACAM has 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. 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 has
more than offset the reduced activity in the Marcellus shale region of the US.
Based on the financial results achieved in Q1 2014, CES is reaffirming its
expected 2014 guidance that was provided on November 7, 2013. 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 with positive net working capital of $240.8
million and a draw of $115.8 million, net of capitalized transaction cost of
$0.3 million, on the $150.0 million Senior Facility as at March 31, 2014.
CES also announced today that it will pay a cash dividend of $0.075 per common
share on June 13, 2014 to the shareholders of record at the close of business on
May 30, 2014, representing an increased dividend of $0.005 per common share or
7% to the monthly dividend. This is the tenth dividend increase implemented by
CES since converting to a corporate structure on January 1, 2010.
CES also announced that the Board of Directors has resolved to seek the approval
of the shareholders for a three for one stock split of the common shares at the
annual general meeting of the Corporation scheduled for June 19, 2014.
Management and the Board of Directors of the Corporation believe that having a
greater number of common shares at a reduced price per share will enhance
liquidity, increase investor interest in the Corporation and its business, and
bring the trading price into a more accessible range for retail investors. If
shareholder approval is obtained at the annual general meeting and the stock
split is approved by the TSX, the Corporation will issue a further press release
confirming the effective date of the split.
CES Q1 Results Conference Call
With respect to the first quarter results, CES will host a conference call /
webcast at 8:30 am MST (10:30 am EST) on Wednesday, May 14, 2014.
North American toll-free: 1-866-542-4270
International / Toronto callers: 416-340-8530
Link to Webcast: http://www.canadianenergyservices.com/
Outlook
Going forward, CES sees significant growth opportunities as a vertically
integrated, full cycle provider of oilfield chemical solutions. Although revenue
generated at the drill-bit and at the completions stage will remain subject to
volatility, operators continue to drill more complex, deeper, and longer
horizontal wells that require more chemicals and fluids in general, but also
more technically advanced chemical solutions in order to be successfully
drilled, cased and completed. Through both its JACAM and PureChem divisions, CES
has vertically integrated manufacturing capabilities with unutilized throughput
at both its Sterling, KS and Carlyle, SK plants. CES also has a full suite of
technically advanced solutions of production chemicals for consumption at the
wellhead or pump-jack, and specialty chemicals for the pipeline and mid-stream
market. These markets are less volatile and are growing on a year-over-year
basis as the volumes of produced hydrocarbons and the associated produced water
increases. CES believes over time it can grow its market share within each of
these sub-segments of the oilfield consumable chemical market. CES' strategy is
to utilize its patented and proprietary technologies and superior execution to
increase market share. CES believes that its unique value proposition in this
increasingly complex operating environment makes it the premier independent
provider of technically advanced consumable chemical solutions throughout the
life-cycle of the oilfield in North America.
The Clear Environmental Solutions division continues to complement CES' core
drilling fluids business and has maintained consistently strong results. The
Environmental Services division is focused on expanding its operational base in
the WCSB by specializing in water management issues 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 innovation 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
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 a 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 pipeline and midstream industry to aid in hydrocarbon
movement and manage transportation and processing challenges including
corrosion, wax build-up and H2S.
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"), 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.
Two complimentary business divisions support the operations and augment the
product offerings in the WCSB. Clear is CES' environmental division, providing
environmental consulting and drilling fluids waste disposal services primarily
to oil and gas producers active in the WCSB. EQUAL is CES' transport division,
providing its customers with trucks and trailers specifically designed to meet
the demanding requirements of off-highway oilfield work in the WCSB. EQUAL
transports and handles oilfield produced fluids and supports the oilfield
chemical business by hauling, handling, managing and warehousing products. EQUAL
operates from two terminals and yards located in Edson, Alberta and Carlyle,
Saskatchewan.
Financial Highlights
Three Months Ended March 31,
----------------------------
($000's, except per share amounts) 2014 2013
----------------------------------------------------------------------------
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Revenue 231,310 149,309
Gross margin (1) 64,447 38,061
Income before taxes 25,422 13,454
per share - basic 0.38 0.23
per share - diluted 0.36 0.22
Net income 19,492 9,959
per share - basic 0.29 0.17
per share - diluted 0.28 0.16
EBITDAC (1) 43,522 23,587
per share - basic 0.65 0.40
per share - diluted 0.62 0.39
Funds Flow From Operations (1) 35,566 17,872
per share - basic 0.53 0.30
per share - diluted 0.51 0.29
Dividends declared 13,488 9,712
per share 0.20 0.17
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Three Months Ended March 31,
----------------------------
Shares Outstanding 2014 2013
----------------------------------------------------------------------------
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End of period 67,753,354 62,657,836
Weighted average
- basic 67,325,138 58,885,788
- diluted 70,188,691 60,735,878
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As at
-----------------------------------
Financial Position ($000's) March 31, 2014 December 31, 2013
----------------------------------------------------------------------------
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Net working capital 240,755 197,366
Total assets 872,083 807,319
Long-term financial liabilities (2 ) 355,446 322,766
Shareholders' equity 390,377 360,519
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Notes:
(1)CES uses certain performance measures that are not recognizable under
International Financial Reporting Standards ("IFRS"). These performance measures
include net income before interest, taxes, depreciation and amortization, gains
and losses on disposal of assets, goodwill impairment, unrealized foreign
exchange gains and losses, unrealized derivative gains and losses, and
stock-based compensation ("EBITDAC"), 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 months ended March 31, 2014.
(2) Includes the long-term portion of Deferred Acquisition Consideration, draws
under the Senior Facility, the Senior Notes, vehicle and equipment financing,
and finance leases, excluding current portions.
Cautionary Statement
Except for the historical and present factual information contained herein, the
matters set forth in this press 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 document speak only
as of the date of the document, 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 30, 2014; the
seasonality of CES' business and anticipated reduction in exposure to the
effects of spring break-up in the WCSB; the sufficiency of liquidity and capital
resources to meet long-term payment obligations; management's opinion of the
impact of any potential litigation or disputes; the application of critical
accounting estimates and judgements; the collectability of accounts receivable;
the expected range of consolidated revenue and EBTDAC; CES' ability to increase
its marketshare; supply and demand for CES' products and services; industry
activity levels; commodity prices; treatment under governmental regulatory and
taxation regimes; expectations regarding expansion of services in Canada and the
United States; development of new technologies; expectations regarding CES'
growth opportunities in Canada and the United States; the effect of the JACAM
Acquisition and the AES Permian Acquisition on the Corporation; expectations
regarding the performance or expansion of CES' operations; expectations
regarding demand for CES' services and technology; 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;
fluctuations in 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 Conversion and other tax filing
matters; changes to the fiscal regimes applicable to entities operating in the
WCSB and the US; access to capital and the liquidity of debt markets;
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, 2013 and "Risks and Uncertainties" in CES' MD&A dated May 13,
2014.
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 2014 unaudited condensed consolidated financial statements
and notes thereto as at and for the three months ended March 31, 2014, and
accompanying management discussion and analysis in accordance with National
Instrument 51-102 - Continuous Disclosure Obligations adopted by the Canadian
securities regulatory authorities. Additional information about CES will be
available on CES' SEDAR profile at www.sedar.com and CES' website at
www.CanadianEnergyServices.com.
THE TORONTO STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT RESPONSIBILITY
FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.
FOR FURTHER INFORMATION PLEASE CONTACT:
Canadian Energy Services & Technology Corp.
Tom Simons
President and Chief Executive Officer
(403) 269-2800
Canadian Energy Services & Technology Corp.
Craig F. Nieboer, CA
Chief Financial Officer
(403) 269-2800
info@ceslp.ca
www.CanadianEnergyServices.com
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