CanElson Announces Strong First Quarter Results, Additional Rig Builds and Increases Quarterly Dividend
May 09 2013 - 8:40AM
Marketwired Canada
CanElson Drilling Inc. (TSX:CDI) today announces strong financial results for
the first quarter ending March 31, 2013, plans additional rig builds and
declares first quarter dividend.
FIRST QUARTER 2013 SUMMARY (Compared with a year earlier)
-- Services revenue $72.3 million, up 16% from $62.5 million
-- EBITDA $27.4 million, consistent with 2012 of $27.4 million
-- Income attributable to shareholders of the Corporation $13.3 million,
down 15% from $15.6 million
-- EPS (diluted) $0.17, down 19% from $0.21
-- Weighted average diluted shares outstanding 76.8 million, up 4% from
74.0 million
-- First quarter dividend of $0.06 per share, up 20% from previous
quarterly rate of $0.05
-- United States segment revenue $29.1 million, up 14% from $25.5 million,
representing 40% of total service revenue for the quarter, up from 36%
CanElson maintained the same high Canadian utilization rate (spud to rig release
days) in the first quarter of 2013 and increased the rate of industry
outperformance. At a 73% utilization rate for Q1 2013, CanElson outperformed the
industry by 1.24 times, compared to 1.09 times for the first quarter of 2012.
In the USA, CanElson had a utilization rate of 86%, up 3% compared to the first
quarter of 2012. The total corporate utilization rate increased to 78% from 76%
in Q1 2012.
ADDITIONAL RIG BUILDS
Given the demand for our existing drilling rig fleet, relative industry
outperformance and based on customer requests we are finalizing additional rig
contracts, resulting in additional 2013 tele-double drilling rig construction
and deployment as follows:
-- Rig #37: Expected to be delivered Q3 2013
-- Rig #38: Expected to be delivered Q4 2013
-- Rig #39: Expected to be delivered Q4 2013
-- Rig #44: Long lead items will be procured in Q3 and Q4 of 2013
"During the quarter we generated growth in our operational activity levels while
the industry saw contraction. We believe that key factors in this success
include the extensive drilling and operational experience of our people and our
modern purpose built equipment." stated Randy Hawkings, President and CEO of
CanElson. "Our top decile financial and operating results combined with our
disciplined use of leverage have positioned us with the flexibility to increase
our dividend by 20% and add three new rig builds and long lead items for a
fourth drilling rig to our 2013 capital program."
Fleet deployment (by rigs)
North
Canada Texas Dakota
----------------------------------------------------------------------------
At March 31, 2013 23 (net 22) 12 (net 10.5) 4
At December 31, 2012 23 (net 22.5) 10 (net 8.5) 4
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Change % Unchanged 20% Unchanged
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Fleet deployment (by rigs)
Mexico
Drilling Mexico
(Leased) Service Total
----------------------------------------------------------------------------
At March 31, 2013 1 (net 0.5) 2 (net 1) 42 (net 38)
At December 31, 2012 1 (net 0.5) 2 (net 1) 40 (net 36.5)
----------------------------------------------------------------------------
Change % Unchanged Unchanged 5%
----------------------------------------------------------------------------
Gross fleet deployment (by %)
North
Canada Texas Dakota
----------------------------------------------------------------------------
At March 31, 2013 55% 28% 10%
At December 31, 2012 57% 25% 10%
----------------------------------------------------------------------------
Gross fleet deployment (by %)
Mexico
Drilling Mexico
(Leased) Service Total
----------------------------------------------------------------------------
At March 31, 2013 2% 5% 100%
At December 31, 2012 3% 5% 100%
----------------------------------------------------------------------------
OUTLOOK
Drilling Services
Once again, in the first quarter of 2013 CanElson outperformed the drilling
services industry in both Canada and the US amid continued subdued markets. We
believe that our strategy has uniquely positioned us to sustain relatively
strong profitability during the full drilling industry cycle. The key drivers
for our relative industry strength, profitability, and top decile 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 4,000 metres) allowing us to
outperform peers when considering the total costs of safely drilling
wells
3. A problem-solving culture as evidenced by our ability to service our
customers with performance drilling and innovative cost saving
initiatives such as our natural gas fuel and flare gas initiative with
CanGas
4. A history of developing mutually-beneficial partnerships and strong
client relationships with First Nations organizations, oil and gas
operators and the joint venture which leverages the established Mexican
footprint of Diavaz CanElson de Mexico, S.A. de C.V. ("DCM")
5. Prudent financial management, which allows the company to be
opportunistic at any point in the cycle
6. Operational excellence based on a culture of safety, as reflected by
superior drilling industry safety performance relative to benchmarks
from third party sources such as provincial and state workers
compensation boards and private insurance providers
At the time of this press release 93% of the drilling rig fleet is committed for
after spring break up based on current customer requests and 33% of the rigs
have long-term commitments with an average term slightly greater than one and a
half years.
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 current volatility in oil and
natural gas commodity prices, increased price differentials, reduced access to
capital, transportation challenges, and global macro-economic concerns.
Consequently, we expect typical seasonal utilization through the remainder of
the year including a normal seasonal decrease in revenues for Q2 and Q3 of 2013.
There may also be some seasonal revenue rate pressure as less efficient
competitor drilling contractors try to obtain work with low revenue rates during
the spring and summer drilling seasons. We expect to maintain our competitive
edge and to continue to exceed average industry utilization levels due to our
strong relationships, modern drilling rig fleet, cost reduction initiatives
(e.g. CanGas) and long term contracts with customers.
Texas
CanElson has 28% of its fleet focused on oil directed drilling in the Permian
Basin in Texas. CanElson continues to grow its fully contracted fleet in this
basin even though the industry-wide rig count in this area has recently declined
due to some of the same macro-economic industry trends described above. We
anticipate that the current revenue rates for CanElson's Texas rigs will
continue for the balance of the year. We also expect to 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.
Mexico
In Mexico, DCM is retrofitting and modernizing two recently acquired
tele-doubles at an estimated total investment of approximately $6.5 million per
rig. We are expecting to deploy one of the new rigs in Q2 and the other in Q3 of
2013. Although the timing for deployment is approximately one month behind our
initially anticipated start date, the process has allowed us to further develop
the local knowledge of DCM drilling management in rig assembly and design, which
we expect DCM to leverage in the future.
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 and Q3 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. We are
anticipating that PEMEX and our customer will have completed this transition
period by the time the newly acquired rigs are retrofitted and deployed.
CanGas Solutions Inc.
During 2013, we expect to continue investment in our fleet of truck-hauled CNG
delivery trailers and to convert the primary diesel engines in our drilling rigs
to bi-fuel capacity based on customer requests.
Capital Availability and Capital Program
CanElson is well capitalized to take advantage of strategic opportunities with
net debt (debt less cash) at March 31, 2013 of only $17.5 million and $98.4
million available on our existing credit facilities. Funds flow continues to be
strong and will fully support our quarterly dividend rate of $0.06 per share as
well as a significant portion of the expected 2013 capital expenditures with the
remaining amount funded through undrawn loans and borrowings facilities.
Excluding $0.25 million of anticipated remaining capitalized development costs
for the new triple rig design, CanElson's total 2013 capital program is expected
to be as follows:
Drilling Services
------------------------------------------
Spare
equipment, Upgrades &
Capital facilities &
Expenditures overhead maintenance Expansion CanGas Total
----------------------------------------------------------------------------
Three months
ended March
31, 2013 $ 2.2 $ 2.6 $ 8.5 $ 2.9 $ 16.2
Anticipated
costs to
complete
2013 capital
projects 4.2 10.6 41.4 9.6 65.8
--------------------------------------------------------------
Total approved
costs for
2013 capital
projects $ 6.4 $ 13.2 $ 50.0 $ 12.5 $ 82.1
Previously
anticipated
costs for
2013 capital
projects (i) 5.7 11.5 16.5 12.0 45.7
--------------------------------------------------------------
Variance from
previously
anticipated
2013 capital
projects $ 0.6 $ 1.7 $ 33.5 $ 0.5 $ 36.4
(i) Refer to the MD&A dated February 28, 2013, noting that the numbers have been
reduced for the capital expenditures relating to DCM as it is now accounted for
using the equity method (see Financial Statements and MD&A reference below).
Our modern standardized fleet allows us to minimize capital expenditures on
maintenance and spare equipment. As in the past, construction of any additional
drilling rigs is pending receipt of long-term contracts. The 2013 total expected
capital expenditures of $82.1 million has been increased by $36.4 million from
the previously announced anticipated capital program at $45.7 million. The
increase includes $31.5 million for the completion of three additional rigs and
additional long lead components for a fourth rig, including top drives, based on
anticipation of finalizing long-term commitments. The remainder of the
incremental capital relates to additional recertification costs and incremental
spare equipment. During the first quarter of 2013, our expansion capital
expenditures represented over half of the capital expenditures required for the
completion and deployment of Rig #35 and #36 and long lead items for Rig #37.
The remaining anticipated costs to complete 2013 capital projects are allocated
as follows:
Drilling Services
$56.2 million capital program allocated as follows:
1. $39.1 million for the construction and completion of three tele-doubles
with top drives (relating to rigs #37, #38, and #39), long lead items
for one tele-double (rig #44) and $2.3 million on other growth capital;
and
2. Approximately $14.8 million for spares, shop upgrades and maintenance
capital.
CanGas
$9.6 million capital program allocated as follows:
1. Convert primary diesel engines on our drilling rigs to bi-fuel
capability to enable operation on a mixture of natural gas and diesel
fuel;
2. Expand our fleet of truck-hauled natural gas delivery trailers,
compression and conditioning equipment to meet both current and
anticipated demand;
3. Collect and leverage operating data to facilitate greater diesel fuel
displacement and better manage costs; and
4. Further research and development associated with our proprietary raw gas
conditioning technology to employ portable small-scale field facilities
to condition raw natural gas for use as fuel.
2013 Primary Objectives
Looking to the end of 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 capitalize on new
opportunities. Subject to obtaining customer commitments, we intend to carry out
the following activities that will enhance our competitive positioning:
-- Continue to expand our standard tele-double fleet
-- Expand our service offering in Mexico
-- Continue with strategic conversion of the diesel engines in our rig
fleet to bi-fuel capacity
-- Continue to form innovative long-term business relationships
Achieving these objectives will present new opportunities for CanElson, its
customers and shareholders.
DIVIDEND
On May 8, 2013, the Board of Directors declared a first quarter dividend of
$0.06 per share for the three month period ended March 31, 2013, payable on June
7, 2013 to shareholders of record at the close of business on May 29, 2013. The
dividend is an eligible dividend for Canadian tax purposes.
FINANCIAL SUMMARY
For the three months ended
March 31,
2013 2012 % change
----------------------------------------------------------------------------
Services revenue $ 72,277 $ 62,510 16%
EBITDA (i) $ 27,455 $ 27,473 0%
Share of profit unconsolidated joint venture 38 500 -92%
Net income attributable to shareholders of
the
Corporation $ 13,335 $ 15,609 -15%
Net income per share
Basic $ 0.17 $ 0.21 -19%
Diluted $ 0.17 $ 0.21 -19%
Funds flow (i) $ 23,964 $ 24,113 -1%
Gross Margin (services) (i) $ 32,397 $ 31,008 4%
Weighted average diluted shares outstanding 76,784 73,965 4%
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(Tabular amounts are stated in thousands of Canadian dollars, except per share
amounts and rig operating days)
FINANCIAL STATEMENTS AND MD&A
This is the Corporation's first reporting period adopting IFRS 11 accounting for
Joint Arrangements. In accordance with IFRS 11 the transition date was January
1, 2013 with retroactive application to January 1, 2012 and, accordingly, the
comparative information for 2012 has been restated to conform to the
requirements of IFRS 11. The application of IFRS 11 has changed the
classification and subsequent accounting of the Corporation's investment in DCM,
which was classified as a jointly controlled entity and previously accounted for
using the proportionate consolidation method. Applying IFRS 11 requires that the
Corporation apply equity accounting for its 50% interest in DCM. Additional
information about the adoption of this standard and the Corporation's IFRSs
accounting policies is discussed in the Accounting Policies and Critical
Estimates section of the MD&A as well as in the notes to the March 31, 2013
condensed consolidated financial statements and the audited December 31, 2012
consolidated financial statements.
CanElson's complete unaudited interim financial results and Management's
Discussion and Analysis (MD&A) for the first quarter ended March 31, 2013 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: intention to
construct three additional rigs in 2013; our belief that our strategy positions
us to sustain profitability during the full drilling industry cycle; expected
typical seasonal utilization and revenue rate effects through the remainder of
the year; in Canada and North Dakota expectation to continue to exceed average
industry utilization levels; in Texas current revenue rate anticipated to
continue and to achieve capacity utilization in excess of 90% for the remainder
of 2013; expected deployment of rigs in Mexico in Q2 and Q3 of 2013 and
estimated cost of these rigs; our belief that our performance in the region and
our alignment with an experienced local partner provides an opportunity for DCM
to expand its drilling services in the region; the temporary lull in our
activity will be limited only until the newly acquired rigs are re-deployed; our
expectation to continue investment in the fleet of truck-hauled CNG delivery
trailers and to convert the primary diesel engines in our drilling rigs to
bi-fuel capacity; expected 2013 capital programs and anticipated cost to
complete 2013 capital program; and our 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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