U.S. Markets open in 4 hrs 23 mins

Total Energy Services Inc. Announces Q2 2013 Results

CALGARY, ALBERTA--(Marketwired - Aug. 12, 2013) - Total Energy Services Inc. ("Total Energy" or the "Company") (TOT.TO) announces its consolidated financial results for the three and six months ending June 30, 2013.

Financial Highlights

($000's except per share data)

    Three Months Ended June 30     Six Months Ended June 30  
    (unaudited)     (unaudited)  
    2013   2012   % Change     2013   2012   % Change  
Revenue   $ 60,668   $ 54,332   12 %   $ 163,579   $ 155,781   5 %
Operating Earnings (1)     1,455     3,778   (61 )%     24,933     37,436   (33 )%
EBITDA (1)     7,471     9,120   (18 )%     39,048     49,255   (21 )%
Cashflow (1) (5)     5,203     9,550   (46 )%     17,557     49,655   (65 )%
Net Income     114     3,250   (96 )%     17,505     27,711   (37 )%
                                     
Per Share Data (Diluted) (2)                                    
EBITDA (1)   $ 0.22   $ 0.29   (24 )%   $ 1.14   $ 1.41   (19 )%
Cashflow (1) (5)   $ 0.15   $ 0.30   (50 )%   $ 0.51   $ 1.42   (64 )%
Net Earnings   $ 0.00   $ 0.10   (100 )%   $ 0.56   $ 0.85   (34 )%
                                     
    June 30   Dec. 31      
    2013
(unaudited)
  2012
(audited)
  % Change  
Financial Position                  
Total Assets   $ 473,500   $ 476,591   (1 )%
Long-Term Debt, Convertible Debentures and Obligations Under Finance Leases (excluding current portion)     66,020     65,417   1 %
Working Capital (3)     91,010     90,708   -  
Net Debt (4)     Nil     Nil   -  
Shareholders' Equity     319,854     306,069   5 %
                   
Shares Outstanding (000's)                  
Basic     30,603     30,600   -  
Diluted (2)     34,118     34,300   (1 )%

Notes 1 through 5 please refer to the Notes to the Financial Highlights set forth at the end of this release.

Total Energy's results for the three and six months ended June 30, 2013 reflect continued growth in the Company's Compression and Process Services division offset by a decline in oil and natural gas drilling and completion activity in Western Canada as compared to the first half of 2012 that negatively impacted the Contract Drilling Services and the Rentals and Transportation Services divisions.

Total Energy's Contract Drilling Services division achieved 16% utilization during the second quarter of 2013, recording 227 operating days (spud to release) with a fleet of 16 rigs, compared to 277 operating days, or 20% utilization, during the second quarter of 2012 with a fleet of 15 rigs. Revenue per operating day decreased 12% for the second quarter of 2013 relative to the prior year comparable period due to reduced pricing and the mix of equipment operating. The Rentals and Transportation Services division achieved a utilization rate on major rental equipment of 21% during the second quarter of 2013 as compared to a 36% utilization rate during the second quarter of 2012. The Compression and Process Services division generated revenues of $41.9 million for the three months ended June 30, 2013 compared to $26.3 million for the same period in 2012, an increase of 59%. The 2013 second quarter financial results from this division include results from the process equipment fabrication business that was acquired on January 1, 2013. This division exited the second quarter of 2013 with a $58.2 million backlog of fabrication sales orders as compared to $28.8 million at June 30, 2012. Included in the June 30, 2013 fabrication sales order backlog is $45.3 million of compression sales backlog and $12.9 million of process equipment sales backlog. At June 30, 2013, approximately 30,500 horsepower of compression equipment was on rent compared to 28,500 horsepower on rent at June 30, 2012. The gas compression rental fleet operated at an average utilization rate of 84% for the second quarter of both 2013 and 2012.

Negatively impacting cash flow for the first half of 2013 was the payment of $15.3 million of income taxes during the first quarter that related to 2012, as income tax installment payments were not required in 2012. Total Energy is required to make monthly income tax installment payments in 2013.

During the second quarter, Total Energy declared a quarterly dividend of $0.05 per share to shareholders of record on June 28, 2013. This dividend was paid on July 31, 2013. 193,700 common shares were purchased under the Company's normal course issuer bid during the three months ended June 30, 2013 at an average price of $14.59 per share (including commissions).

Outlook

Overall drilling and completion activity in Western Canada during the second quarter of 2013 was lower than the second quarter of 2012, due in part to wet weather conditions that extended into July. In the context of continuing strong oil prices and improved natural gas prices from a year ago, current indications are that drilling and completion activity levels in Western Canada will improve during the second half of 2013. The substantial fabrication sales backlog enjoyed by the Compression and Process Services division reflects continued demand for compression and process equipment. 

Total Energy has increased its 2013 capital expenditure budget to $78.6 million. This $10.0 million increase will be directed towards continued expansion of the gas compression rental fleet, with $20 million now budgeted for expansion of the Company's compression rental fleet in 2013. To June 30, 2013, $31.1 million of capital expenditures have been made.

Total Energy's financial condition remains solid with a long-term debt (including convertible debentures) to long-term debt plus equity ratio of 0.18 to 1.0, $91.0 million of positive working capital and no net debt as at June 30, 2013. Total Energy's $35 million operating facility is currently fully available and undrawn. Total Energy continues to evaluate several investment opportunities and the Company's financial position provides significant capacity and flexibility to pursue further growth opportunities that meet the Company's investment expectations.

Conference Call

At 2:30 p.m. MST today, Total Energy will conduct a conference call and webcast to discuss its second quarter financial results. Daniel Halyk, President & Chief Executive Officer, will host the conference call. The call is open to Shareholders and all other interested persons. A live webcast of the conference call will be accessible on Total's website at www.totalenergy.ca by selecting "Webcasts". Persons wishing to join the conference call live may do so by calling (866) 226-1792 or (416) 340-2216. Those who are unable to listen to the call live may listen to a recording of it on Total Energy's website. A recording of the conference call will also be available until August 19, 2013 by dialing (800) 408-3053 (passcode 2914992).

Selected Financial Information

Selected financial information relating to the three and six month periods ended June 30, 2013 and 2012 is attached to this news release. This information should be read in conjunction with the condensed unaudited interim consolidated financial statements of Total Energy and the attached notes to the consolidated financial statements and management's discussion and analysis to be issued in due course and reproduced in the Company's second quarter report.

Condensed Interim Consolidated Statements of Financial Position

(in thousands of Canadian dollars)

  June 30,     December 31,
  2013     2012
  (unaudited)     (audited)
Assets            
Current assets:            
  Cash and cash equivalents $ 34,236     $ 50,052
  Accounts receivable   53,870       63,511
  Inventory   33,124       33,240
  Income taxes receivable   3,964       -
  Prepaid expenses and deposits   4,498       2,547
    129,692       149,350
             
Property, plant and equipment   339,755       323,188
             
Goodwill   4,053       4,053
  $ 473,500     $ 476,591
             
Liabilities & Shareholders' Equity            
Current liabilities:            
  Accounts payable and accrued liabilities   27,756     $ 32,523
  Deferred revenue   7,096       6,971
  Income taxes payable   -       15,098
  Dividends payable   1,530       1,530
  Current portion of obligations under finance leases   2,300       2,520
    38,682       58,642
             
Obligations under finance leases   2,469       2,723
             
Convertible debentures   63,551       62,694
             
Deferred tax liability   48,944       46,463
             
Shareholders' equity:            
  Share capital   78,021       76,890
  Contributed surplus   6,632       5,160
  Equity portion of convertible debenture   4,601       4,601
  Retained earnings   230,600       219,418
    319,854       306,069
             
  $ 473,500     $ 476,591

Condensed Interim Consolidated Statements of Comprehensive Income

(in thousands of Canadian dollars except per share amounts)

    Three months ended
June 30
    Six months ended
June 30
 
    2013     2012     2013     2012  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
                                 
                                 
Revenue   $ 60,668     $ 54,332     $ 163,579     $ 155,781  
                                 
  Cost of services     45,748       38,323       108,503       91,257  
  Selling, general and administration     6,793       6,420       15,170       14,830  
  Share-based compensation     780       553       1,913       931  
  Depreciation     5,892       5,258       13,060       11,327  
Results from operating activities     1,455       3,778       24,933       37,436  
                                 
  Gain on sale of property, plant and equipment     124       84       1,055       492  
  Finance costs     (1,428 )     (1,240 )     (2,715 )     (2,529 )
Net income before income taxes     151       2,622       23,273       35,399  
                                 
  Current income tax expense     683       2,823       3,287       4,170  
  Deferred income tax expense (recovery)     (646 )     (3,451 )     2,481       3,518  
Total income tax expense (recovery)     37       (628 )     5,768       7,688  
                                 
Net income and total comprehensive income for the period   $ 114     $ 3,250     $ 17,505     $ 27,711  
                                 
Earnings per share                                
  Basic earnings per share   $ -     $ 0.10     $ 0.57     $ 0.89  
  Diluted earnings per share   $ -     $ 0.10     $ 0.56     $ 0.85  
                                 

Condensed Interim Consolidated Statements of Cash Flows

(in thousands of Canadian dollars)

    Three months ended
June 30
    Six months ended
June 30
 
    2013     2012     2013     2012  
    (unaudited)     (unaudited)     (unaudited)     (unaudited)  
Cash provided by (used in):                                
                                 
Operations:                                
  Net income for the period   $ 114     $ 3,250     $ 17,505     $ 27,711  
  Add (deduct) items not affecting cash:                                
    Depreciation     5,892       5,258       13,060       11,327  
    Share-based compensation     780       553       1,913       931  
    Gain on sale of property, plant and equipment     (124 )     (84 )     (1,055 )     (492 )
    Finance costs     1,428       1,240       2,715       2,529  
    Current income tax expense     683       2,823       3,287       4,170  
    Deferred income tax expense (recovery)     (646 )     (3,451 )     2,481       3,518  
  Income taxes paid     (2,924 )     (39 )     (22,349 )     (39 )
      5,203       9,550       17,557       49,655  
  Changes in non-cash working capital items:                                
    Accounts receivable     42,850       44,435       9,641       39,480  
    Inventory     (152 )     (907 )     3,070       894  
    Prepaid expenses and deposits     (247 )     93       (1,951 )     (232 )
    Accounts payable and accrued liabilities     (7,887 )     (8,558 )     (239 )     (7,122 )
    Deferred revenue     1,993       808       125       2,650  
      41,760       45,421       28,203       85,325  
Investments:                                
  Purchase of property, plant and equipment     (10,656 )     (17,179 )     (17,072 )     (41,421 )
  Acquisition of business     -       -       (16,954 )     -  
  Proceeds on disposal of property, plant and equipment     293       721       3,510       1,747  
  Changes in non-cash working capital items     36       420       (4,223 )     (4,186 )
      (10,327 )     (16,038 )     (34,739 )     (43,860 )
Financing:                                
  Repayment of obligations under finance leases     (699 )     (852 )     (1,484 )     (1,743 )
  Dividends to shareholders     (1,538 )     (1,566 )     (3,068 )     (2,820 )
  Issuance of common shares     316       512       1,428       1,197  
  Repurchase of common shares     (2,838 )     (6,262 )     (3,993 )     (9,797 )
  Interest paid     (147 )     (155 )     (2,163 )     (2,080 )
      (4,906 )     (8,323 )     (9,280 )     (15,243 )
                                 
Change in cash and cash equivalents     26,527       21,060       (15,816 )     26,222  
                                 
Cash and cash equivalents, beginning of period     7,709       40,820       50,052       35,658  
                                 
Cash and cash equivalents, end of period   $ 34,236     $ 61,880     $ 34,236     $ 61,880  
                                 

Segmented Information

The Company operates in three main industry segments, which are substantially in one geographic segment. These segments are Contract Drilling Services, which includes the contracting of drilling equipment and the provision of labour required to operate the equipment, Rentals and Transportation Services, which includes the rental and transportation of equipment used in drilling, completion and production operations and Compression and Process Services, which includes the fabrication, sale, rental and servicing of natural gas compression and process equipment.

As at and for the three months ended
June 30, 2013
 
 
 
Contract
Drilling
Services
 
 
 
 
 
 
Rentals and
Transportation
Services
 
 
 
 
 
 
Compression
and Process
Services
 
 
 
 
 
 
 
 
Other(1)
 
 
 
 
 
 
 
 
Total
 
 
 
                                         
Revenue   $ 4,285     $ 14,516     $ 41,867     $ -     $ 60,668  
                                         
Cost of services     3,931       9,712       32,105       -       45,748  
Selling, general and administration     654       2,901       2,177       1,061       6,793  
Share-based compensation     -       -       -       780       780  
Depreciation     512       3,831       1,313       236       5,892  
Results from operating activities     (812 )     (1,928 )     6,272       (2,077 )     1,455  
                                         
Gain on sale of property, plant and equipment     10       70       44       -       124  
Finance costs     (203 )     (548 )     (237 )     (440 )     (1,428 )
                                         
Net income (loss) before income taxes     (1,005 )     (2,406 )     6,079       (2,517 )     151  
                                         
Goodwill     -       2,514       1,539       -       4,053  
                                         
Total assets     100,120       218,456       142,780       12,144       473,500  
Total liabilities     15,511       38,391       31,706       68,038       153,646  
                                         
Capital expenditures (2)   $ 472     $ 3,925     $ 5,722     $ 537     $ 10,656  
                                         
As at and for the three months ended
June 30, 2012
  Contract
Drilling
Services
    Rentals and
Transportation
Services
    Compression
and Process
Services
   

Other(1)
   

Total
 
                                         
Revenue   $ 5,935     $ 22,093     $ 26,304     $ -     $ 54,332  
                                         
Cost of services     4,880       11,582       21,865       (4 )     38,323  
Selling, general and administration     671       3,089       1,398       1,262       6,420  
Share-based compensation     -       -       -       553       553  
Depreciation     635       3,658       957       8       5,258  
Results from operating activities     (251 )     3,764       2,084       (1,819 )     3,778  
                                         
Gain (loss) on sale of property, plant and equipment     (15 )     102       (3 )     -       84  
Finance costs     (253 )     (583 )     (69 )     (335 )     (1,240 )
                                         
Net income (loss) before income taxes     (519 )     3,283       2,012       (2,154 )     2,622  
                                         
Goodwill     -       2,514       1,539       -       4,053  
                                         
Total assets     90,476       215,129       91,137       54,503       451,245  
Total liabilities     16,406       48,362       23,113       71,116       158,997  
                                         
Capital expenditures   $ 2,323     $ 10,185     $ 4,652     $ 19     $ 17,179  
                               
As at and for the six months ended
June 30, 2013
  Contract
Drilling
Services
    Rentals and
Transportation
Services
    Compression
and Process
Services
   

Other(1)
   

Total
 
                                         
Revenue   $ 22,915     $ 53,717     $ 86,947     $ -     $ 163,579  
                                         
Cost of services     14,698       25,685       68,120       -       108,503  
Selling, general and administration     1,568       6,798       4,283       2,521       15,170  
Share-based compensation     -       -       -       1,913       1,913  
Depreciation     2,310       7,692       2,584       474       13,060  
Results from operating activities     4,339       13,542       11,960       (4,908 )     24,933  
                                         
Gain (loss) on sale of property, plant and equipment     (22 )     235       842       -       1,055  
Finance costs     (404 )     (1,096 )     (417 )     (798 )     (2,715 )
                                         
Net income before income taxes     3,913       12,681       12,385       (5,706 )     23,273  
                                         
Goodwill     -       2,514       1,539       -       4,053  
                                         
Total assets     100,120       218,456       142,780       12,144       473,500  
Total liabilities     15,511       38,391       31,706       68,038       153,646  
                                         
Capital expenditures (2)   $ 1,731     $ 7,402     $ 21,393     $ 546     $ 31,072  
                               
As at and for the six months ended
June 30, 2012
  Contract
Drilling
Services
    Rentals and
Transportation
Services
    Compression
and Process
Services
   

Other(1)
   

Total
 
                                         
Revenue   $ 27,114     $ 71,441     $ 57,226     $ -     $ 155,781  
                                         
Cost of services     14,807       28,854       47,600       (4 )     91,257  
Selling, general and administration     1,796       7,654       2,873       2,507       14,830  
Share-based compensation     -       -       -       931       931  
Depreciation     2,284       7,166       1,857       20       11,327  
Results from operating activities     8,227       27,767       4,896       (3,454 )     37,436  
                                         
Gain on sale of property, plant and equipment     44       269       179       -       492  
Finance costs     (506 )     (1,157 )     (193 )     (673 )     (2,529 )
                                         
Net income before income taxes     7,765       26,879       4,882       (4,127 )     35,399  
                                         
Goodwill     -       2,514       1,539       -       4,053  
                                         
Total assets     90,476       215,129       91,137       54,503       451,245  
Total liabilities     16,406       48,362       23,113       71,116       158,997  
                                         
Capital expenditures   $ 7,289     $ 20,137     $ 12,181     $ 1,814     $ 41,421  
   
(1) Other includes the Company's corporate activities, accretion of convertible debentures and obligations pursuant to long-term credit facilities.
   
(2) Includes January 1, 2013 acquisition of a process equipment fabrication business included in Compression and Process Services segment.

Total Energy Services Inc. is a growth oriented energy services corporation involved in contract drilling services, rentals and transportation services and the fabrication, sale, rental and servicing of natural gas compression and process equipment. The common shares of Total Energy are listed and trade on the TSX under the symbol TOT. 

For further information, please contact Daniel Halyk, President & Chief Executive Officer at (403) 216-3921 or Mark Kearl, Vice-President Finance and Chief Financial Officer at (403) 216-3920 or by e-mail at: investorrelations@totalenergy.ca or visit our website at www.totalenergy.ca

Notes to Financial Highlights

  (1) Operating earnings means results from operating activities and is equal to net income before income taxes minus gain on sale of property, plant and equipment plus finance costs. EBITDA means earnings before interest, taxes, depreciation and amortization and is equal to net income before income taxes plus finance costs plus depreciation. Cashflow means cash provided by operations before changes in non-cash working capital items. Operating earnings, EBITDA and cashflow are not recognized measures under IFRS. Management believes that in addition to net income, operating earnings, EBITDA and cashflow are useful supplemental measures as they provide an indication of the results generated by the Company's primary business activities prior to consideration of how those activities are financed, amortized or how the results are taxed in various jurisdictions as well as the cash generated by the Company's primary business activities without consideration of the timing of the monetization of non-cash working capital items. Readers should be cautioned, however, that operating earnings, EBITDA and cashflow should not be construed as an alternative to net income determined in accordance with IFRS as an indicator of Total Energy's performance. Total Energy's method of calculating operating earnings, EBITDA and cashflow may differ from other organizations and, accordingly, operating earnings, EBITDA and cashflow may not be comparable to measures used by other organizations.
     
  (2) Per share data (diluted) and the number of common shares outstanding on a diluted basis includes the impact of the approximate 3.1 million common shares issuable upon the entire conversion of the $69 million principal amount of convertible debentures issued by the Company in February 2011.   
     
  (3) Working capital equals current assets minus current liabilities.   
     
  (4) Net Debt equals long-term debt plus obligations under finance leases plus convertible debentures plus current liabilities minus current assets.   
     
  (5) Cashflow for the six months ended June 30, 2013 is net of $15.3 million of income taxes paid during the period that relates to 2012 taxable income as a result of the Company not having been required to make income tax installment payments during 2012.   

Certain statements contained in this press release, including statements which may contain words such as "could", "should", "expect", "believe", "will" and similar expressions and statements relating to matters that are not historical facts are forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties which may cause the actual results, performances or achievements of Total Energy to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Such factors include fluctuations in the market for oil and natural gas and related products and services, political and economic conditions, the demand for products and services provided by Total Energy, Total Energy's ability to attract and retain key personnel and other factors. Reference should be made to Total Energy's most recently filed Annual Information Form and other public disclosures (available at www.sedar.com) for a discussion of such risks and uncertainties.

The Toronto Stock Exchange has neither approved nor disapproved of the information contained herein.