ACT Energy Technologies Ltd. press release
Cathedral Energy Services reports results for the three and nine months ended September 30, 2008
TSX - Toronto Stock Exchange · Canada
/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, Nov. 5 /CNW/ - Cathedral Energy Services Income Trust (the "Trust"/TSX: CET.UN) is pleased to report its results for the three and nine months ended September 30, 2008. Dollars are in '000's except for day rates and per Trust Unit amounts.
FINANCIAL HIGHLIGHTS $ in 000's except Three months ended Nine months ended per Trust Unit amounts September 30 September 30 2008 2007 2008 2007 Revenues $ 52,686 $ 38,355 $ 128,422 $ 106,052
EBITDAS(1) $ 16,914 $ 13,775 $ 36,941 $ 33,024 Per Trust Unit - diluted $ 0.52 $ 0.43 $ 1.14 $ 1.04
EBITDAS(1) as a % of revenue 32% 36% 29% 31%
Income before taxes $ 13,022 $ 10,073 $ 25,508 $ 22,218
Net income $ 10,296 $ 7,126 $ 20,402 $ 14,498 Per Trust Unit - basic $ 0.32 $ 0.23 $ 0.64 $ 0.46 Per Trust Unit - diluted $ 0.32 $ 0.22 $ 0.63 $ 0.46
Cash distributions declared per Trust Unit $ 0.21 $ 0.21 $ 0.63 $ 0.63
Distributable cash(1) $ 13,844 $ 10,747 $ 28,996 $ 26,950
Cash distributions declared $ 6,813 $ 6,626 $ 20,252 $ 19,756
Payout ratio(1) 49% 62% 70% 73%
Property and equipment additions $ 15,129 $ 4,364 $ 26,564 $ 14,652
Weighted average Trust Units outstanding: Basic ('000) 32,384 31,515 32,091 31,318 Diluted ('000) 32,522 31,734 32,318 31,735
September December 30 2008 31 2007
Working capital $ 17,444 $ 16,947 Long-term debt and capital lease obligations excluding current portion $ 27,308 $ 17,441 Unitholders' equity $ 85,145 $ 79,250 (1) Non-GAAP measure; see "NON-GAAP FINANCIAL MEASUREMENTS" within Management's Discussion & Analysis.
MANAGEMENT'S DISCUSSION & ANALYSIS
This Management's Discussion & Analysis ("MD&A") for the three and nine months ended September 30, 2008 should be read in conjunction with the annual audited consolidated financial statements and notes thereto for the year ended December 31, 2007, as well as the MD&A in the Trust's 2007 Annual Report, and with the unaudited interim consolidated financial statements for the three and nine months ended September 30, 2008. This MD&A has been prepared as of November 5, 2008. Dollar amounts are in '000's except for day rates and per Trust Unit amounts.
FORWARD-LOOKING INFORMATION
Certain statements in this MD&A including (i) statements that may contain words such as "anticipate", "could", "expect", "seek", "may" "intend", "will", "believe", "should", "project", "forecast", "plan" and similar expressions, including the negatives thereof, (ii) statements that are based on current expectations and estimates about the markets in which the Trust/Cathedral operates and (iii) statements of belief, intentions and expectations about developments, results and events that will or may occur in the future, constitute "forward-looking statements" and are based on certain assumptions and analysis made by the Trust/Cathedral. Forward-looking statements in this MD&A include, but are not limited to, statements with respect to future capital expenditures, including the amount, nature and timing thereof; oil and natural gas prices and demand; other development trends within the oil and natural gas industry; business strategy; expansion and growth of the Trust's/Cathedral's business and operations including the Trust/Cathedral's market share and position in the oilfield service market; and other such matters. Such forward-looking statements are subject to important risks and uncertainties, which are difficult to predict and that may affect the Trust's/Cathedral's operations, including, but not limited to: the impact of general economic conditions in Canada and the United States; industry conditions, including the adoption of new environmental, safety and other laws and regulations and changes in how they are interpreted and enforced; volatility of oil and natural gas prices; oil and natural gas product supply and demand; risks inherent in the Trust's/Cathedral's ability to generate sufficient cash flow from operations to meet its current and future obligations; increased competition; the lack of availability of qualified personnel or labor unrest; fluctuation in foreign exchange or interest rates; stock market volatility; opportunities available to or pursued by the Trust/Cathedral and other factors, many of which are beyond the control of the Trust/Cathedral. The Trust's/Cathedral's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do transpire or occur, what benefits the Trust/Cathedral will derive therefrom. Subject to applicable law, the Trust disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
All forward-looking statements contained in this document are expressly qualified by this cautionary statement. Further information about the factors affecting forward-looking statements is available in the Trust's current Annual Information Form and 2007 Annual Report which has been filed with Canadian provincial securities commissions and are available on www.sedar.com.
NON-GAAP FINANCIAL MEASUREMENTS
This MD&A refers to certain financial measurements that do not have any standardized meaning within Canadian Generally Accepted Accounting Principles ("GAAP") and therefore may not be comparable to similar measures provided by other companies and/or trusts.
The specific measures being referred to include the following:
i) "Gross margin" - calculated as revenues less operating expenses is considered a primary indicator of operating performance;
ii) "EBITDAS" - defined as earnings before interest on long-term debt and capital lease obligations, taxes, depreciation, amortization and unit-based compensation expense; this measure is considered an indicator of the Trust's ability to generate funds flow from operations prior to consideration of how activities are financed, how the results are taxed and measured and non-cash expenses (see tabular calculation under EBITDAS);
iii) "Distributable cash" - defined as cash flow from operating activities before changes in non-cash operating working capital less required principal repayments on long-term debt and capital lease obligations and maintenance capital expenditures; distributable cash is a key performance measurement used by management, analysts and investors to evaluate the financial performance of the Trust (see tabular calculation under Distributions);
iv) "Maintenance capital expenditures" - refers to capital expenditures required to maintain existing levels of service but excludes replacement cost of lost-in-hole equipment to the extent the replacement equipment is financed from the proceeds on disposal of the equipment lost-in-hole;
v) "Payout ratio" - calculated as cash distributions declared divided by distributable cash, is an indicator of the Trust's ability to fund its distributions from the Trust's ongoing operations excluding changes in non-cash working capital (see tabular calculation under Distributions and distributable cash definition above); and
vi) "Funds from operations" - calculated as cash flow from operating activities before changes in non-cash operating working capital, is considered an indicator of the Trust's ability to generate funds flow from operations but excluding changes in non-cash operating working capital which is financed using the Trust's bank indebtedness/line of credit facility.
OVERVIEW
As result of steady improvement in the Canadian operating environment combined with further expansion in the U.S., the Trust generated Q3 2008 revenues of $52,686 and year-to-date revenues of $128,422, representing the highest level of Q3 revenues in the Trust's history. Within the oilfield service sector, the directional drilling sub-sector has been a very active area with a growing number of wells being drilled directionally/horizontally. In resource plays such as the Bakken (southeast Saskatchewan) and Montney (northeast B.C.), operators are using the combination of horizontally drilled wells and multi-stage fracturing to increase reservoir recoveries and it is expected that such completion techniques will continue to expand the number of horizontal wells drilled. The 2008 Q3 revenues were led by the Trust's directional drilling division which represented 77.6% (2007 Q3 - 75.8%) of 2008 Q3 total revenues. The Trust's U.S. drilling division grew significantly over the 2007 Q3 period, generating period revenues 79.8% higher than in 2007 and on a year-to-date basis increasing revenues by 46.5% over 2007. Both the Trust's production testing and wireline divisions improved period and year-to-date revenues as result the commencement and expansion of U.S. operations. This increase was also supported by the increasing momentum within the natural gas drilling activity in Western Canada. 2008 Q3 EBITDAS was $16,914 ($0.52 per diluted Trust Unit) which represents a $3,139 or 22.8% increase from $13,775 ($0.43 per diluted Trust Unit) in 2007, year-to-date 2008 EBITDAS reached new levels totaling $36,941 compared to 33,024 in 2007. For the three and nine month period ended September 30, 2008 net income was $10,296 ($0.32 per diluted Trust Unit) and $20,402 ($0.63 per diluted trust unit) respectively, which compares to $7,126 ($0.22 per diluted Trust Unit) and $14,498 ($0.46 per diluted Trust Unit) respectively in 2007.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2008
Three months ended September 30, 2008 Directional Production Revenues drilling(1) Wireline testing Total Canada $ 22,992 $ 5,069 $ 3,814 $ 31,875 United States 17,917 2,068 826 20,811 $ 40,909 $ 7,137 $ 4,640 $ 52,686
Three months ended September 30, 2007 Directional Production Revenues drilling(1) Wireline testing Total Canada $ 19,112 $ 6,009 $ 2,875 $ 27,996 United States 9,964 395 - 10,359 $ 29,076 $ 6,404 $ 2,875 $ 38,355 (1) including rental of related equipment
The strengthening Canadian operating environment combined with the Trust's continued growth in the U.S. markets, resulted in record revenues of $52,686 for the quarter. Directional drilling activity days increased 34.1% from 3,287 in 2007 Q3 to 4,409 in 2008 Q3. The average day rate received for providing directional drilling services increased 5.0% on a quarter-over-quarter basis to $9,098 (2007 - $8,667). The increase in the directional drilling average day rate is the net result of Canadian day rate decreases due to continued market pressures offset by significantly increased days and corresponding day rates in the U.S. market, where U.S. industry activity levels hit a multi-year high in late August. While directional drilling activity days in Canada increased 20.5%, the U.S. activity increased 57.5% due to additional equipment, increased activity levels within the existing client base and was further supplemented by the expansion of the U.S. client base. For 2008 Q3 U.S. activity days represented 43.4% of total activity compared to 36.9% of total activity during the same period in 2007. On a quarter-over-quarter basis revenues from the production testing division increased 61.4% due to the addition of 6 new testing units and as natural gas drilling regained momentum over the summer months. As previously announced the Trust expanded its production testing business to the U.S. Rocky Mountain region, establishing a base office in Grand Junction, Colorado, while operating primarily in Wyoming. In early 2008 Q2 one production testing unit was transferred to the U.S. operations and it commenced generating revenues in late July 2008. Six additional testing units came on line in late September 2008. The Trust's wireline division had a quarter-over-quarter increase in revenues of 11.4% with the increase being due to the continued expansion of the U.S. wireline division in 2008 Q3. In early 2008 the Trust established a second U.S. operations base for its wireline division in Dickinson, North Dakota with one wireline unit. During 2008 Q3 a second wireline unit was transferred from the Canadian fleet to the Dickinson operations base.
Gross margin - The gross margin for 2008 Q3 was 46.5% which compares to 51.5% in 2007 Q3. The decrease is primarily attributed increased directional field labour rates and increased equipment rental charges in the U.S. due to the increase in the quarter-over-quarter activity levels.
General and administrative expenses - General and administrative expenses increased from $6,533 in 2007 Q3 to $7,943 in 2008 Q3 - an increase of $1,410. The increase was the net result of i) increased personnel; ii) office/shop rental costs; iii) increase in activity levels for the U.S. directional drilling division; iv) increased costs associated with the establishment of additional U.S. operating bases and v) decreased professional fees, during Q3 2007 approximately $300 in professional fees related to an aborted corporate acquisition was incurred. As a percentage of revenues, general and administrative expenses were 15.1% in 2008 Q3 and 17.0% in 2007 Q3.
Depreciation and amortization - Depreciation and amortization for 2008 Q3 was $3,411 which compares to $3,110 in 2007 Q3. Despite a significant amount of capital expenditures on the Trust's depreciable asset base over the past 12 months, depreciation on a quarter-over-quarter did not increase significantly due to the change in accounting method for foreign currency translation of the Trust's U.S. operations (refer to note 2 to the consolidated financial statements for the period ended September 30, 2008). As a percentage of revenues, depreciation amounted to 6.5% for 2008 and 8.1% for 2007.
Interest expense - Interest expense related to long-term debt and capital leases decreased from $269 in 2007 Q3 to $266 in 2008 Q3 due to the combined net effect of: i) an increase in the average level of debt outstanding; and ii) a decrease in the effective interest rate on the related debt. Other interest expense, which decreased marginally on a quarter-over-quarter basis from $120 in 2007 Q3 to $115 in 2008 Q3, relates mainly to interest charges on use by the Trust of its bank indebtedness/line of credit facility.
Foreign exchange gain/loss - The Trust's foreign exchange gain/loss has changed from a $302 loss in 2007 Q3 to a $21 loss in 2008 Q3. Effective January 1, 2008, the Trust changed the classification of its U.S. operations to self-sustaining (as opposed to integrated) resulting in the financial statements being translated using the current rate method as opposed to the temporal method (refer to changes in accounting policies section).
Unit-based compensation expense - For 2008 Q3 the Trust had unit-based compensation expense of $215 which compares to $323 for 2007 Q3. The value of the options is being amortized against income over the three-year vesting period.
Gain on disposal of property and equipment - During 2008 Q3 the Trust had a gain on disposal of property and equipment of $519, which compares to a gain of $973 in 2007 Q3. The Trust's gains are mainly due to recoveries of lost-in-hole equipment costs including previously expensed depreciation on the related assets. The timing of lost-in-hole recoveries is not in the control of the Trust and therefore can fluctuate significantly from quarter-to-quarter.
Taxes - For 2008 Q3, the Trust had a tax expense of $2,726 (effective tax rate of 20.9%) which compares to $2,947 (effective tax rate of 29.3%) for 2007 Q3. The decline in the effective tax rate is due to a higher portion of the Trust's pre-tax income being allocated to unitholders combined with a reduction in Canadian statutory tax rates.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2008
Nine months ended September 30, 2008 Directional Production Revenues drilling(1) Wireline testing Total Canada $ 55,335 $ 14,089 $ 9,001 $ 78,425 United States 44,444 4,727 826 49,997 $ 99,779 $ 18,816 $ 9,827 $ 128,422
Nine months ended September 30, 2007 Directional Production Revenues drilling(1) Wireline testing Total Canada $ 50,495 $ 16,154 $ 8,681 $ 75,330 United States 30,327 395 - 30,722 $ 80,822 $ 16,549 $ 8,681 $ 106,052 (1) including rental of related equipment
2008 Q3 year-to-date revenues were $128,422 which represented an increase of $22,370 or 21.1% over 2007 Q3 year-to-date revenues of $106,052. A modest year-to-date improvement in Canadian activity levels was supported by significant growth and expansion in the U.S. operations.
The directional drilling division revenues (including rentals and inspection revenues) have increased from $80,822 in 2007 to $99,779 in 2008. This increase is the net result of: i) an increase in activity days from 8,804 in 2007 to 11,191 in 2008; and ii) a decrease in the average day rate from $8,959 in 2007 to $8,729 in 2008. On a year-to-date basis Canadian activity days increased from 5,267 to 6,042 while the U.S. activity days increased from 3,537 to 5,149 a 45.6% improvement. The U.S. Q3 year-to-date directional revenues increased 46.5% on a year-over-year basis.
Expansion to the U.S. combined with the modest increase in natural gas drilling expenditures in the western Canada market resulted in increased revenues for the Trust's production testing division while the wireline division's Canadian revenues were reduced due to the transfer of units to the U.S. The Trust's production testing division contributed $9,827 in revenues during 2008 Q3 year-to-date which is a 13.2% increase over 2007 revenues of $8,681. The wireline division generated revenues of $18,816 for 2008 Q3 year-to-date which compares to $16,549 for 2007 which represents a 13.7% increase; this increase was the result of the expansion of wireline operations to the U.S. commencing in 2007 Q3.
Gross margin - The gross margin for 2008 was 46.1%, which compares to 49.3% in 2007. The decrease is attributed to number of factors including: i) a decrease in the average day rate in providing directional drilling services; ii) increased directional field labour rates and iii) equipment rental and repair charges due to the increase in the year over year activity levels in the U.S.
General and administrative expenses - General and administrative expenses increased from $19,547 in 2007 to $22,965 in 2008 - an increase of $3,418. The increase was the net result of i) increased personnel; ii) increases in office/shop rental costs; iii) increase in activity levels for the U.S. directional drilling division; iv) increased costs associated with the establishment of additional U.S. operating bases and v) decreased professional fees, during Q3 2007 approximately $300 in professional fees related to an aborted corporate acquisition was incurred. As a percentage of revenues, general and administrative expenses were 17.9% in 2008 and 18.4% in 2007.
Depreciation and amortization - Depreciation and amortization for 2008 was $9,281 compared to $8,809 in 2007. The $472 increase is related to the Trust's investment in property and equipment over the past 12 months. Despite a significant amount of capital expenditures on the Trust's depreciable asset base over the past 12 months depreciation on a quarter-over-quarter did not increase significantly due to the change in accounting method for foreign currency translation of the Trust's U.S. operations (refer to note 2 to the consolidated financial statements for the period ended June 30, 2008). As a percentage of revenues, depreciation and amortization amounted to 7.2% for 2008 and 8.3 % for 2007.
Interest expense - Interest on long-term debt and capital lease obligations has decreased from $792 in 2007 to $785 in 2008 due to the combined net effect of: i) an increase in the average level of debt outstanding; and ii) a decrease in the effective interest rate on the related debt. Other interest expense, which increased on a year-over-year basis from $282 in 2007 Q3 to $290 in 2008 Q3, relates mainly to interest charges incurred on use by the Trust of its bank indebtedness/line of credit facility.