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, 2013. Further, CES announced today that it will
pay a cash dividend of $0.055 per common share on June 14, 2013 to the
shareholders of record at the close of business on May 31, 2013.
During Q1 2013, CES made significant strides forward in its strategic vision of
being a leading provider of technically advanced consumable chemical solutions
throughout the full life cycle of the oilfield. As previously announced, CES
completed the acquisition of the business assets of JACAM Chemicals Company,
Inc. and its subsidiaries (the "JACAM Acquisition") on March 1, 2013. The JACAM
Acquisition has further vertically integrated the business, expanded CES'
product offerings across the oilfield spectrum, provided a significant platform
of infrastructure and new customers in the US, and increased CES' ability to
deliver technically advanced science based solutions to its customers.
CES generated gross revenue of $149.3 million during the first quarter of 2013,
compared to $156.6 million for the three months ended March 31, 2012, a decrease
of $7.2 million or 5% on a year -over-year basis. Revenue in Canada was $67.4
million for the three months ended March 31, 2013 compared to $79.5 million for
the three months ended March 31, 2012, representing a decrease of $12.1 million
or 15%. The year-over-year change in Canadian revenue is a result of decreased
activity levels and customer spending in Canada. Lower commodity prices and high
oil price differentials resulted in Canadian operators scaling back spending
levels in Q1 2013 relative to Q1 2012. Although not as busy as Q1 2012, the
combination of the ProDrill acquisition completed in late Q4 2012; PureChem
making positive financial contributions; and the general pick-up of activity in
the traditionally robust winter drilling season had the Canadian business
performing well. Revenue generated in the US for the three months ended March
31, 2013 was $81.9 million as compared to the first quarter of 2012 with revenue
of $77.1 million, representing an increase of $4.8 million or 6% on a
year-over-year basis. The year-over-year increase is largely attributable to the
JACAM Acquisition. In addition to the financial contribution JACAM made in the
month of March; the shift in activity in the US to new work in the Eagle Ford;
the addition of significant work in the Mississippi Lime as a result of the Mega
Fluids acquisition; and a pick-up of activity in other regions has the US
business back on track and well positioned to grow.
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, 2013 was $23.6 million as compared to $24.8
million for the three months ended March 31, 2012, representing a slight
decrease of $1.2 million or 5%. CES recorded EBITDAC per share of $0.40 ($0.39
diluted) for the three months ended March 31, 2013 versus EBITDAC per share of
$0.45 ($0.43 diluted) in 2011, a decrease of 11% (9% diluted).
Based on the financial results achieved in Q1 2013, CES' is reaffirming its
expected guidance issued in March 2013. CES' expected range of consolidated
gross revenue for 2013 will be approximately $580.0 million to $620.0 million
and expected consolidated EBITDAC will be approximately $95.0 million to $105.0
million. 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 Unsecured Notes.
CES also announced today that it has declared a cash dividend of $0.055 per
common share to shareholders of record on May 31, 2013. CES expects to pay this
dividend on or about June 14, 2013.
With respect to the first quarter results, CES will host a conference call /
webcast at 10 am MST (12 pm EST) on Thursday, May 9, 2013.
North American toll-free: 1-800-659-6164
International / Toronto callers: 416-359-3126
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 PureChem and JACAM divisions, CES
has vertically integrated manufacturing capabilities with unutilized throughput
at both its Carlyle, SK and Sterling, KS 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.
Despite the decrease in activity in the WCSB, the EQUAL Transport division has
remained 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, Carlyle, Saskatchewan; Calgary, Alberta; and Houston, Texas. 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 various
basins in 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") and JACAM
Chemicals ("JACAM").
The Canadian Energy Services, MMM, and AES brands are focused on the design and
implementation of drilling fluids systems for oil and gas producers. The
PureChem and JACAM brands are vertically integrated manufacturers of drilling
related chemicals, and they also design, develop, and manufacture technically
advanced fluids for completions and stimulations, advanced production and
specialty chemicals for the wellhead and pump-jack, 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. Beginning in 2013, the financial results of these two units are included
in the consumable chemical solutions segment as based on the significant growth
of this segment these distinct businesses are no longer individually material.
Financial Highlights
Three Months Ended
March 31,
---------------------------------
($000's, except per share amounts) 2013 2012
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Revenue 149,309 156,557
Gross margin (1) 38,061 37,358
Income before taxes 13,454 20,256
per share - basic 0.23 0.37
per share - diluted 0.22 0.35
Net income 9,959 13,702
per share - basic 0.17 0.25
per share - diluted 0.16 0.24
EBITDAC (1) 23,587 24,759
per share - basic 0.40 0.45
per share - diluted 0.39 0.43
Funds Flow From Operations (1) 17,872 17,828
per share - basic 0.30 0.32
per share - diluted 0.29 0.31
Dividends declared 9,712 7,741
per share 0.17 0.14
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Three Months Ended
March 31,
---------------------------------
Shares Outstanding 2013 2012
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End of period 62,657,836 55,381,861
Weighted average
- basic 58,885,788 55,255,804
- diluted 60,735,878 57,102,551
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Financial Position ($000's) March 31, 2013 December 31, 2012
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Net working capital (15,463) 114,899
Net working capital excluding bridge
facility (3) 144,537 114,899
Total assets 655,168 354,642
Long-term financial liabilities (2) 105,624 71,575
Shareholders' equity 280,798 215,420
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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"),
gross margin, 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
twelve months ended December 31, 2012.
(2) Includes long-term portion of the Amended Senior Facility, vehicle
financing loans, committed loans, and finance leases, excluding current
portions.
(3) Adjusted to exclude the JACAM Acquisition Bridge Facility which was
repaid on April 17, 2013 following the Company's completion of the
Senior Unsecured Notes offering.
Cautionary Statement
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, 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 on the Corporation, the
Corporation's plans to integrate JACAM with the operations of CES and management
of CES' expectation of the effect of the JACAM 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; 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 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, 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 Q1 2013 unaudited condensed consolidated financial statements
and notes thereto as at and for the three months ended March 31, 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.
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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