CanElson Announces Strong Fourth Quarter and Annual Financial Results and Declares Fourth Quarter Dividend
March 04 2013 - 6:45AM
Marketwired Canada
CanElson Drilling Inc. (TSX:CDI) today announced strong financial results for
the fourth quarter and the year ending December 31, 2012 compared with a year
earlier and declares a fourth quarter dividend of $0.05 per share.
FOURTH QUARTER 2012 SUMMARY (Compared with a year earlier)
-- Services revenue $67.8 million, up 6% from $64.1 million
-- EBITDA $24.6 million, consistent with $24.8 million
-- Income attributable to shareholders of the Corporation $13.9 million, up
23% from $11.3 million
-- EPS (diluted) $0.18, up 20% from $0.15
-- Weighted average diluted shares outstanding 77.0 million, up 4% from
73.7 million
-- Declared fourth quarter dividend of $0.05 per share, unchanged.
-- Foreign segment revenue $31.6 million, up 32% from $24.0 million,
representing 47% of total service revenue for the quarter, up from 37%
-- Sold 50% interests in two drilling rigs for aggregate proceeds of $8.7
million and a before tax net cash inflow of $1.6 million (not recognized
in statement of comprehensive income nor within EBITDA)
THE YEAR ENDED 2012 SUMMARY (Compared with a year earlier)
-- Services revenue $229.3 million, up 24% from $184.8 million
-- EBITDA $84.9 million, up 29% from $66.1 million
-- Income attributable to shareholders of the Corporation $43.6 million, up
38% from $31.3 million
-- EPS (diluted) $0.58, up 29% from $0.45
-- Weighted average diluted shares outstanding 75.5 million, up 9% from
69.5 million
-- Foreign segment (United States and Mexico) revenue $110.2 million, up
51% from $73.0 million, representing 48% of total service revenue for
the year, up from 40%.
Notably, CanElson's Canadian utilization rate (spud to rig release days) in the
fourth quarter of 2012 was 63%, or 1.6 times the industry average with average
revenue rates increasing 7% over 2011. CanElson's fourth quarter 2012
outperformance increased significantly from the fourth quarter of 2011, when
CanElson's Canadian outperformance rate was 1.3 times the industry average.
CanElson's US utilization for the fourth quarter was 84% (2011: 84%). Total
corporate utilization was 71% during the fourth quarter of 2012 (2011: 79%).
For 2012 as a whole, CanElson's Canadian utilization rate was 55%, or 1.3 times
the industry average (2011: 1.3 times industry average). CanElson's US
utilization for the year was 80% (2011: 84%). Total corporate utilization was
64% during 2012 (2011: 71%).
"During the year our return on equity was 15.2%, which improved on last year's
impressive rate of
13.6%. This rate of return for our shareholders is particularly satisfying in
light of our disciplined use of leverage, exiting 2012 with a debt to trailing
funds flow of only 0.4 times" stated Randy Hawkings, President and CEO of
CanElson. "This leaves us in an ideal financial position to selectively choose
the best growth opportunities to continue delivering industry leading returns
for our shareholders."
Fleet
deployment
(by rigs)
Mexico
North Drilling Mexico
Canada Texas Dakota (Leased) Service Total
----------------------------------------------------------------------------
December 31, 23 (net 10 (net 1 (net 40 (net
2012 22.5) 8.5) 4 0.5) 2 (net 1) 36.5)
December 31, 35 (net
2011 21 6 (net 5) 4 2 (net 1) 2 (net 1) 32)
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Change % 10% 67% unchanged -50% unchanged 14%
----------------------------------------------------------------------------
Gross fleet
deployment
(by %)
Mexico
North Drilling Mexico
Canada Texas Dakota (Leased) Service Total
----------------------------------------------------------------------------
December 31,
2012 57% 25% 10% 3% 5% 100%
December 31,
2011 60% 17% 11% 6% 6% 100%
----------------------------------------------------------------------------
OUTLOOK
Drilling Services
CanElson outperformed the drilling services industry in both Canada and the US
amid continued subdued markets in the fourth quarter of 2012. We believe that
our strategy has uniquely positioned us to sustain relatively strong
profitability during the full drilling industry cycle. The cornerstones to our
relative industry strength, profitability, and top quartile financial results
are:
1. Strategically diversified operations in oil-weighted regions within two
balanced geographical segments which provide diversity of earnings and
less seasonality while maintaining focus and operational efficiency
2. Standardized deep, modern rigs (average age of approximately 4.5 years
and average vertical rating of greater than 4000 metres) allowing us to
outperform peers when considering the total costs of safely drilling
wells
3. A problem-solving culture as evidenced by innovative cost saving
initiatives such as our natural gas fuel and flare gas initiative with
CanGas and the development of our new proprietary triple rig design
4. A history of developing mutually-beneficial partnerships and strong
client relationships, such as our joint venture Diavaz CanElson de
Mexico, S.A. de C.V. ("DCM"), which has an established foot print and a
growing reputation for efficiency in optimization of drilling practices
in Mexico where the market appears to be poised for performance-driven
growth
5. Prudent financial management, which allows the company to be
opportunistic at any point in the cycle
Mexico
In Mexico, DCM is retrofitting and modernizing two recently acquired tele-double
rigs at an estimated total investment of approximately $6.5 million per rig. The
new rigs are expected to be deployed in Q2 2013. The drilling industry in Mexico
appears to be somewhat countercyclical relative to Canada and the US because
PEMEX, the state-owned petroleum company, is dedicated to stemming Mexico's oil
production decline and increasing domestic gas production throughout price
cycles.
We have demonstrated our ability to successfully do business in Mexico. We
believe our performance in the region and our alignment with an experienced and
strong local partner (Grupo Diavaz, with 40 years of experience serving PEMEX)
provides an excellent opportunity for our joint venture DCM to expand its range
of services, including potentially expanding its drilling rig fleet beyond the
two rigs currently anticipated for deployment in Q2 of 2013.
As previously disclosed DCM's customer is transitioning to a production sharing
style of contract with PEMEX. Therefore, DCM is experiencing a temporary lull in
activity and we expect this to continue during the transition period until the
newly acquired rigs are retrofitted and deployed.
Texas
CanElson has 25% of its fleet focused on oil-directed drilling in the Permian
Basin in Texas. The rig count in this area has recently declined due to the
macro industry trends described above. This may result in minor downward
pressure on revenue rates for CanElson's Texas rigs in 2013 compared with 2012.
We do not expect that this pressure will significantly impact our overall
utilization in Texas and anticipate that we will still achieve capacity
utilization in excess of 90% for 2013, with downtime caused only by rig move
intervals and planned re-certifications of some drilling equipment.
Canada and North Dakota
Our customers in Canada and North Dakota are cautious with respect to their
capital spending programs as a result of the volatility in oil and natural gas
commodity prices, increased price differentials, reduced access to capital,
transportation challenges, and global macro concerns. Consequently, we
anticipate that subdued fourth quarter 2012 revenue rate conditions will prevail
through the first quarter of 2013. We also expect typical seasonal utilization
increases through the winter. Beyond the first quarter we have less certainty as
to the market direction but we expect to have a competitive edge due to our
strong relationships, cost reduction initiatives (e.g. CanGas) and the long term
contracts we have established with our customers.
Rig Assembly
At our Nisku, Alberta facility one tele-double drilling rig has been assembled
and deployed in the first quarter of 2013 under a long term contract, with a
second tele-double drilling rig anticipated to be fully assembled and deployed
under long-term contract by the end of the first quarter of 2013. The estimated
investment for each of the rigs is $8 million. These new rigs will increase the
gross size of the fleet to 42 rigs, excluding the two recently purchased rigs in
Mexico. As in the past, we continue to order long lead items for an additional
tele-double drilling rig, with full construction dependent upon obtaining
customer commitments. In addition, progress is continuing on finalizing the
detail design of a proprietary triple drilling rig that will incorporate many
characteristics of our successful tele-doubles.
2013 Primary Objectives
Looking to 2013, CanElson's primary objectives are to maintain and strengthen
its industry leading position by consistently providing operational excellence
and drilling efficiencies to its customers. With this focus, we will be well
positioned to obtain strong customer commitments and to capitalize on new
opportunities. Subject to obtaining customer commitments, we intend to carry out
the following activities that will enhance our competitive positioning:
-- Expand our service offering in Mexico;
-- Continue with strategic conversion of the diesel engines in our fleet to
bi-fuel capacity;
-- Tactically develop and contract a proprietary triple drilling rig to
complement our core tele-double fleet; and
-- Continue to expand our standard tele-double fleet.
Achieving these objectives will present new opportunities for CanElson, its
customers and shareholders.
MANAGEMENT APPOINTMENT
CanElson is pleased to announce the appointment of Rob Logan as President and
CEO of CanElson's wholly owned subsidiary CanGas. Mr. Logan has been an
independent board member serving on the Audit
Committee and chairing the board of our US Subsidiary since March 2010. Mr.
Logan's experience with high-growth, early-stage businesses as well as his
strategic focus will complement CanGas management's strong technical and
marketing capabilities as the company prepares to significantly expand its
service offerings. Given the anticipated time requirement of the CanGas
position, Mr. Logan has resigned from the CanElson board of directors effective
March 1, 2013.
"While Rob's contributions to CanElson as a board member will be missed, we are
extremely excited to add him to the CanGas management team" stated Randy
Hawkings. "Not only will management benefit from the knowledge he has gained as
a CanElson board member, but his past experience with early stage enterprises
and extensive investment banking experience should prove extremely beneficial to
CanGas in this early development stage of its business."
DIVIDEND
On February 28, 2013, the Board of Directors declared a third quarter dividend
of $0.05 per share for the three month period ended December 31, 2012, payable
on April 2, 2013 to shareholders of record at the close of business on March 22,
2013.
FINANCIAL SUMMARY
(Tabular amounts are stated in thousands of Canadian dollars, except per share
amounts and rig operating
days)
For the three months For the year ended
ended December 31, December 31,
% %
2012 2011 change 2012 2011 change 2010
----------------------------------------------------------------------------
Services
revenue $ 67,758 $ 64,098 6% $229,348 $184,758 24% $ 67,825
EBITDA $ 24,598 $ 24,779 -1% $ 84,935 $ 66,067 29% $ 1,389
Net income
attributable
to
shareholders
of the
Corporation $ 13,926 $ 11,324 23% $ 43,582 $ 31,329 39% $ 4,808
Net income per
share
Basic $ 0.18 $ 0.15 20% $ 0.58 $ 0.45 29% $ 0.12
Diluted $ 0.18 $ 0.15 20% $ 0.58 $ 0.45 27% $ 0.12
Funds flow $ 23,348 $ 20,665 13% $ 79,713 $ 59,787 33% $ 12,890
Gross Margin
(services) $ 28,721 $ 28,831 0% $101,025 $ 76,654 32% $ 18,328
Gross Profit on
rig sale $ - $ - nm $ - $ 788 -100% $ 1,115
Weighted
average
diluted shares
outstanding 76,953 73,666 4% 75,514 69,536 9% 39,242
----------------------------------------------------------------------------
FINANCIAL STATEMENTS AND MD&A
CanElson's complete unaudited interim financial results and Management's
Discussion and Analysis (MD&A) for the fourth quarter and the year ended
December 31, 2012 have been filed on SEDAR and posted to the company's website
at this link:
http://www.canelsondrilling.com/investor-relations/financial-reports
FORWARD-LOOKING INFORMATION
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:
our belief that our strategy positions us to sustain strong profitability during
the full drilling industry cycle; deployment of rigs to Mexico in Q2 2013 and
estimated costs of these rigs; our belief that our performance in the region and
our alignment with a local partner provides an opportunity for DCM to expand its
drilling services in the region; the temporary lull in our activity in Mexico
will be limited only until our newly acquired rigs are re-deployed; expected
minor downward pressure on revenue rates for CanElson's Texas rigs in 2013
compared with 2012; our expectation that revenue rate pressure will not
significantly impact our overall utilization in Texas; our expectation that we
will achieve capacity utilization in excess of 90% in Texas for 2013; our
anticipation that subdued fourth quarter 2012 revenue rate conditions will
prevail through the first quarter of 2013; our expectation of typical seasonal
utilization increases through the winter;our expected competitive edge in the
market place due to our strong relationships, cost reduction initiatives and the
long term contracts; the estimated assembly cost for two additional tele-doubles
the expected time of deployment of an additional new rig in Q1 of 2013; and 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.
FOR FURTHER INFORMATION PLEASE CONTACT:
CanElson Drilling Inc.
Randy Hawkings
President and CEO
(403) 266-3922
CanElson Drilling Inc.
Robert Skilnick
Chief Financial Officer
(403) 266-3922
www.canelsondrilling.com
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