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 and six months ended June 30, 2013. Further, CES announced today that
it will pay a cash dividend of $0.06 per common share on September 13, 2013 to
the shareholders of record at the close of business on August 30, 2013,
representing an increased dividend of $0.005 per common share or 9% to the
monthly dividend. This is the seventh dividend increase announced by CES since
converting to a corporate structure on January 1, 2010.
During Q2 2013, CES continued to make 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. After
completion of the JACAM acquisition on March 1, 2013, CES has begun the work to
integrate JACAM with the overall business. JACAM products have been introduced
into Canada on both the drilling fluids side and through PureChem. In the US,
initial steps have been undertaken to support AES operations with JACAM
manufactured materials and to expand JACAM onto the established AES platform.
In addition to the integration initiatives and the financial contribution JACAM
made in Q2, 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 had the US
business performing well. The Venture Mud acquisition, completed just after Q2,
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 and
infrastructure. In Canada, despite an extended spring break up due to wet
weather, the Canadian business is also performing well and there are many
positive signs for the last half of 2013.
CES generated gross revenue of $130.7 million during the second quarter of 2013,
compared to $104.1 million for the three months ended June 30, 2012, an increase
of $26.5 million or 25% on a year-over-year basis. Year-to-date, gross revenue
totaled $280.0 million, compared to $260.7 million, representing an increase of
$19.3 million or 7% 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
contributor being the acquisition of the business assets of JACAM which was
completed on March 1, 2013. The JACAM acquisition 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.
Wet weather conditions persisted in Canada throughout Q2 which extended the
traditional spring break-up and negatively affected activity levels. Despite
this, revenue generated in Canada for the three months ended June 30, 2013
increased slightly by $0.2 million or 1% from $31.5 million to $31.7 million.
For the six month period ended June 30, 2013, revenue in Canada was $99.1
million compared to $110.9 million, representing a decrease of $11.9 million or
11%. The decrease in revenues for the six months ended June 30, 2013 was a
result of the reduced activity levels and customer spending in Canada. In
particular, lower commodity prices and high oil price differentials resulted in
Canadian operators scaling back spending levels in Q1 2013 relative to Q1 2012.
Revenue generated in the US for the three months ended June 30, 2013 was $99.0
million as compared to the second quarter of 2012 with revenue of $72.7 million,
representing an increase of $26.3 million or 36% on a year-over-year basis. For
the six month period ended June 30, 2013, revenue in the US was $180.9 million
compared to $149.8 million, representing an increase of $31.1 million or 21%.
The year-over-year increase is primarily a result of the acquisition of JACAM
(for which there are no associated revenues in the comparable periods in 2012)
combined with revenues from new work added in the Rockies region, in the Eagle
Ford, and in the Mid-Continent region as a result of the December 2012
acquisition of Mega Fluids, partially offset with 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 June 30, 2013 was $17.2 million as compared to $12.8
million for the three months ended June 30, 2012, representing an increase of
$4.4 million or 34%. CES recorded EBITDAC per share of $0.27 ($0.26 diluted) for
the three months ended June 30, 2013 versus EBITDAC per share of $0.23 ($0.22
diluted) in 2012, an increase of 17% (18% diluted). For the six month period
ended June 30, 2013, EBITDAC totalled $40.7 million as compared to $37.6 million
in 2012, representing an increase of $3.2 million or 9%. Year- to-date, CES
recorded EBITDAC per share of $0.67 ($0.65 diluted) versus EBITDAC per share of
$0.68 ($0.66 diluted) in 2012.
Based on the financial results achieved in Q2 2013, CES' is reaffirming its
expected 2013 guidance last updated in July 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' balance sheet remains strong and its financial
flexibility has been 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 through a successful prospectus offering completed on
August 8, 2013.
CES also announced today that it has declared an increased monthly cash dividend
of $0.06 per common share to shareholders of record on August 30, 2013. CES
expects to pay this dividend on or about September 13, 2013.
With respect to the second quarter results, CES will host a conference call /
webcast at 8 am MST (10 am EST) on Thursday, August 15, 2013.
North American toll-free: 1-866-225-0198
International / Toronto callers: 416-340-8061
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, 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"), Venture Mud ("Venture") and JACAM Chemicals ("JACAM").
The Canadian Energy Services, MMM, AES, and Venture 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.
Financial Highlights
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------
($000's, except per share amounts) 2013 2012 2013 2012
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Revenue 130,666 104,129 279,975 260,686
Gross margin (1) 31,415 23,523 69,476 60,881
Income before taxes 3,578 7,276 17,032 27,532
per share - basic 0.06 0.13 0.28 0.50
per share - diluted 0.05 0.13 0.27 0.48
Net income 1,859 3,368 11,818 17,070
per share - basic 0.03 0.06 0.19 0.31
per share - diluted 0.03 0.06 0.19 0.30
EBITDAC (1) 17,158 12,793 40,745 37,552
per share - basic 0.27 0.23 0.67 0.68
per share - diluted 0.26 0.22 0.65 0.66
Funds Flow From Operations (1) 13,374 8,730 31,246 26,558
per share - basic 0.21 0.16 0.51 0.48
per share - diluted 0.20 0.15 0.50 0.46
Dividends declared 10,386 8,339 20,098 16,080
per share 0.17 0.15 0.33 0.29
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Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------
Shares Outstanding 2013 2012 2013 2012
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End of period 63,080,336 55,681,662 63,080,336 55,681,662
Weighted average
- basic 62,861,231 55,567,426 60,884,491 55,411,615
- diluted 65,246,514 57,327,933 63,060,226 57,215,261
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Financial Position ($000's) June 30, 2013 December 31, 2012
----------------------------------------------------------------------------
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Net working capital 151,536 114,899
Total assets 640,485 354,642
Long-term financial liabilities (2) 277,429 71,575
Shareholders' equity 290,410 215,420
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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, the Senior
Notes, vehicle 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 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 August 30, 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 Venture Acquisition on the
Corporation, the Corporation's plans to integrate JACAM and Venture with the
operations of CES and management of CES' expectation of the effect of the JACAM
Acquisition and Venture 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 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, 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 Q2 2013 unaudited condensed consolidated financial statements
and notes thereto as at and for the three and six months ended June 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.
Tom Simons
President and Chief Executive Officer
(403) 269-2800
info@ceslp.ca
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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