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Total Energy Services Inc. Announces Q3 2019 Results

Total Energy Services Inc. Announces Q3 2019 Results

CALGARY, Alberta, Nov. 07, 2019 (GLOBE NEWSWIRE) -- Total Energy Services Inc. (“Total Energy” or the “Company”) (TOT.TO) announces its consolidated financial results for the three and nine months ended September 30, 2019.

Financial Highlights
($000’s except per share data)
  Three Months Ended September 30
  Nine Months Ended September 30
   2019  2018 Change    2019  2018 Change
Revenue $   171,213   $    232,925 (26 %)   $   605,898 $   631,963 (4 %)
Operating Income (Loss)    (5,012 )   14,294 nm        2,334   25,810 (91 %)
EBITDA (1)    24,913     34,632 (28 %)      71,874   85,513 (16 %)
Cashflow    23,959     34,799 (31 %)      74,831   78,420 (5 %)
Net Income (Loss)    (6,114 )   8,655 nm        1,498   15,645 (90 %)
Attributable to Shareholders    (6,159 )   8,910 nm        2,004   15,903 (87 %)
                 
Per Share Data (Diluted)                
EBITDA (1) $    0.55   $    0.75 (27 %)   $   1.57 $   1.85 (15 %)
Cashflow $    0.53   $   0.75 (29 %)   $    1.64 $   1.70 (4 %)
Net Income (Loss) Attributable to Shareholders $   (0.14 ) $   0.19 nm     $    0.04 $   0.34 (88 %)
                 
            September 30, December 31,  
            2019 2018 Change
Financial Position                
Total Assets           $  991,176 $   1,078,124 (8 %)
Long-Term Debt and Lease Liabilities (excluding current portion)       251,724    286,319 (12 %)
Working Capital (2)              85,778   124,967 (31 %)
Net Debt (3)              165,946   161,352 3 %
Shareholders’ Equity              538,790   560,576 (4 %)
                 
Common Shares (000’s)(4)                
Basic and Diluted   45,457     46,099 (1 %)     45,652   46,186 (1 %)

Notes 1 through 4 please refer to the Notes to the Financial Highlights set forth at the end of this release.

“nm” – calculation not meaningful

Total Energy’s financial results for the three months ended September 30, 2019 reflect continued difficult industry conditions in Canada and reduced production activity in the Company’s Compression and Process Services segment offset by relatively stable industry conditions in the United States and Australia. Included in 2019 third quarter cost of services was $8.9 million of incremental depreciation expense resulting from a change in depreciation estimates in the Rentals and Transportation Services (“RTS”) segment effective July 1, 2019, of which $7.9 million is non-recurring.  Also included in third quarter cost of services was $0.5 million of equipment relocation expenses as the RTS segment continued to relocate underutilized equipment from Canada to the United States.  Excluding the $8.4 million of non-recurring expenses, net income for the third quarter of 2019 was $0.3 million.

Total Energy’s Contract Drilling Services (“CDS”) segment achieved 22% utilization during the third quarter of 2019, recording 2,163 operating days (spud to rig release) with a fleet of 107 drilling rigs, compared to 2,836 operating days, or 27% utilization, during the third quarter of 2018 with a fleet of 116 drilling rigs.  Revenue per operating day for the third quarter of 2019 was $22,124, a 9% increase from the prior year comparable period due to increased pricing in the United States and Australia.  During the third quarter of 2019, the CDS segment had 1,136 operating days in Canada with a fleet of 82 rigs (15% utilization), 671 days in the United States with a fleet of 20 rigs (34% utilization) and 356 days in Australia with a fleet of 5 rigs (76% utilization).

The RTS segment achieved a utilization rate on major rental equipment of 14% during the third quarter of 2019 compared to 24% utilization during the third quarter of 2018.  Segment revenue per utilized rental piece in the third quarter of 2019 was 10% higher than revenue per utilized piece in the third quarter of 2018 due primarily to improved pricing for assets relocated to the United States and the mix of equipment operating.  This segment exited the third quarter of 2019 with approximately 10,590 pieces of major rental equipment (excluding access matting) and 95 heavy trucks as compared to 11,000 rental pieces and 112 heavy trucks at September 30, 2018. The RTS segment continued to expand its presence in the United States with the acquisition of certain oilfield transportation assets in August 2019 on a going concern basis for $2.3 million (US$1.7 million).

Revenue in the Compression and Process Services segment (“CPS”) decreased 37% to $72.1 million for the three months ended September 30, 2019 compared to $114.8 million for the same period in 2018.  This decrease was primarily due to lower fabrication sales activity.  This segment exited the third quarter of 2019 with a $39.8 million backlog of fabrication sales orders as compared to $236.7 million at September 30, 2018 and $77.2 million at June 30, 2019. At September 30, 2019, there was 47,000 horsepower in the compression rental fleet, of which approximately 34,000 horsepower was on rent as compared to 31,500 horsepower on rent at September 30, 2018.  The gas compression rental fleet operated at an average utilization rate of 70% during the third quarter of 2019 as compared to 69% during the third quarter of 2018.

Total Energy’s Well Servicing segment (“WS”) generated $35.8 million of revenue during the third quarter of 2019 on 42,210 service hours, or $848 per service hour, with a fleet of 83 service rigs that were located in Canada (57 rigs), the United States (14 rigs) and Australia (12 rigs).  This compares to $41.0 million of revenue during the third quarter of 2018 on 44,447 service hours, or $922 per service hour.  Service rig utilization for the three months ended September 30, 2019 was 35% in Canada, 35% in the United States and 73% in Australia. 

During the third quarter of 2019 Total Energy repurchased 160,000 common shares at an average price (including commissions) of $6.47 per share pursuant to its normal course issuer bid and declared a quarterly dividend of $0.06 per share to shareholders of record on September 30, 2019.  This dividend was paid on October 31, 2019.  For Canadian income tax purposes, all dividends paid by Total Energy on its common shares are designated as “eligible dividends” unless otherwise indicated.

OUTLOOK

Challenging industry conditions and poor field conditions due to wet weather contributed to a continued and significant year over year decrease in Canadian oil and natural gas drilling and completion activity during the third quarter.  Despite limited visibility in Canada going into the upcoming winter drilling season, recent improvements in Canadian natural gas prices are encouraging.  While industry activity levels have moderated in the United States over the past few quarters, the Company continues to gain market share, particularly in the RTS segment through the relocation of underutilized equipment from Canada and targeted investment in new equipment.  Industry conditions remain stable in Australia.

Total Energy’s capital budget for 2019 remains at $40.5 million.  $40.3 million of capital expenditures have been made to September 30, 2019, including $4.8 million of carry forward from 2018, leaving approximately $5.0 million of capital expenditures projected for the remainder of 2019.  Net proceeds of $6.8 million have been realized from the sale of capital assets during the first nine months of 2019, resulting in a $1.9 million gain on sale being realized.

In October 2019, the CDS segment received $17.6 million (US $13.5 million) as compensation for the early termination in 2017 of contracts for three drilling rigs that were operating in the United States.  As no accrual had previously been made, this payment will be recognized as revenue in the fourth quarter of 2019.   

Total Energy continues to generate significant free cash flow despite operating its asset base at historically low utilization levels.  The Company’s liquidity position remains strong, with $85.8 million of working capital at September 30, 2019 (after reclassifying $41.4 million of mortgage debt maturing in April 2020 as current).  Total Energy expects to renew its maturing mortgage debt in the second quarter of 2020 for a minimum five-year term.  At September 30, 2019, $225.1 million was drawn on Total Energy’s $295.0 million of revolving bank credit facilities that mature in June 2022 unless extended.  The Company remains in compliance with all debt covenants and is able to fully draw on the remaining amounts available under its credit facilities.  Total Energy’s primary credit facility provides the Company with the option to increase such facility by $75 million subject to certain terms and conditions including the agreement of the lenders to increase their commitments.

Despite near term challenges and uncertainties, particularly in Canada, Total Energy believes that medium to long-term fundamentals require continued exploration and development in the markets in which it competes in order to meet increasing global demand for oil and natural gas.

CONFERENCE CALL

At 9:00 a.m. (Mountain Time) on November 8, 2019 Total Energy will conduct a conference call and webcast to discuss its third quarter financial results.  Daniel Halyk, President & Chief Executive Officer, will host the conference call.  A live webcast of the conference call will be accessible on Total Energy’s website at www.totalenergy.ca by selecting “Webcasts”.  Persons wishing to participate in the conference call may do so by calling (800) 319-4610 or (416) 915-3239.  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 December 8, 2019 by dialing (855) 669-9658 (passcode 3708).

SELECTED FINANCIAL INFORMATION

Selected financial information relating to the three and nine months ended September 30, 2019 and 2018 is attached to this news release.  This information should be read in conjunction with the consolidated financial statements of Total Energy and the notes thereto as well as management’s discussion and analysis to be issued in due course and reproduced in the Company’s 2019 third quarter report.

Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
 
  September 30   December 31
   2019    2018
  (unaudited)    (audited)
Assets      
Current assets:      
Cash and cash equivalents $   -     $   30,640  
Accounts receivable   135,804       155,946  
Inventory   83,058       84,743  
Prepaid expenses and deposits   12,853       17,776  
Income taxes receivable   3,598       7,299  
Other assets   -       527  
Current portion of finance lease asset   773       -  
    236,086       296,931  
       
Property, plant and equipment   743,302       768,613  
Income taxes receivable   7,070       7,070  
Lease asset   266       -  
Deferred tax asset   399       1,457  
Goodwill   4,053       4,053  
  $   991,176     $   1,078,124  
       
Liabilities & Shareholders' Equity      
Current liabilities:      
Accounts payable and accrued liabilities $   91,150     $   126,608  
Deferred revenue   5,580       37,316  
Dividends payable   2,722       2,752  
Current portion of lease liabilities   8,751       2,376  
Current portion of long-term debt   42,105       2,912  
    150,308       171,964  
       
Long-term debt   239,517       282,863  
       
Lease liabilities   12,207       3,456  
       
Onerous lease liability   -       1,574  
       
Deferred tax liability   50,354       57,691  
       
Shareholders' equity:      
Share capital   285,703       288,902  
Contributed surplus   7,329       6,384  
Accumulated other comprehensive loss   (16,756 )     (5,320 )
Non-controlling interest   (899 )     238  
Retained earnings   263,413       270,372  
    538,790       560,576  
       
  $   991,176     $   1,078,124  
               


Consolidated Statements of Comprehensive Income (Loss)
(in thousands of Canadian dollars except per share amounts)
(unaudited)
 
  Three months ended Nine months ended
  September 30 September 30
   2019  2018  2019  2018
         
         
Revenue $  171,213   $  232,925   $   605,898   $   631,963  
         
Cost of services   134,285     184,374     495,124     507,993  
Selling, general and administration   12,590     13,904     37,615      41,543  
Other expense (income)   (1,018 )   376     1,858     (2,904 )
Share-based compensation   438     499     1,300      1,798  
Depreciation   29,930     19,478     67,667      57,723  
Operating income (loss)   (5,012 )   14,294     2,334     25,810  
         
Gain (loss) on sale of property, plant and equipment   (5 )   860     1,873     1,980  
Finance costs   (3,098 )   (2,940 )   (9,705 )   (10,293 )
Net income (loss) before income taxes   (8,115 )   12,214     (5,498 )   17,497  
         
Current income tax expense (recovery)   (883 )   2,963     74     5,737  
Deferred income tax expense (recovery)   (1,118 )   596     (7,070 )   (3,885 )
Total income tax expense (recovery)   (2,001 )   3,559     (6,996 )   1,852  
         
Net income (loss) for the period $   (6,114 ) $   8,655   $   1,498   $   15,645  
         
Net income (loss) attributable to:        
Shareholders of the Company $  (6,159 ) $   8,910   $   2,004   $   15,903  
Non-controlling interest   45     (255 )   (506 )   (258 )
         
Income (loss) per share        
Basic and diluted $   (0.14 ) $   0.19   $   0.04   $   0.34  
         


Condensed Interim Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
 
  Three months ended Nine months ended
  September 30 September 30
   2019  2018  2019  2018
         
Net income (loss) for the period $  (6,114 ) $   8,655   $  1,498   $   15,645  
         
Foreign currency translation adjustment   (1,425 )   (6,994 )   (10,645 )   (3,295 )
Deferred tax effect   (219 )   680     (791 )   275  
         
Total other comprehensive loss for the period   (1,644 )   (6,314 )   (11,436 )   (3,020 )
         
Total comprehensive income (loss) $   (7,758 ) $   2,341   $   (9,938 ) $   12,625  
         
Total comprehensive income (loss) attributable to:        
         
Shareholders of the Company $   (7,803 ) $   2,596   $   (9,432 ) $   12,883  
Non-controlling interest   45     (255 )   (506 )   (258 )
                         


Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(unaudited)
 
  Three months ended Nine months ended
  September 30 September 30
   2019  2018  2019  2018
         
Cash provided by (used in):        
         
Operations:        
Net income (loss) for the period $   (6,114 ) $   8,655    $   1,498   $   15,645  
Add (deduct) items not affecting cash:        
Depreciation   29,930     19,478     67,667     57,723  
Share-based compensation   438     499     1,300     1,798  
Loss (gain) on sale of property, plant and equipment   5     (860 )   (1,873 )   (1,980 )
Finance costs   3,098     1,987     9,023     9,115  
Unrealized loss (gain) on foreign currencies translation   (989 )   394     585     (2,698 )
Current income tax expense (recovery)   (883 )   2,963     74     5,737  
Deferred income tax expense (recovery)   (1,118 )   596     (7,070 )   (3,885 )
Income taxes recovered (paid)   (408 )   1,087     3,627     (3,035 )
Cashflow   23,959     34,799     74,831     78,420  
Changes in non-cash working capital items:        
Accounts receivable   (8,281 )   (18,061 )   18,082     2,806  
Inventory   1,334     (11,326 )   1,685     (25,328 )
Prepaid expenses and deposits   (1,823 )   (291 )   7,127     781  
Accounts payable and accrued liabilities   (21,483 )   3,250     (38,776 )   11,574  
Onerous leases   -     (201 )   1,297     (1,246 )
Deferred revenue   (15,506 )   11,758     (31,736 )   18,040  
Cash provided by (used in) operating activities   (21,800 )   19,928     32,510     85,047  
Investing:        
Purchase of property, plant and equipment   (18,231 )   (7,425 )   (40,300 )   (28,502 )
Proceeds on sale of other assets   -     954     682     1,181  
Proceeds on disposal of property, plant and equipment   949     1,695     6,849     3,798  
Purchase of non-controlling interest   -     (332 )   (128 )   (332 )
Changes in non-cash working capital items   123     344     1,036     (1,675 )
Cash used in investing activities   (17,159 )   (4,764 )   (31,861 )   (25,530 )
Financing:        
Advances on long-term debt   13,068     -     13,068     50,000  
Repayment of long-term debt   (687 )   (2,237 )   (17,221 )   (82,080 )
Repayment of lease liabilities   (1,387 )   (601 )   (5,283 )   (1,669 )
Dividends to shareholders   (2,730 )   (2,772 )   (8,228 )   (8,247 )
Repurchase of common shares   (970 )   (2,122 )   (4,272 )   (2,719 )
Partnership distributions   (50 )   -     (550 )   (475 )
Interest paid   (2,152 )   (3,087 )   (8,803 )   (11,067 )
         
Cash provided by (used in) financing activities   5,092     (10,819 )   (31,289 )   (56,257 )
         
Change in cash and cash equivalents   (33,867 )   4,345     (30,640 )   3,260  
         
Cash and cash equivalents, beginning of period   33,867     20,069     30,640     21,154  
         
Cash and cash equivalents, end of period $   -   $   24,414   $   -   $   24,414  
         

SEGMENTED INFORMATION

The Company provides a variety of products and services in the oil and natural gas industry through five reporting segments, which operate substantially in three geographic segments.  These reporting 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, Compression and Process Services, which includes the fabrication, sale, rental and servicing of natural gas compression and oil and natural gas process equipment and Well Servicing, which includes the contracting of service rigs and the provision of labour required to operate the equipment.  Corporate includes activities related to the Company’s corporate and public issuer affairs.

As at and for the three months ended September 30, 2019 (unaudited, in thousands of Canadian dollars)

null
  Contract Rentals and Compression Well Corporate Total
  Drilling Transportation and Process Servicing  (1)  
  Services Services Services      
             
Revenue $   47,855   $   15,476   $   72,070   $   35,812   $   -    $   171,213  
             
Cost of services    37,798      9,932      61,054      25,501      -       134,285  
Selling, general and administration    2,240      3,772      2,554      1,672      2,352      12,590  
Other income    -       -       -       -