CanElson Announces Strong Fourth Quarter and Annual Financial Results and Declares Fourth Quarter Dividend
CALGARY, ALBERTA--(Marketwire - Mar 4, 2013) - CanElson Drilling Inc. (CDI.TO) 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, 2012 | 23 (net 22.5 | ) | 10 (net 8.5 | ) | 4 | 1 (net 0.5 | ) | 2 (net 1 | ) | 40 (net 36.5 | ) | |
December 31, 2011 | 21 | 6 (net 5 | ) | 4 | 2 (net 1 | ) | 2 (net 1 | ) | 35 (net 32 | ) | ||
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:
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
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
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
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
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 ended December 31, | For the year ended 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.
