ACT Energy Technologies Ltd. press release
Cathedral Energy Services reports results for the three and nine months ended September 30, 2009
TSX - Toronto Stock Exchange · Canada
Nov. 4, 2009 (Canada NewsWire Group) --
CALGARY, Nov. 4 /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, 2009. Dollars are in '000's except for day rates and per Trust Unit amounts.
FINANCIAL HIGHLIGHTS $ in 000's except per Trust Unit amounts Three months ended Nine months ended September 30 September 30 2009 2008 2009 2008 Revenues $ 23,544 $ 52,686 $ 67,825 $ 128,422 Gross margin %(1) 49% 46% 44% 46% EBITDAS(1) $ 5,724 $ 16,887 $ 10,788 $ 36,875 Diluted per Trust Unit $ 0.16 $ 0.52 $ 0.31 $ 1.14 Income before taxes $ 3,207 $ 13,022 $ 905 $ 25,508 Net income $ 3,125 $ 10,296 $ 3,045 $ 20,402 Basic per Trust Unit $ 0.09 $ 0.32 $ 0.09 $ 0.64 Diluted per Trust Unit $ 0.09 $ 0.32 $ 0.09 $ 0.63 Cash distributions declared per Trust Unit $ 0.04 $ 0.21 $ 0.31 $ 0.63 Distributable cash(1), including one-time 2009 Q1 current tax provision of $4,168 (refer to MD&A) $ 5,093 $ 13,844 $ 4,915 $ 28,996 Adjusted distributable cash(3), excluding one-time 2009 Q1 current tax provision of $4,168 (refer to MD&A) $ 5,093 $ 13,844 $ 9,083 $ 28,996 Cash distributions declared(2) $ 1,448 $ 6,813 $ 10,534 $ 20,252 Payout ratio(1), net of one-time 2009 Q1 current tax provision of $4,168 28% 49% 214% 70% Adjusted payout ratio(3), net of one-time 2009 Q1 current tax provision of $4,168 28% 49% 116% 70% Property and equipment additions $ 1,333 $ 15,129 $ 7,309 $ 26,564 Weighted average Trust Units outstanding: Basic ('000) 36,198 32,384 34,370 32,091 Diluted ('000) 36,198 32,522 34,370 32,318 September 30 December 31 2009 2008 Working capital $ 16,095 $ 17,435 Long-term excluding current portion $ 36,571 $ 40,233 Unitholders' equity $ 93,938 $ 91,859 (1) Refer to MD&A; see "NON-GAAP MEASUREMENTS" (2) Excludes foreign taxes paid that have been allocated to Unitholders (3) Refer to MD&A; see "DISTRIBUTIONS"
MANAGEMENT'S DISCUSSION & ANALYSIS
This Management's Discussion & Analysis ("MD&A") for the three and nine months ended September 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 nine months ended September 30, 2009. This MD&A has been prepared as of November 4, 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; the arrangement (as herein discussed) and the expected benefits thereof; future financial position; results of operations; dividend policy; tax pools and the availability of such tax pools; taxes; plans and objectives; access to capital; liquidity and trading volumes; projected costs; business strategy and anticipated benefits of the arrangement; financial results; future cash flows; value and debt levels; future tax basis and the treatment of the Trust and the Trust Unitholders under tax laws 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; (ix) treatment under governmental regulatory regimes and tax, environmental and other laws; (ix) the completion of the arrangement; * the utilization of the tax basis by New Cathedral; and (xi) the timely receipt of required regulatory approvals.
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, inability to obtain required consents, permits or approvals, including the Final Order of the Court approving the arrangement, approval of the Trust Unitholders or the SemBioSys Securityholders; the uncertainties associated with the availability and amount of the tax pools, third party credit risk relating to obligations of SemBioSys under the Indemnity Agreement, Assignment Agreements and the Divestiture Agreement 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 Trust completed the third quarter of 2009 with quarterly revenues of $23,544 and year-to-date revenues of $67,825 compared to 2008 Q3 at $52,686 and 2008 year-to-date revenues of $128,422. The 2009 Q3 revenues were lead by the Trust's directional drilling division which represented 71% (2008 Q3 - 78%) of 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 Q3. 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.
2009 year-to-date EBITDAS was $10,788 ($0.31 per diluted Trust Unit) which represents a $26,087 or 71% decrease from $36,875 ($1.14 per diluted Trust Unit) in 2008. On a 2009 year-to-date basis, the Trust's net income was $3,045 ($0.09 per diluted Trust Unit) which compares to $20,402 ($0.63 per diluted Trust Unit) in 2008.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2009 Revenues and operating expenses 2009 Q3 2008 Q3 Change % Revenues $ 23,544 $ 52,686 $ (29,142) (55) Operating expenses (12,104) (28,212) (16,108) (57) Gross margin - $ $ 11,440 $ 24,474 $ (13,034) (53) Gross margin - % 49% 46% 3% Three months ended September 30, 2009 Directional Production Revenues drilling Wireline testing Total Canada $ 11,836 $ 996 $ 1,495 $ 14,327 United States 4,863 2,372 1,982 9,217 $ 16,699 $ 3,368 $ 3,477 $ 23,544 Three months ended September 30, 2008 Directional Production Revenues drilling 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
2009 Q3 revenues were $23,544 which represented a decrease of $29,142 or 55% from 2008 Q3 revenues of $52,686. 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 $40,909 in 2008 to $16,699 in 2009. This decrease is the result of: i) the 58% decrease in activity days from 4,409 in 2008 to 1,874 in 2009; and ii) the decrease in the average day rate from $9,098 in 2008 to $8,754 in 2009, which was largely due to competitive pressures and the overall decline in drilling activity. Canadian activity days decreased from 2,497 to 1,372 and the U.S. activity days decreased from 1,912 to 502.
The Trust's production testing division contributed $3,477 in revenues during 2009 Q3 which is a 25% decrease from 2008 revenues of $4,640. The wireline division has been affected significantly by the decline in oil and natural gas activity. The wireline division generated revenues of $3,368 for 2009 Q3 which compares to $7,137 for 2008 which represents a 53% 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.
The gross margin for 2009 Q3 was 49% compared to 46% in 2008 Q3. The increase is attributed to cost reductions in a number of areas including: i) reductions in labour rates; ii) reductions in equipment rentals as a result in decreased activity levels; net of iii) increases in repair and maintenance costs.
General and administrative expenses
General and administrative expenses were $5,630 in 2009 Q3, a decrease of $2,313 compared with $7,943 in 2008. The decrease was primarily related to the elimination of the accrual for annual bonus in 2009 as well as reductions in salaries due to staffing reductions and wage rollbacks. As a percentage of revenues, general and administrative expenses were 24% in 2009 Q3 and 15% in 2008 Q3. 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%.
Depreciation and amortization
Depreciation for 2009 Q3 was $3,539 which compares to $3,411 in 2008 Q3. During 2009 Q3, approximately $11,478 of property and equipment was temporarily removed from service and therefore no depreciation has been recorded on these assets. As a percentage of revenues, depreciation amounted to 15% for 2009 and 6% for 2008.
Interest expense
Interest expense related to long-term debt increased from $266 in 2008 Q3 to $303 in 2009 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 decreased from $115 in 2008 Q3 to $51 in 2009 Q3, this relates mainly to interest charges on use by the Trust of its bank indebtedness/line of credit.
Foreign exchange gain/loss
The Trust's foreign exchange gain/loss has changed from a $21 loss in 2008 Q3 to a gain of $1,404 in 2009 Q3 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 Q3 foreign currency gain are unrealized gains of $1,525 (2008 Q3 - $27) related to intercompany balances.
Unit-based compensation expense
For 2009 Q3 the Trust had unit-based compensation expense of $200 which compares to $215 for 2008 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 2009 Q3 the Trust had a gain on disposal of property and equipment of $86, which compares to $519 in 2008 Q3. The gains for 2009 Q3 relate to the sale of wireline assets. The gains for 2008 Q3 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 Q3, the Trust had a tax expense of $82 as compared to $2,726 in 2008 Q3. A significant portion of income tax expense for 2008 Q3 relates to U.S. operations. As profitability of these operations has fallen dramatically, so has the related income tax expense.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2009 Revenues and operating expenses 2009 YTD 2008 YTD Change % Revenues $ 67,825 $ 128,422 $ (60,597) (47) Operating expenses (37,737) (69,265) (31,528) (46) Gross margin - $ $ 30,088 $ 59,157 $ (29,069) (49) Gross margin - % 44% 46% (2%) Nine months ended September 30, 2009 Directional Production Revenues drilling Wireline testing Total Canada $ 26,001 $ 5,905 $ 5,530 $ 37,436 United States 19,713 4,561 6,115 30,389 $ 45,714 $ 10,466 $ 11,645 $ 67,825 Nine months ended September 30, 2008 Directional Production Revenues drilling 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
2009 revenues were $67,825 which represented a decrease of $60,597 or 47% from 2008 revenues of $128,422. 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 $99,779 in 2008 to $45,714 in 2009; a 54% decrease. This decrease is the net result of: i) the 59% decrease in activity days from 11,191 in 2008 to 4,636 in 2009; and ii) the increase in the average day rate from $8,724 in 2008 to $9,634 in 2009, which were caused in large part to the increase in U.S. rates due to the decline in 2009 versus 2008 in the Canadian dollar relative to the U.S. dollar. Canadian activity days decreased from 6,042 to 2,855 and the U.S. activity days decreased from 5,149 to 1,781.
Expansion to the U.S. resulted in increased revenues for the Trust's production testing division. The Trust's production testing division contributed $11,645 in revenues during 2009 which is a 19% increase over 2008 revenues of $9,827. The wireline division generated revenues of $10,466 for 2009 which compares to $18,816 for 2008 which represents a 44% 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.
The gross margin for 2009 was 44% compared to 46% in 2008. The decrease is attributed to a number of factors including: i) an increase in labour costs as percentage of revenue in the first six months of 2009; ii) greater impact 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 were $307 of costs associated with the restructuring of the Trust's wireline operations.