ACT Energy Technologies Ltd. press release
Cathedral Energy Services Ltd. reports results for 2013 Q2 and 2013 Q3 dividend
TSX - Toronto Stock Exchange · Canada
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/NOT FOR DISSEMINATION IN THE UNITED STATESOF AMERICA/
CALGARY, Aug. 13, 2013/CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral" / TSX: CET) announces its consolidated financial results for the three and six months ended June 30, 2013and 2012. Dollars in 000's except per share amounts.
_This news release contains "forward-looking statements" within the meaning of applicable Canadian securities laws. For a full disclosure of forward-looking statements and the risks to which they are subject, see "Forward-Looking Statements" later in this news release._
2013 Q2 KEY TAKEAWAYS
$0.075/ share dividend for 2013 Q2 paid in July 2013and approved a $0.075/share dividend for 2013 Q3; Expanded U.S. production testing with 3 new high pressure units for a total of 33 U.S. units. During 2013, the Company entered the Texas market and now has a fleet of 7 units in the region; 2013 Q2 set a record for U.S. production testing revenue. This is the second consecutive quarter of record revenues for U.S. production testing; Continued growth in U.S. directional drilling activity; Combined U.S. revenues have increased 10% on a year-to-date basis; Successfully drilled several wells in an Oklahoma basin with the Company's proprietary Fusion EM/MWD platform ("Fusion MWD platform") in formations where other services providers have not had success with EM technology. This is expected to open new opportunities for long-term work; Canadian operations were reduced due to weather and customer delays; and The Company's international subsidiaries completed signing of all required agreements with Vencana Servicios Petroleros, S.A. ("Vencana") in which the Company has 40% ownership.
2013 Q2 FINANCIAL SUMMARY
| | | | | | | | | | | | | | Three months ended June 30 | | Six months ended June 30 | | | | | | | | | 2013 | | 2012 | | 2013 | | 2012 | | | Revenues | $ | 45,639 | $ | 40,699 | $ | 99,713 | $ | 108,528 | | | Adjusted gross margin % (1) | | 22.0% | | 19.1% | | 23.4% | | 28.4% | | | EBITDAS (1) | $ | 5,342 | $ | 2,068 | $ | 13,934 | $ | 24,024 | | | | Diluted per share | $ | 0.15 | $ | 0.05 | $ | 0.38 | $ | 0.63 | | EBITDAS (1) as % of revenues | | 11.7% | | 5.1% | | 14.0% | | 22.1% | | | Funds from operations (1) | $ | 3,576 | $ | 1,148 | $ | 11,083 | $ | 18,645 | | | | Diluted per share | $ | 0.10 | $ | 0.03 | $ | 0.30 | $ | 0.49 | | Net earnings | $ | (309) | $ | (3,222) | $ | 1,750 | $ | 9,406 | | | | Basic per share | $ | (0.01) | $ | (0.09) | $ | 0.05 | $ | 0.25 | | | Diluted per share | $ | (0.01) | $ | (0.09) | $ | 0.05 | $ | 0.25 | | Dividends declared per share | $ | 0.075 | $ | 0.075 | $ | 0.150 | $ | 0.150 | | | Property and equipment additions (cash) | $ | 6,476 | $ | 6,542 | $ | 13,174 | $ | 18,487 | | | Weighted average shares outstanding | | | | | | | | | | | | Basic (000s) | | 35,854 | | 37,485 | | 36,307 | | 37,420 | | | Diluted (000s) | | 35,898 | | 37,744 | | 36,361 | | 37,911 | | | | | | | | | | | | | | | | | | | June 30 | | December 31 | | | | | | | | | 2013 | | 2012 | | | Working capital | | | | | $ | 23,686 | $ | 29,173 | | | Total assets | | | | | $ | 230,572 | $ | 224,080 | | | Loans and borrowings excluding current portion | | | | | $ | 51,345 | $ | 46,151 | | | Total shareholders' equity | | | | | $ | 132,464 | $ | 137,932 | | | | | | | | | | | | | | (1) see "NON-GAAP MEASUREMENTS" | | | | | | | | | |
OVERVIEW
The Company completed 2013 Q2 with quarterly revenues of $45,639and year-to-date revenues of $99,713compared to 2012 Q2 revenues of $40,699and 2012 year-to-date revenues of $108,528. Year-to-date revenues have decreased 8% from 2012. The 2013 Q2 revenues were comprised of 60% (2012 Q2 - 65%) from the directional drilling division, 28% (2012 Q2 - 35%) from the production testing division and 12% (2012 Q2 - nil) from international operations.
2013 Q2 EBITDAS were $5,342($0.15per share diluted) which represents a $3,274increase from 2012 Q2 EBITDAS of $2,068($0.05per share diluted). For the three months ended June 30, 2013, the Company's loss was $309($0.01per share diluted) as compared to a loss $3,222($0.09per share diluted) in 2012. The quarter-over-quarter increase in EBITDAS is due to 2013 Q2 including international resale of equipment to Cathedral's Venezuelajoint venture, increased operating levels in both U.S. divisions, offset by a decline in Canadian operating levels. 2013 year-to-date EBITDAS was $13,934($0.38per share diluted) which represents a $10,090or 42% decrease from $24,024($0.63per share diluted) in 2012. On a 2013 year-to-date basis, the Company's net income was $1,750($0.05per share diluted) as compared to a $9,406($0.25per share diluted) in 2012.
OUTLOOK
The investment in the U.S. continues to be the focus of the Company. This investment is beginning to bear fruit as both the Texas and new Oklahoma regions are seeing increased activity levels. This along with the success of Cathedral's Fusion MWD platform and "nDurance" mud motors is leading to positive events happening in all of Cathedral's U.S. operating regions.
Cathedral continues to see delays in Canadian field operations as weather has been an issue that has carried on since late Q2. The rig count continues to lag that of last year. The access to capital has continued to be an issue for most Canadian oil and natural gas operators, although Canadian oil differentials have tightened.
The Company continues to move forward with its Venezuelan joint venture. The Company's subsidiaries have now signed all required agreements prior to commencement of operations. Over the last few months there has been a renewed urgency to move things forward with the Venezuelan national oil company and its subsidiaries. The Company's Directional Plus International Ltd. subsidiary is now focused on delivering the remaining required equipment to initiate operations.
Cathedral has signed a non-binding letter of intent for the sale and leaseback of its Calgary6030 Campus and its Nisku, Alberta motor repair facility. The net proceeds are expected to be approximately $22,000and will be used to reduce debt. The sale is expected to close in September 2013.
Cathedral has renewed its normal course issuer bid as it believes that the trading price of its common shares does not accurately reflect the value of the Company and it will assist in stabilizing the trading price and to provide liquidity in the market for its shareholders.
The Company has expanded its 2013 capital program by an additional $5,000. This will allow the Company to continue its expansion in the Texas, Oklahoma and Rocky Mountainregions of the U.S.
2013 CAPITAL PROGRAM
For the six months ended June 30, 2013the Company has invested an additional $13,174(2012 - $18,487) in property and equipment. The main 2013 capital additions were upgrades and replacement of downhole tools, the addition of 3 retrievable positive pulse systems, 3 high pressure production testing units and auxiliary production testing equipment. In 2013, $5,956of the additions related to growth capital, with the remaining $7,218for maintenance, upgrade and replacement capital. . The net property and equipment additions (additions net of proceeds on the disposal of property and equipment) to date in 2013 were $10,556(2012 - $12,099).
The following is a summary of major equipment owned by the Company:
| | | | | | | June 30 | December 31 | June 30 | | | 2013 | 2012 | 2012 | | Directional drilling - MWD systems (1) | 134 | 136 | 129 | | Production testing units | 72 | 69 | 67 | | (1) The Company has 15 Geolink MWD systems that have been excluded from the June 30, 2013figures as they are held for sale. As at June 30and December 31, 2012there were 10 Geolink MWD systems that were excluded. | | | |
Cathedral's 2013 capital budget has increased by $5,000for U.S. drilling expansion. The budget has increased from the initially announced amount of $22,000 to $27,000.
The additional $5,000is for additional capital for the drilling division are addition of mud motors, drill collars and power sections for the expected expansion of Company's U.S. Rocky Mountain, Houstonand Oklahoma Cityoperation bases.
The maintenance capital remains unchanged at $12,000.
These capital expenditures are expected to be financed by way of cash flow from operations, proceeds of disposal of property and equipment and the Company's credit facility.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30
| | | | | | | | | | | | Three months ended June 30, 2013 | | Three months ended June 30, 2012 | | | | | | | | Directional | Production | Resale | | | Directional | Production | | | Revenues | drilling | testing | and Rental | Total | | drilling | testing | Total | | Canada | $ 8,650 | $ 4,066 | $ - | $ 12,716 | | $ 10,522 | $ 6,368 | $ 16,890 | | United States | 18,835 | 8,914 | - | 27,749 | | 15,988 | 7,821 | 23,809 | | International | - | - | 5,174 | 5,174 | | - | - | - | | Total | $ 27,485 | $ 12,980 | $ 5,174 | $ 45,639 | | $ 26,510 | $ 14,189 | $ 40,699 |
Revenues2013 Q2 revenues were $45,639which represented an increase of $4,940or 12% from 2012 Q2 revenues of $40,699. The increase was attributed to international and U.S. operations which were offset by declines in Canadaoperations.
Canadian directional drilling revenues decreased from $10,522in 2012 Q2 to $8,650in 2013 Q2; an 18% decrease. This decrease was the result of: i) a 15% decrease in activity days from 801 in 2012 Q2 to 679 in 2013 Q2; and ii) a 3% decrease in the average day rate from $13,136in 2012 Q2 to $12,739in 2013 Q2. Canadian activity days decreased due to a number of factors including: i) a decline in industry activity due to oil take away restrictions; marginal natural gas prices and a general lack of access to equity markets; ii) a decline in work for a significant client that carried over from 2013 Q1: and iii), a slow start after the spring break-up and further delays due to weather in June that pushed start dates for certain jobs in to 2013 Q3.
U.S. directional drilling revenues increased from $15,988in 2012 Q2 to $18,835in 2013 Q2; an 18% increase. This increase was the result of: i) a 7% increase in activity days from 1,493 in 2012 Q2 to 1,602 in 2013 Q2; and ii) a 10% increase in the average day rate from $10,709in 2012 Q2 to $11,757in 2013 Q2 (when converted to Canadian dollars). The increase in U.S. activity days were due to increased traction in the Texas and Oklahoma markets, offset by reduced drilling in the Rocky Mountainand Pennsylvania areas within the existing client base. The increased average day rate was mainly due to higher rates that were achieved in the Rocky Mountainand Texas regions.
Canadian production testing revenues decreased from $6,368in 2012 Q2 to $4,066in 2013 Q2; a 36% decrease. The Canadian operations were affected by a general industry wide decline in wells completed in 2013 Q2 versus 2012 Q2 and client specific delays in completion work that has been deferred into 2013 Q3.
U.S. production testing revenues increased from $7,821in 2012 Q2 to $8,914in 2013 Q2; a 14% increase. This increase is attributable to having 3 additional units in 2013 Q2 versus 2012 Q2 and expansion into the Eagleford (Texas) market.
Gross margin and adjusted gross margin The gross margin for 2013 Q2 was 11.5% compared to 7.8% in 2012 Q2. Adjusted gross margin for 2013 Q2 was $10,018(22.0%) compared to $7,792(19.1%) for 2012 Q2. The increase in adjusted gross margin of 2.9% was due in part to the impact of international operations. Excluding international operations, adjusted gross margin for 2013 Q2 was 19.8% which is marginally higher than the adjusted gross margin in 2012 Q2.
In the Canadian and U.S. drilling markets, there have been declines in the total per day revenue rates which have a negative effect on the gross margin realized. The Canadian testing division saw increased labour costs due to increased use of senior field personnel while the U.S. testing division saw a slight decline in labour costs. The increased labour costs were offset by decreases in repairs and battery costs, for the overall slight increase in North American margin.
Depreciation allocated to cost of sales increased from $4,530in 2012 Q2 to $4,709in 2013 Q2 due to capital additions in the period from 2012 Q2 to 2013 Q2. Depreciation included in cost of sales as a percentage of revenue was 10.3% for 2013 Q2 and 11.1% in 2012 Q2.
Selling, general and administrative expenses ("SG&A")SG&A expenses were $6,151in 2013 Q2; an increase of $108compared with $6,043in 2012 Q2. As a percentage of revenue, these costs were 13% in 2013 Q2 and 15% in 2012 Q2. Non-cash expenses total $293for 2013 Q2 and $405for 2012 Q2. SG&A net of these non-cash items were $5,858in 2013 Q2 and $5,638in 2012 Q2, an increase of $220.
Wages increased $351; this increase was primarily related to staff additions for research and development department and staff positions added to accommodate current and future U.S. growth; net of decreases in variable compensation. The staffing costs included in SG&A relate to executives, sales, accounting, human resources, payroll, safety, research and development and related support staff. The remaining net decrease of $131relates to various changes none of which are individually significant.
Gain on disposal of property and equipmentDuring 2013 Q2 the Company had a gain on disposal of property and equipment of $1,125, compared to $28in 2012 Q2. The Company'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 Company and therefore can fluctuate significantly from quarter-to-quarter.
Foreign exchange loss The Company's foreign exchange loss of $315in 2012 Q2 has declined to a loss of $273in 2013 Q2 due to the fluctuations in the Canadian dollar compared to U.S. dollars and Venezuelan bolivars. The Company's foreign operations are denominated in a currency other than the Canadian dollar and therefore, upon consolidation 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 income. Included in the 2013 Q2 foreign currency loss are unrealized losses of $330(2012 Q2 - $201) related to intercompany balances.
Finance costs Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $648for 2013 Q2 versus $513for 2012 Q2. The increase in finance costs relate to increases in interest rates as well as increased utilization of the Company's operating loan.
Income taxFor 2013 Q2, the Company had an income tax recovery of $372compared to $428in 2012 Q2. The effective tax rate was 55% for 2013 Q2 and 12% for 2012 Q2. Income tax expense is booked based upon expected annualized effective rates. Annually, Q2 typical results in Canadian operations experiencing a loss for the quarter due to "spring breakup" which has significantly reduced activity levels. In 2013 Q2 such losses were offset by International income which has a nominal effective tax rate and when combined with a U.S. effective tax rate that is higher than in Canada, resulted in the effective 2013 Q2 tax rate of 55%.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30
| | | | | | | | | | | | Six months ended June 30, 2013 | | Six months ended June 30, 2012 | | | | | | | | Directional | Production | Resale | | | Directional | Production | | | Revenues | drilling | testing | and Rental | Total | | drilling | testing | Total | | Canada | $ 32,244 | $ 11,832 | $ - | $ 44,076 | | $ 44,034 | $ 18,753 | $ 62,787 | | United States | 33,344 | 17,119 | - | 50,463 | | 30,895 | 14,846 | 45,741 | | International | - | - | 5,174 | 5,174 | | - | - | - | | Total | $ 65,588 | $ 28,951 | $ 5,174 | $ 99,713 | | $ 74,929 | $ 33,599 | $ 108,528 |
Revenues2013 revenues were $99,713which represented a decrease of $8,815or 8% from 2012 revenues of $108,528. The increase was attributed to international and U.S. operations which were offset by declines in Canadaoperations.
Canadian directional drilling revenues decreased from $44,034in 2012 to $32,244in 2013; a 27% decrease. This decrease was the result of: i) a 21% decrease in activity days from 3,514 in 2012 to 2,781 in 2013; and ii) a 7% decrease in the average day rate from $12,531in 2012 to $11,594in 2013. Canadian activity days decreased due to a number of factors including: i) a decline in industry activity due to oil take away restrictions, marginal natural gas prices and a general lack of access to equity markets; ii) a decline in work for a significant client; and iii) a slow start after the spring break-up and further delays due to weather in June that pushed start dates for certain jobs in to 2013 Q3. There were new clients added, but these were not enough to offset the decreased work on existing clients.
U.S. directional drilling revenues increased from $30,895in 2012 to $33,344in 2013; an 8% increase. This increase was the result of: i) an1% increase in activity days from 2,915 in 2012 to 2,931 in 2013; and ii) a 7% increase in the average day rate from $10,599in 2012 to $11,376in 2013 (when converted to Canadian dollars). The increase in U.S. activity days were due to increased traction in the Texas and Oklahoma markets, offset by reduced drilling in the Rocky Mountainand Pennsylvania areas within the existing client base. The increased average day rate is increase was due to increases that were achieved in the Rocky Mountainand Texas regions, net of declines in the northeast.
Canadian production testing revenues decreased from $18,753in 2012 to $11,832in 2013; a 37% decrease. The Canadian operations were affected by a general industry wide decline in wells completed and client specific delays in completion work that has resulted in such work being delayed until 2013 Q3.
U.S. production testing revenues increased from $14,846in 2012 to $17,119in 2013; a 15% increase. This increase is attributable to having 3 additional units in 2013 versus 2012 and expansion into the Eagleford (Texas) market.
Gross margin and adjusted gross marginThe gross margin for 2013 was 13.9% compared to 20.2% in 2012. Adjusted gross margin for 2013 was $23,376(23.4%) compared to $30,856(28.4%) for 2012. The decrease in adjusted gross margin of 5.0% was offset in part to the impact of international operations. Excluding international operations, adjusted gross margin for 2013 was 22.6%.
In the Canadian and U.S. drilling markets, there have been declines in the total per day revenue rates which have a negative effect on the gross margin realized. The Canadian production testing division saw increased labour costs due to increased use of senior field personnel while the U.S. production testing division saw a slight decline in labour costs. In addition there were increases in costs for accommodation of field staff and increases in non-field wages. The increase in non-field wages relates to the continued build out of personnel in the Houston, Texas facility and staff for the newly established facility in Oklahoma City, Oklahoma. The Company is expecting increased levels of activity from the markets covered by these facilities. Despite Cathedral's highly variable field cost structure, non-field salaries are of a fixed nature and therefore when the Company's revenue declines as which was experienced in the Canadian market, such costs become a higher percentage of revenues.
Depreciation allocated to cost of sales increased from $8,794in 2012 to $9,374in 2013 due to capital additions in the period from July 2012to June 2013. Depreciation included in cost of sales as a percentage of revenue was 9.4% for 2013 and 8.1% in 2012.
Selling, general and administrative expenses ("SG&A")SG&A expenses were $11,722in 2013; an increase of $238compared with $11,484in 2012. As a percentage of revenue, these costs were 12% in 2013 and 11% in 2012. Non-cash expenses total $661for 2013 and $829for 2012. SG&A net of these non-cash items were $11,061in 2013 and $10,655in 2012, an increase of $406.