CanElson Announces First Quarter Financial Results, Additional Committed Rig Builds and Declares First Quarter Dividend

Marketwired

CALGARY, ALBERTA--(Marketwire - May 8, 2012) - CanElson Drilling Inc. ("CanElson" or the "Corporation") (CDI.TO - News) announces first quarter financial results, additional committed rig builds and declares first quarter dividend.

FIRST QUARTER 2012 HIGHLIGHTS:





--  Services revenue $65.6 million (2011: $40.9 million) 

--  Canadian utilization of 73% (2011: 82%) 

--  United States utilization of 83% (2011: 94%) 

--  Gross profit of $31.6 million (2011: $15.8 million) 

--  2012 EBITDA of $28.1 million (2011: $14.4 million) 

--  2012 income attributable to shareholders of $15.6 million (2011: $6.6

    million) 

--  Declared the first quarter dividend of $0.05 per share 

--  Filed a patent pending to fuel mobile equipment with flare gas 

--  Entered into an agreement to acquire all of the issued and outstanding

    shares of CanGas Solutions

    Ltd. ("CanGas") for the issuance of approximately 2.05 million CanElson

    common shares 



First quarter EBITDA was $28.1 million and basic and diluted earnings per share was $0.21 which compares to 2011 first quarter EBITDA and basic and diluted earnings per share of $14.4 million and $0.11, respectively. The increase in these first quarter financial measures compared to the same period last year is a result of strengthening EBITDA margins and growth in the average drilling rig fleet available for operation.

Also during the first quarter, CanElson undertook a couple of key steps to advance its industry leading bi-fuel initiative. The first step was to file a patent pending for the use of flare gas to fuel mobile equipment and the second step was entering into an agreement to acquire CanGas, a containerized natural gas transport company. The Corporation continues to believe bi-fuel technology will not only reduce the environmental impact of exhaust emissions, but also reduce fuel costs as the lower priced natural gas is replacing diesel which has an estimated equivalent natural gas value of more than $30 per thousand cubic feet. Other industries with remote or mobile diesel equipment may also benefit from bi-fuel technology, and current low natural gas prices will enhance and extend its application.

CanElson is continuing its organic growth with the construction of an incremental three "purpose built" small footprint ultra-heavy-duty tele-scoping double drilling rigs ("tele-double") added to its 2012 capital program. CanElson's total 2012 capital program is now expected to be approximately $71 million, of which $59 million is expected to be incurred during the last nine months of 2012. The remaining 2012 capital program is comprised of: (1) $43 million for the construction and completion of five committed tele-doubles (relating to rigs #30 to #34), long lead items for one tele-double (rig #35) and other growth capital investment; and (2) approximately $16 million for spares, shop upgrades and maintenance capital.

The 2012 rig deployment schedule is as follows:





--  Rig #29: Delivered February 2012 which is contracted long term and

    currently operating in the Permian Basin of west Texas (previously

    announced); 

--  Rig #30: Delivered April 2012 which is contracted long term and

    currently operating in the Permian Basin of west Texas (previously

    announced); 

--  Rig #31: Expected to be delivered June 2012 to the Permian Basin of west

    Texas under long term commitment (previously announced); 

--  Rig #32: Expected to be delivered August 2012 to north west Alberta

    under long term commitment; 

--  Rig #33: Expected to be delivered September 2012 to the Permian Basin of

    west Texas under long term commitment; 

--  Rig #34: Expected to be delivered November 2012 to the Permian Basin of

    west Texas under long term commitment; 

--  Rig #35: Long lead items have been ordered with completion of

    construction and deployment dependent upon obtaining a long-term

    commitment. 



The majority of CanElson's rig fleet continues to be purpose built tele-doubles reflecting management's view that these are the most efficient drilling rigs from both capital and operating perspectives for resource plays that the Corporation targets. These tele-doubles are designed for minimum rig up and rig out times, lower cost transportation and highly reliable operation, especially for long-reach horizontal wells. This strategy allows CanElson to offer competitive rates through the full economic cycle and build long-term customer relationships while targeting top quartile returns for shareholders. For select resource plays CanElson is investigating customer enquiries for ultra-efficient triple drilling rigs.

The Board of Directors has declared the first quarter dividend of $0.05 per share for the three month period ended March 31, 2011, payable on June 12, 2012 to shareholders of record at the close of business on May 22, 2012. Management believes the Corporation can pursue disciplined but aggressive growth opportunities while returning value to our shareholders through a dividend.

President and CEO Randy Hawkings states, "We continue our combination of effective capital deployment and efficient operations of good people and rigs, which in turn has given us a robust financial position to support our many organic growth opportunities as well as enabling us to return a portion of our free cash flow to shareholders through a dividend."

Hugh Borgland, Director of CanElson, is not standing for re-election at the annual general meeting. Hugh Borgland has been a valued member of the CanElson Board of Directors. The Company would like to thank Mr. Borgland for all his contributions and wishes him all the best in his future endeavors.

At the date of this press release, CanElson was operating 37 rigs: 21 drilling rigs in the WCSB, 8 ( 7) drilling rigs in Texas, 4 drilling rigs in North Dakota, 2 ( 1) drilling rigs and 2 ( 1) service rigs in the Misantla-Tampico Basin of Mexico. CanElson's owned drilling rig fleet has an average age of less than 4.5 years.

Unaudited financial information extracted from the consolidated financial statements and management's discussion and analysis (MD&A) for the three months ended March 31, 2012 are included below. The full text of the unaudited financial statements and MD&A are to be posted on the SEDAR website at www.sedar.com.

FINANCIAL HIGHLIGHTS

(Tabular amounts are stated in thousands of Canadian dollars, except per share amounts and rig operating days)





                                                Three months ended March 31,

                                              2012         2011       change

----------------------------------------------------------------------------

Services revenue                       $    65,601  $    40,954          60%

Rig construction revenue               $         -  $     4,377        -100%

EBITDA                            (i)  $    28,119  $    14,378          96%

Income attributable to                                                      

 shareholders of the                                                        

 corporation                           $    15,609  $     6,564         138%

Income per share                                                            

  Basic                                $      0.21  $      0.11          91%

  Diluted                              $      0.21  $      0.11          91%

Funds flow                       (ii)  $    24,737  $    12,810          93%

Gross Margin (services)         (iii)  $    31,583  $    15,840          99%

Gross Profit (rig                                                           

 construction)                         $         -  $       788        -100%

Weighted average diluted                                                    

 shares outstanding                         73,965       59,810          24%

----------------------------------------------------------------------------



CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION





                                                 March 31,      December 31,

(Stated in thousands of Canadian dollars)             2012              2011

----------------------------------------------------------------------------

ASSETS                                                                      

Current assets:                                                             

  Cash                                         $    11,969    $       10,424

  Trade and other receivables                       50,663            46,123

  Prepaid expenses and deposits                        831               976

  Inventory                                             37                49

                                           ---------------------------------

                                                    63,500            57,572

Property and equipment                             247,030           240,756

Goodwill                                            25,944            25,944

                                           ---------------------------------

                                                                            

                                               $   336,474    $      324,272

----------------------------------------------------------------------------

LIABILITIES AND EQUITY                                                      

Current liabilities:                                                        

  Trade payables and accrued liabilities            21,900            19,925

  Advances for rig construction                      3,672                 -

  Deferred revenue                                   1,186             1,364

  Current tax liabilities                            2,234             4,724

  Loans and borrowings                               4,686             5,481

                                           ---------------------------------

                                                    33,678            31,494

                                                                            

Deferred revenue                                     2,107             2,373

Loans and borrowings                                 3,742             9,051

Deferred tax liabilities                            28,599            25,103

                                           ---------------------------------

                                                    68,126            68,021

                                           ---------------------------------

                                                                            

Equity                                                                      

  Share capital                                    205,477           205,139

  Employee benefit reserve                           2,880             2,482

  Foreign currency translation reserve               1,270             2,371

  Retained earnings                                 47,686            35,749

                                           ---------------------------------

Equity attributable to shareholders of the                                  

 Corporation                                       257,313           245,741

                                                                            

Equity attributable to non-controlling                                      

 interest                                           11,035            10,510

                                                                            

                                           ---------------------------------

Total equity                                       268,348           256,251

                                           ---------------------------------

                                                                            

                                               $   336,474    $      324,272

----------------------------------------------------------------------------



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME





                                                        For the three month 

                                                           period March 31, 

(Stated in thousands of Canadian dollars -                                  

 except per share data)                                 2012           2011 

----------------------------------------------------------------------------

                                                                            

Services revenue                                  $   65,601     $   40,954 

Cost of sales:                                                              

  Other direct operating expenses                     34,018         25,114 

  Depreciation                                         4,112          2,903 

  Stock based compensation                               180             84 

                                              ------------------------------

                                                      38,310         28,101 

                                              ------------------------------

Gross profit                                          27,291         12,853 

                                              ------------------------------

Rig sales                                                  -          4,377 

Cost of rig sales                                          -          3,589 

                                              ------------------------------

Gross profit                                               -            788 

                                              ------------------------------

Total gross profit                                    27,291         13,641 

                                              ------------------------------

Expenses:                                                                   

  Administration expenses                              3,464          2,250 

  Business acquisition transaction costs                   -          1,307 

  Stock based compensation                               301            254 

  Foreign exchange (gains) losses                        (16)           148 

                                              ------------------------------

                                                       3,749          3,959 

                                              ------------------------------

Income before interest and taxes                      23,542          9,682 

Interest expense                                         202            245 

                                              ------------------------------

Income before income tax                              23,340          9,437 

Current income tax expense                             3,315            672 

Deferred income tax expense                            3,615          2,025 

                                              ------------------------------

Income tax expense                                     6,930          2,697 

                                              ------------------------------

Net income                                        $   16,410     $    6,740 

Other comprehensive loss                                                    

Foreign currency translation differences for                                

 foreign operations                                   (1,377)          (794)

                                              ------------------------------

Total comprehensive income                        $   15,033     $    5,946 

----------------------------------------------------------------------------

Income attributable to:                                                     

Shareholders of the Corporation                   $   15,609     $    6,564 

Non-controlling interest                                 801            176 

                                              ------------------------------

                                                  $   16,410     $    6,740 

                                              ------------------------------

Total comprehensive income attributable to:                                 

Shareholders of the Corporation                   $   14,508     $    5,915 

Non-controlling interest                                 525             31 

                                              ------------------------------

                                                  $   15,033     $    5,946 

                                              ------------------------------

Income per share                                                            

    Basic                                         $     0.21     $     0.11 

    Diluted                                       $     0.21     $     0.11 

----------------------------------------------------------------------------



REVENUE AND OPERATING EXPENSE HIGHLIGHTS





                                        For the three months ended March 31,

                                                 2012         2011    Change

----------------------------------------------------------------------------

Oilfield services segment                                                   

  Services revenue                                                          

    Domestic                              $    40,134  $    29,273       37%

    Foreign                                    25,467       11,681      118%

                                        ------------------------------------

                                               65,601       40,954       60%

                                                                            

  Other direct operating expenses              34,018       25,114       35%

                                                                            

                                        ------------------------------------

  Gross margin                            $    31,583  $    15,840       99%

                                        ------------------------------------

  Gross margin %                                  48%          39%          

                                                                            

  General and administration expenses           3,464        2,250       54%

                                                                            

  EBITDA                                       28,119       14,378       96%

  EBITDA %                                        43%          35%       22%

                                                                            

Operating days (spud to rig release)            2,191        1,506       45%

                                                                            

  Revenue per operating day (Domestic)    $     28.74  $     25.61       12%

  Revenue per operating day (Foreign)     $     32.05  $     32.18        0%

  Other operating expenses per day        $     15.53  $     16.68       -7%

                                                                            

Rig construction and retrofit segment                                       

  Rig and equipment sales                 $         -  $     4,377        nm

  Cost of rig and equipment sales                   -        3,589        nm

                                        ------------------------------------

                                                    -  $       788        nm

----------------------------------------------------------------------------



NON-GAAP MEASURES

This press release contains references to (i) EBITDA, (ii) funds flow and (iii) gross margin. These financial measures are not measures that have any standardized meaning prescribed by IFRSs and are therefore referred to as non-GAAP measures. The non-GAAP measures used by the Corporation may not be comparable to similar measures used by other companies.





(i)   EBITDA is defined as "income before interest expense (income), income 

      taxes, depreciation, stock based compensation expense and foreign     

      exchange." Management believes that in addition to Net and            

      comprehensive income (loss), EBITDA is a useful supplemental measure  

      as it provides an indication of the results generated by the          

      Corporation's principal business activities prior to consideration of 

      how these activities are financed, how the results are taxed in       

      various jurisdictions, or how the results are affected by the         

      accounting standards associated with the Corporation's stock based    

      compensation plan.                                                    

                                                                            

                                                  For the three months ended

                                                        2012            2011

----------------------------------------------------------------------------

Income (loss) before finance costs and taxes      $   23,542     $     9,682

Transaction costs                                          -           1,307

Depreciation                                           4,112           2,903

Stock based compensation                                 481             338

Foreign exchange loss (gain)                             (16)            148

                                              ------------------------------

EBITDA                                            $   28,119     $    14,378

----------------------------------------------------------------------------

                                                                            

(ii)  Funds flow from operations is defined as "cash provided by operating  

      activities before the change in non- cash working capital". Funds flow

      from operations is a measure that provides shareholders and potential 

      investors additional information regarding the Corporation's liquidity

      and its ability to generate funds to finance its operations.          

      Management utilizes this measurement to assess the Corporation's      

      ability to finance operating activities and capital expenditures.     

                                                                            

                                                  For the three months ended

                                                         2012           2011

----------------------------------------------------------------------------

Operating cash flow                               $    19,460    $     4,397

Changes in working capital                              5,277          8,413

                                              ------------------------------

Funds flow                                        $    24,737    $    12,810

----------------------------------------------------------------------------

                                                                            

(iii) Gross margin is defined as "gross profit from services revenue before 

      stock based compensation and depreciation". Gross margin is a measure 

      that provides shareholders and potential investors additional         

      information regarding the Corporation's cash generating operating     

      performance. Management utilizes this measurement to assess the       

      Corporation's operating performance.                                  

                                                                            

                                                  For the three months ended

                                                         2012           2011

----------------------------------------------------------------------------

Gross profit                                      $    27,291    $    12,853

Depreciation                                            4,112          2,903

Stock based compensation                                  180             84

                                              ------------------------------

Gross margin                                      $    31,583    $    15,840

----------------------------------------------------------------------------



The Corporation is engaged in the manufacture, acquisition, operation and sale of rigs into business relationships involving the Corporation for the oil and gas industry. The Corporation currently operates in the western Canadian sedimentary basin ("WCSB"), the United States and Mexico. The Corporation's WCSB operations are currently focused in Alberta, Saskatchewan and Manitoba. The United States operations are currently focused in the Permian Basin of west Texas and the Williston Basin of North Dakota. The Corporation's Mexico operations are conducted through a joint venture Company, Diavaz CanElson de Mexico, S.A. de C.V. ("DCM" or the "Joint Venture"), of which CanElson holds a 50% ownership interest, and is currently focused in the Ebano-Panuco-Cacalilao fields of the Misantla-Tampico Basin of Mexico.

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: the Corporation's belief that bi-fuel technology will not only reduce the environmental impact of exhaust emissions, but also reduce fuel costs as the lower priced natural gas is replacing diesel which has an estimated equivalent natural gas value; management's belief the Corporation can pursue disciplined but aggressive growth opportunities while returning value to our shareholders through a dividend; and the Corporation's expected total 2012 capital program and deployment of additional tele-double drilling rigs in June, August, September and November 2012. 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.

Contact:
Randy Hawkings
CanElson Drilling Inc.
President & Chief Executive Officer
(403) 266-3922

Robert Skilnick
CanElson Drilling Inc.
Chief Financial Officer
(403) 266-3922

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