ACT Energy Technologies Ltd. press release
Cathedral Energy Services reports results for the three and six months ended June 30, 2009
TSX - Toronto Stock Exchange · Canada
/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, Aug. 5 /CNW/ - Cathedral Energy Services Income Trust (the "Trust"/TSX: CET.UN) is pleased to report its results for the three and six months ended June 30, 2009. Dollars are in '000's except for day rates and per Trust Unit amounts.
FINANCIAL HIGHLIGHTS $ in 000's except per Three months ended Six months ended Trust Unit amounts June 30 June 30 2009 2008 2009 2008 Revenues $ 12,913 $ 29,483 $ 44,281 $ 75,736
Gross margin %(1) 36% 41% 42% 46%
EBITDAS(1) $ (1,721) $ 4,632 $ 5,064 $ 20,207 Diluted per Trust Unit $ (0.05) $ 0.14 $ 0.15 $ 0.62
Income (loss) before taxes $ (4,057) $ 797 $ (2,302) $ 12,486
Net income (loss) $ (1,484) $ 189 $ (80) $ 10,106 Basic per Trust Unit $ (0.04) $ 0.01 $ - $ 0.32 Diluted per Trust Unit $ (0.04) $ 0.01 $ - $ 0.31
Cash distributions declared per Trust Unit $ 0.12 $ 0.21 $ 0.27 $ 0.42
Distributable cash(1), including one-time 2009 Q1 current tax provision of $4,168 (refer to MD&A) $ (2,525) $ 2,038 $ (178) $ 15,152
Adjusted distributable cash(1), excluding one-time 2009 Q1 current tax provision of $4,168 (refer to MD&A) $ (2,525) $ 2,038 $ 3,990 $ 15,152
Cash distributions declared(2) $ 4,199 $ 6,770 $ 9,086 $ 13,439
Payout ratio(1), net of one-time 2009 Q1 current tax provision of $4,168 nm 332% nm 89%
Adjusted payout ratio(1), net of one-time 2009 Q1 current tax provision of $4,168 nm 332% 228% 89%
Property and equipment additions $ 1,839 $ 7,475 $ 5,976 $ 11,435
Weighted average Trust Units outstanding: Basic ('000) 34,290 32,178 33,441 31,943 Diluted ('000) 34,290 32,849 33,441 32,464
June December 30 2009 31 2008
Working capital $ 13,729 $ 17,435 Long-term excluding current portion $ 36,622 $ 40,233 Unitholders' equity $ 93,293 $ 91,859 (1) Refer to MD&A; see "NON-GAAP MEASUREMENTS" (2) Excludes foreign taxes paid that have been allocated to Unitholders nm Calculation not meaningful for current operations
MANAGEMENT'S DISCUSSION & ANALYSIS
This Management's Discussion & Analysis ("MD&A") for the three and six months ended June 30, 2009 should be read in conjunction with the annual audited consolidated financial statements and notes thereto for the year ended December 31, 2008, as well as the MD&A in the Trust's 2008 Annual Report, and with the unaudited interim consolidated financial statements and notes thereto for the three and six months ended June 30, 2009. This MD&A has been prepared as of August 5, 2009. 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 specifically 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/Cathedral's business and operations including the Trust/Cathedral's market share and position in the oilfield service market; and other such matters.
The forward-looking statements contained in this MD&A reflect several material factors, expectations and assumptions including, without limitation: (i) oil and natural gas production levels; (ii) commodity prices and interest rates; (iii) capital expenditure programs and other expenditures by the Trust/Cathedral and its customers; (iv) supply and demand for oil and natural gas; (v) expectations regarding the Trust's/Cathedral's ability to raise capital, generate cash flow and to increase its equipment fleets through acquisitions and manufacture; (vi) schedules and timing of certain projects and the Trust's/Cathedral's strategy for growth; (vii) the Trust's/Cathedral's future operating and financial results; (viii) the Trust's/Cathedral's ability to retain and hire qualified personnel; and (ix) treatment under governmental regulatory regimes and tax, environmental and other laws.
Financial outlook information contained in this MD&A about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this MD&A and certain documents incorporated by reference into this MD&A should not be used for purposes other than for which it is disclosed herein.
Such forward-looking statements are subject to important risks and uncertainties, which are difficult to predict and that may affect the Trust/Cathedral's operations, including, but not limited to: the impact of general economic conditions in Canada, the United States and Internationally; 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/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 labour unrest; fluctuation in foreign exchange or interest rates; foreign currency controls; 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/Cathedral 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/Cathedral's current Annual Information Form which has been filed with the applicable Canadian provincial securities commissions and is available on www.sedar.com.
NON-GAAP 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 (see tabular calculation under Results of Operations);
ii) "Gross margin %" - calculated as gross margin divided by revenues is considered a primary indicator of operating performance (see tabular calculation under Results of Operations);
iii) "EBITDAS" - defined as earnings before interest on long-term debt, taxes, depreciation, amortization, unit-based compensation expense and foreign currency gain/loss on intercompany debt; 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);
iv) "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 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);
v) "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;
vi) "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) (see distributable cash definition above); and
vii) "Funds from operations" - calculated as cash flow from operating activities before changes in non-cash working capital is considered an indicator of the Trust's ability to generate funds flow from operations but excluding changes in non-cash working capital which is financed using the Trust's bank indebtedness/line of credit facility.
OVERVIEW
The second quarter is traditionally the weakest period of the year, but in the current year the overall decline in drilling in both Canada and the United States has had a more significant impact on operations. In the Western Canadian Sedimentary Basin ("WCSB"), the number of wells drilled in 2009 Q2 is down approximately 45% compared to 2008 Q2 and on a year-to-date basis down 42%. In the U.S., drilling activity is down significantly and in particular in the Rocky Mountain region of the U.S., which was the Trust's main area of focus.
The Trust completed the second quarter of 2009 with quarterly revenues of $12,913 and year-to-date revenues of $44,281 compared to 2008 Q2 at $29,483 and 2008 year-to-date revenues of $75,736. The 2009 Q2 revenues were lead by the Trust's directional drilling division which represented 67% (2008 Q2 - 82%) of 2009 total revenues. The decline in drilling in the oil and gas sector due to low commodity prices and the overall decline in the economy have resulted in a significant decline in revenues as compared to 2008 Q2. The Trust's production testing and wireline divisions continue to be negatively affected by the decline in natural gas drilling in western Canada. In mid-June 2009, the Trust re-organized its wireline operations to focus its Canadian operations on providing slickline services and to concentrate its electric line ("E-Line") services in the U.S. As such, the Trust has ceased providing E-Line services in Canada.
2009 year-to-date EBITDAS was $5,064 ($0.15 per diluted Trust Unit) which represents a $15,143 or 75% decrease from $20,207 ($0.62 per diluted Trust Unit) in 2008. On a 2009 Q2 year-to-date basis, the Trust's net loss was $80 ($- per diluted Trust Unit) which compares to net income of $10,106 ($0.31 per diluted Trust Unit) in 2008.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2009
Revenues and operating expenses
2009 Q2 2008 Q2 Change % Revenues $ 12,913 $ 29,483 $ (16,570) (56) Operating expenses (8,301) (17,466) (9,165) (52) Gross margin - $ $ 4,612 $ 12,017 $ (7,405) (62) Gross margin - % 36% 41% (5)%
Three months ended June 30, 2009 Directional Production Revenues drilling Wireline testing Total Canada $ 3,372 $ 940 $ 310 $ 4,622 United States 5,294 1,319 1,678 8,291 $ 8,666 $ 2,259 $ 1,988 $ 12,913
Three months ended June 30, 2008 Directional Production Revenues drilling Wireline testing Total Canada $ 9,832 $ 2,803 $ 1,037 $ 13,672 United States 14,515 1,296 - 15,811 $ 24,347 $ 4,099 $ 1,037 $ 29,483
2009 Q2 revenues were $12,913 which represented a decrease of $16,570 or 56% from 2008 Q2 revenues of $29,483. The decline is primarily attributed to the decline in oil and natural gas activity in 2009 which has been caused by low commodity prices and the global recession.
The directional drilling division revenues have decreased from $24,347 in 2008 to $8,666 in 2009. This decrease is the net result of: i) the 70% decrease in activity days from 2,777 in 2008 to 833 in 2009; and ii) the increase in the average day rate from $8,591 in 2008 to $10,181 in 2009, which was due in large part to the increase in U.S. rates due to the decline in the Canadian dollar compared with 2008 Q2. Canadian activity days decreased from 1,044 to 354 and the U.S. activity days decreased from 1,733 to 479.
Expansion to the U.S. resulted in increased revenues for the Trust's production testing division. The Trust's production testing division contributed $1,988 in revenues during 2009 Q2 which is a 92% increase over 2008 revenues of $1,037. The wireline division has been affected significantly by the decline in oil and natural gas activity. The wireline division generated revenues of $2,259 for 2009 Q2 which compares to $4,099 for 2008 which represents a 45% decrease. In mid-June 2009, the Trust re-organized its wireline operations to focus its Canadian operations on providing slickline services and to concentrate its electric line ("E-Line") services in the U.S. As such, the Trust has ceased providing E-Line services in Canada.
The gross margin for 2009 Q2 was 36% compared to 41% in 2008 Q2. The decrease is attributed to a number of factors including: i) the fixed nature of a portion of labour costs within operating expense; ii) inclusion of annual equipment repairs and maintenance costs (spread over less revenue); iii) an overall change in revenue mix as wireline and production testing revenues now make up a greater percentage of total revenues and these divisions have a lower gross margin; and iv) included in 2009 Q2 operating expenses are $307 of costs associated with the restructuring of the Trust's wireline operations.
General and administrative expenses
General and administrative expenses were $6,214 in 2009 Q2, a decrease of $1,377 compared with $7,591 in 2008. The decrease was primarily related to the elimination of the accrual for annual bonus in 2009. As a percentage of revenues, general and administrative expenses were 48% in 2009 Q2 and 26% in 2008 Q2. Recognizing the expected lower activity levels, the Trust has taken several initiatives to improve operating results and further strengthen its balance sheet. The Trust's operating entities have undertaken a detailed review of all operating costs and general and administrative expenditures and have initiated cost reductions to enhance profitability including layoff of staff and wage rollbacks ranging from 4 - 12%. Included in the 2009 Q2 general and administrative expenses are $146 related to restructuring of the Trust's wireline operations.
Depreciation and amortization
Depreciation for 2009 Q2 was $3,970 which compares to $3,019 in 2008 Q2. This increase is due to the expansion of the equipment fleet since 2008 Q2. As a percentage of revenues, depreciation amounted to 31% for 2009 and 10% for 2008.
Interest expense
Interest expense related to long-term debt increased from $243 in 2008 Q2 to $304 in 2009 Q2 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 decreased from $76 in 2008 Q2 to $48 in 2009 Q2, this relates mainly to interest charges on use by the Trust of its bank indebtedness/line of credit facility which was repaid in full in 2009 Q2.
Foreign exchange gain/loss
The Trust's foreign exchange gain/loss has changed from a $32 loss in 2008 Q2 to a gain of $2,073 in 2009 Q2 due to the fluctuations in the Canadian dollar in comparison to the U.S. dollar. The Trust's U.S. operations are considered to be self-sustaining and therefore gains and losses due to fluctuations in the foreign currency exchange rates are recorded in other comprehensive income ("OCI") on the balance sheet as a component of equity. However, gains and losses in the Canadian entity on U.S. denominated intercompany balances continue to be recognized in the statement of operations. Included in the 2009 Q2 foreign currency gain are unrealized gains of $2,201 related to intercompany balances.
Unit-based compensation expense
For 2009 Q2 the Trust had unit-based compensation expense of $263 which compares to $573 for 2008 Q2. The value of the options is being amortized against income over the three-year vesting period.
Gain on disposal of property and equipment
During 2009 Q2 the Trust had a gain on disposal of property and equipment of $57, which compares to $314 in 2008 Q2. 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 2009 Q2, the Trust had a tax recovery of $2,573 as compared to tax expense of $608 in 2008 Q2.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2009
Revenues and operating expenses
2009 2008 Q2 YTD Q2 YTD Change % Revenues $ 44,281 $ 75,736 $ (31,455) (42) Operating expenses (25,633) (41,053) (15,420) (38) Gross margin - $ $ 18,648 $ 34,683 $ (16,035) (46) Gross margin - % 42% 46% (4)%
Six months ended June 30, 2009 Directional Production Revenues drilling Wireline testing Total Canada $ 14,165 $ 4,909 $ 4,035 $ 23,109 United States 14,850 2,189 4,133 21,172 $ 29,015 $ 7,098 $ 8,168 $ 44,281
Six months ended June 30, 2008 Directional Production Revenues drilling Wireline testing Total Canada $ 32,343 $ 9,020 $ 5,187 $ 46,550 United States 26,527 2,659 - 29,186 $ 58,870 $ 11,679 $ 5,187 $ 75,736
2009 revenues were $44,281 which represented a decrease of $31,455 or 42% from 2008 revenues of $75,736. The decline is primarily attributed to the decline in oil and natural gas activity in 2009 which has been caused by low commodity prices and the global recession.
The directional drilling division revenues have decreased from $58,870 in 2008 to $29,015 in 2009; a 51% decrease. This decrease is the net result of: i) the 59% decrease in activity days from 6,782 in 2008 to 2,762 in 2009; and ii) the increase in the average day rate from $8,489 in 2008 to $10,251 in 2009, which was due in large part to the increase in U.S. rates due to the decline in the Canadian dollar compared with 2008. Canadian activity days decreased from 3,544 to 1,483 and the U.S. activity days decreased from 3,238 to 1,279.
Expansion to the U.S. resulted in increased revenues for the Trust's production testing division. The Trust's production testing division contributed $8,168 in revenues during 2009 which is a 57% increase over 2008 revenues of $5,187. The wireline division generated revenues of $7,098 for 2009 which compares to $11,679 for 2008 which represents a 39% decrease. In mid-June 2009, the Trust re-organized its wireline operations to focus its Canadian operations on providing slickline services and to concentrate its electric line ("E-Line") services in the U.S. As such, the Trust has ceased providing E-Line services in Canada.
The gross margin for 2009 was 42% compared to 46% in 2008. The decrease is attributed to a number of factors including: i) the fixed nature of a portion of labour costs within operating expense; ii) inclusion of annual equipment repairs and maintenance costs (spread over less revenue); iii) an overall change in revenue mix as wireline and production testing revenues now make up a greater percentage of total revenues and these divisions have a lower gross margin; and iv) included in 2009 Q2 operating expenses are $307 of costs associated with the restructuring of the Trust's wireline operations.