CanElson Announces Strong Second Quarter Financial Results and Declares Second Quarter DividendAugust 2, 2012
CALGARY, ALBERTA–(Marketwire 08/02/12)- CanElson Drilling Inc. (CDI.TO) today announced strong financial results for the second quarter and first half of 2012 compared with a year earlier. CanElson also declared a second quarter dividend of $0.05 per share.
SECOND QUARTER 2012 SUMMARY (COMPARED WITH A YEAR EARLIER)
— Services revenue $37.5 million, up 49% from $25.1 million
— Foreign segment (United States and Mexico) revenue grew by 62% to $26.0 million representing 69% of total revenue for the quarter
— EBITDA $10.0 million, up 53% from $6.6 million
— Income attributable to shareholders $3.9 million, up 43% from $2.7 million
— EPS (diluted) $0.05, up 25% from $0.04
— Weighted average diluted shares outstanding 75.2 million, up 6% from 71.3 million
FIRST HALF 2012 SUMMARY (COMPARED WITH A YEAR EARLIER)
— Services revenue $103.1 million, up 56% from $66.1 million
— Foreign segment (United States and Mexico) revenue grew by 85% to $51.4 million representing 50% of total revenue
— EBITDA $38.2 million, up 82% from $21.0 million
— Income attributable to shareholders $19.5 million, up 110% from $9.3 million
— EPS (diluted) $0.26, up 86% from $0.14
— Weighted average diluted shares outstanding 74.6 million, up 14% from 65.4 million
“Our expanding, modern drilling rig fleet and operations in key oil-weighted basins across North America enabled us to generate strong financial results during the second quarter even though it is a period of seasonal slowdown in Canada and North Dakota,” Randy Hawkings, President and CEO of CanElson. “Our prudent growth and risk management strategy continues to prove itself as we remain focused on delivering superior full-cycle value and growth to our customers and shareholders.”
Due to the efficiencies offered by our modern, deep drilling rigs and the strong relationships and contracts we have established with our customers, we expect our operational excellence to continue which should result in top quartile financial results through the full cycle.
We expect to benefit during the second half of 2012 and beyond from the deployment of 27% of our fleet to oil-directed drilling in the Permian Basin in Texas. This area appears likely to achieve capacity utilization in excess of 90% in 2012, similar to 2011, with the only non-utilization being attributable to rig move intervals. In Mexico, we expect our customer will move to a production sharing contract with PEMEX during the next six months. This change may result in a minor and temporary lull in activity later this year during the transition of the contracts, but should provide us with an opportunity to expand our service offering and increase our exposure to performance-related contract terms in 2013 and beyond.
At our Nisku, Alberta facility we are constructing three additional purpose-built, small footprint, ultra-heavy- duty, telescoping double drilling rigs (“tele-doubles”) at an estimated investment of approximately $8 million per rig. We will deploy these new rigs in the second half of 2012 all with long term committed contracts. After taking into account these new rigs and the rig we deployed to Texas in July 2012, we will have increased the gross size of the fleet to 41 rigs. As in the past we continue to order long lead items for an additional tele-double, with full construction dependent upon obtaining customer commitments.
Our wholly and jointly owned drilling rig fleet is primarily comprised of tele-doubles, which have an average age of less than 4.5 years and an average depth capacity in excess of 4,000 metres. Our modern fleet and depth capacity compares favourably to our competitors. Additionally, our owned drilling rig fleet is highly standardized, providing cost-effective operational, staffing and repair advantages compared with less standardized fleets. Finally, all of our rigs have long reach capacity for deep and horizontal drilling.
Our fleet is primarily focused on drilling oil resource wells in North America’s most active basins. Currently, approximately 90% of our drilling rig fleet is contracted with 33% of the fleet operating under long-term commitments with an average term of approximately 2 years.
CANGAS SOLUTIONS INC. (“CANGAS”)
On May 15, 2012 (the “Acquisition Date”) CanElson acquired all of the issued and outstanding shares of CanGas Solutions Ltd. in return for approximately 2.05 million CanElson common shares. We believe CanGas is the only provider of Compressed Natural Gas (“CNG”) transportation services by truck-hauled CNG trailers in Western Canada and that is strategically positioned for rapid and profitable growth and potential cost-savings to customers.
CanGas provides two unique services requiring the transport by road of CNG. The first service is to provide high pressure processed natural gas to remote worksites where the natural gas can displace a significant proportion of diesel burned in a conventional diesel engine converted to bi-fuel (a mixture of natural gas and diesel fuel). CanGas also sources and supplies the high pressure input compression to fill the road transport CNG trailers, and the diesel engine bi-fuel conversions. The second service is to collect low pressure raw natural gas, which would otherwise be flared, and transport it under high pressure to a gas processing facility. The conservation of this raw gas allows the owner to produce more oil than would otherwise be allowed by regulations if the raw gas were flare. CanGas is developing proprietary technology that could, if successful, employ portable, small-scale field facilities to condition raw stranded natural gas so that it would be suitable for consumption in diesel engines. We hope to profit both from the commercialization of this technology and from the additional opportunities that it would provide for our CNG engine conversion and transportation business.
Our assessment is based on anticipated environmental trends, especially tighter restrictions on flared gas to reduce greenhouse gas emissions and waste, as well as the significant cost saving available from the substitution of inexpensive natural gas for diesel fuel. We believe CanGas is a natural supplier to our Drilling Services and will improve our already strong operating economics.
CanGas currently operates a fleet of 6 CNG trailers and 2 portable compression units. Currently, revenue is derived principally from the collection of low pressure raw natural gas from remote locations and the transportation of that gas to a processing facility. We also expect to receive revenue from the conditioning of wellhead natural gas if and when our proprietary gas conditioning technology is proven commercial. While CanGas operated profitably in its first 47 days as our subsidiary, its results are not yet material.
With net debt at June 30, 2012 of only $2.7 million and $60 million available on our existing credit facilities, we are well capitalized to take advantage of specific strategic growth opportunities. Funds flow continues to be strong and will support our dividend rate of $0.05 quarterly and our announced 2012 capital and research and development programs as well as further expansion into 2013.
CanElson’s total 2012 capital program is now expected to be approximately $89.0 million of which $57.9 million is expected to be incurred during second half 2012 and a significant percentage being funded by operating cash flows. Key elements of the second half 2012 capital program are:
Drilling Services ($38.3 million):
(1) $25.8 million for the construction and completion of four committed
tele-doubles (relating to rigs #31 to #34), long lead items for one
tele-double (rig #35) and other growth capital investment ; and
(2) Approximately $12.6 million for spares, shop upgrades and maintenance
$19.6 million to convert the primary diesel engines on 14 of our drilling rigs to bi-fuel capability by the end of 2012, so that the engines can operate on a mixture of natural gas and diesel fuel; to expand our fleet of truck-hauled CNG delivery trailers to more than 50 from 6 currently; to expand the portable compression units by 4 to 6 units; and for further research and development associated with our proprietary small-scale, raw gas conditioning technology to employ portable, small-scale field facilities to condition raw stranded natural gas so that it would be suitable for consumption in engines.
2013 PRIMARY OBJECTIVES
Looking to 2013, CanElson’s primary objectives include the development, contract and deployment of a purpose-built small footprint triple drilling rig; continued expansion of our standard tele-double fleet; expansion of our service offering in Mexico; and the rapid conversion of the diesel engines in our fleet to bi-fuel capacity.
The Board of Directors has declared the second quarter dividend of $0.05 per share for the three month period ended June 30, 2012, payable on September 7, 2012 to shareholders of record at the close of business on August 17, 2012. Management believes the Corporation can pursue disciplined but aggressive growth opportunities while returning value to our shareholders through a dividend.
FINANCIAL STATEMENTS AND MD&A
CanElson’s complete unaudited interim financial results and Management’s Discussion and Analysis (MD&A) for the second quarter and first half of 2012 have been filed on SEDAR and posted to the company’s website at this link: http://www.canelsondrilling.com/investor-relations/financial-reports
This press release contains certain statements or disclosures relating to CanElson that are based on the expectations of CanElson as well as assumptions made by and information currently available to CanElson which may constitute forward-looking information under applicable securities laws. In particular, this press release contains forward-looking information related to: we expect our operational excellence to continue and should drive top quartile financial results through the full cycle by utilizing the efficiencies offered by our modern, deep drilling rigs and the strong relationships and contracts we have established with our customers; our expectation to benefit during the second half of 2012 and beyond from the deployment of 27% of our fleet to oil-directed drilling in the Permian Basin in Texas; our expectation that our drilling rigs in the Permian Basin of west Texas will achieve capacity utilization in excess of 90% in 2012; our expectation that our customer in Mexico will move to a production sharing contract with PEMEX in the next six months and that this may result in a minor and temporary lull in activity later this year; our expectation that our service offering in Mexico will expand and increase our exposure to performance related contract terms in 2013 and beyond; our strategic goal; our expectations and strategic plans for the CanGas business; our expectation that we will deploy three additional tele-double rigs in the second half of 2012 under committed contracts; our expectation that we will invest significantly to expand our fleet of truck- hauled CNG delivery trailers and to convert the primary diesel engines in our drilling rigs to bi-fuel capacity; our belief that we can pursue disciplined, but aggressive growth opportunities and still pay a dividend; our belief funds flow continues to be strong and will support our dividend rate of $0.05 quarterly and our announced 2012 capital program as well as further expansion into 2013; our remaining 2012 capital program will approximate $57.9 million; our 2013 primary objectives. Such forward looking information involves material assumptions and known and unknown risks and uncertainties, certain of which are beyond CanElson’s control. Many factors could cause the performance or achievement by CanElson to be materially different from any future results, performance or achievements that may be expressed or implied by such forward looking information. CanElson’s Annual Information Form and other documents filed with securities regulatory authorities (accessible through the SEDAR website at www.sedar.com) describe the risks, material assumptions and other factors that could influence actual results and which are incorporated herein by reference. CanElson disclaims any intention or obligation to publicly update or revise any forward looking information, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws.
CanElson Drilling Inc.
President and CEO
CanElson Drilling Inc.
Chief Financial Officer