ACT Energy Technologies Ltd. press release
Cathedral Energy Services Ltd. reports results for 2013 Q4 and 2014 Q1 dividend
TSX - Toronto Stock Exchange · Canada
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/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, March 6, 2014/CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral" / TSX: CET) announces its consolidated financial results for the three months and year ended December 31, 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 Q4 KEY TAKEAWAYS
Record U.S. directional drilling revenues - 86% increase over 2012 Q4; Revenue increased in all operating divisions over 2012 Q4; Continued client wins as a result of performance from Cathedral's proprietary Fusion MWD system and nDurance series motors; and Strategic decision to discontinue operations in Venezuelaand renewed focus on North American market.
2013 Q4 FINANCIAL SUMMARY
| | | | | | | | | | | | | | | | Three months ended December 31 | | | Year ended December 31 | | | | | | | | | | 2013 | | 2012 | | | 2013 | | | 2012 | | | Revenues | $ | 65,238 | $ | 44,836 | | $ | 224,685 | | $ | 203,194 | | | Adjusted gross margin % (1) | | 20.7% | | 27.8% | | | 23.1% | | | 28.2% | | | EBITDAS (1) | $ | 8,124 | $ | 8,296 | | $ | 32,815 | | $ | 40,824 | | | | Diluted per share | $ | 0.22 | $ | 0.22 | | $ | 0.91 | | $ | 1.08 | | | As % of revenues | | 12% | | 19% | | | 15% | | | 20% | | Funds from operations (1) | $ | 6,400 | $ | 6,586 | | $ | 25,359 | | $ | 33,270 | | | | Diluted per share | $ | 0.18 | $ | 0.18 | | $ | 0.70 | | $ | 0.88 | | Write-down of investment in associate and related assets | $ | (13,066) | $ | - | | $ | (13,066) | | $ | - | | | Earnings (loss) before income taxes | $ | (11,394) | $ | 2,034 | | $ | 1,114 | | $ | 20,381 | | | Net earnings (loss) | $ | (11,248) | $ | 1,578 | | $ | (1,542) | | $ | 14,797 | | | | Basic per share | $ | (0.31) | $ | 0.04 | | $ | (0.04) | | $ | 0.40 | | | Diluted per share | $ | (0.31) | $ | 0.04 | | $ | (0.04) | | $ | 0.39 | | Dividends declared per share | $ | 0.0825 | $ | 0.0750 | | $ | 0.3075 | | $ | 0.3000 | | | Property and equipment additions (cash) | $ | 6,736 | $ | 6,934 | | $ | 28,283 | | $ | 30,650 | | | Weighted average shares outstanding | | | | | | | | | | | | | | Basic (000s) | | 36,158 | | 37,209 | | | 36,171 | | | 37,376 | | | Diluted (000s) | | 36,223 | | 37,400 | | | 36,241 | | | 37,756 | | | | | | | | | | | | | | | | | | | | | | December 31 | | | December 31 | | | | | | | | | | 2013 | | | 2012 | | | Working capital | | | | | | $ | 26,031 | | $ | 29,173 | | | Total assets | | | | | | $ | 205,375 | | $ | 224,080 | | | Loans and borrowings excluding current portion | | | | | | $ | 38,462 | | $ | 46,151 | | | Total shareholders' equity | | | | | | $ | 126,612 | | $ | 137,932 | | | (1) see "NON-GAAP MEASUREMENTS" | | | | | | | | | | | | | | | | | | | | | | | | |
OUTLOOK
The Canadian directional drilling division is off to a strong start in 2014 as activity levels ramped up quickly after the December 2013holiday season. Activity levels are expected to be strong until spring breakup. The Company will continue to focus its marketing efforts on targeting clients in the Deep Basin reservoirs where reduction in drilling times resulting from equipment and technology improvements allow the Company to compete on a performance basis rather than on lowest cost for services.
2013 Q4 activity levels for Cathedral's Canadian production testing division benefited from work which was deferred from Q3. Going forward Cathedral is expecting more normalized activity levels.
The U.S. directional drilling division closed 2013 with a significant increase in activity as evidenced by a 39% increase in annual revenues. To achieve this growth, we expanded our operations, secured new facilities, hired new employees and incurred equipment rental charges, all of which caused downward pressure on operating margins. 2014 activity levels are expected to continue to increase as we move through the year. In particular, Cathedral is expecting market share gains in the Texasand Oklahomaoperating areas. Construction on the Oklahoma Cityoperations and repair facility continues and occupancy is expected in early 2015.
For the U.S. production testing division, activity levels in 2013 Q4 were down due to the loss of one significant customer as well as lower revenues from another customer which had planned to reduce its completion activities for that quarter. As we moved into 2014 we have added additional customers and expect continued growth throughout the year. To enhance sales and marketing efforts, Cathedral is looking to add additional production testing sales staff combined with utilizing the services of its directional drilling sales staff to secure work.
Recently, stronger commodity prices have contributed to higher producer netbacks, resulting in renewed interest in the energy industry by the investment community as evidenced by increased financing activity, all of which should provide oil and gas producers with additional funds for capital programs. On a longer term basis, there is potential for a significant increase in spending in western Canadaas producers realize higher netbacks from a combination of enhanced refining capacity, increased shipment of crude by rail, new and expanded oil pipelines together with development of proposed west coast liquefied natural gas terminals.
For 2014, Cathedral's focus will remain on: i) increasing market share in both operating divisions and geographic areas; ii) enhancing profitability through managing costs, and iii) continued investment in research and development of proprietary technologies.
DIVIDENDS
It is the intent of the Company to pay quarterly dividends to shareholders. The Board of Directors will review the amount of dividends on a quarterly basis with due consideration to current performance, historical and future trends in the business, the expected sustainability of those trends and enacted tax legislation which will affect future taxes payable as well as required long-term debt repayments, maintenance capital expenditures required to sustain performance and future growth capital expenditures. The Directors have approved a 2014 Q1 dividend in the amount of $0.0825per share which will have a date of record March 31, 2014and a payment date of April 15, 2014.
CAPITAL PROGRAM
Cathedral's 2014 capital budget is $24,000which includes $13,000of growth capital, $7,000of maintenance capital and $4,000of infrastructure expenditures.
The Directional Drilling division is expected to invest $20,000of the 2014 capital budget including $10,000for growth, $6,000for maintenance and $4,000for infrastructure. Growth capital expenditures will include the addition of mud motors and drill collars for the expansion of Company's U.S. operations. Maintenance capital expenditures are expected to allow for: 1) continued enhancement of the Company's Fusion MWD platform electronics; 2) addition of mud pulse transmitters to allow for expanded Fusion MWD dual telemetry capabilities; 3) continued conversion to Cathedral's proprietary mud motor bearing section; and 4) expansion of mud motor power section fleet to accommodate extended repair times and new configurations requested by customers. The infrastructure investment relates to the construction of an operations facility in Oklahoma City, Oklahomawith full service repair capabilities. It is the intent of Cathedral to sell and leaseback the Oklahoma Cityoperations facility following its completion.
The Production Testing division anticipates investing $3,000of growth capital expenditures comprised of auxiliary equipment and line pipe that would otherwise be rented and $1 millionof maintenance expenditures.
Cathedral intends to finance its initial 2014 capital budget from cash flow from operations and, if necessary, its existing credit facility.
Overall, for 2014 the focus for Cathedral will be the continuation of its U.S. expansion, increasing market share in Canadaand its continuing review of all operating costs and selling, general and administrative expenditures with the goal of enhancing profitability.
The following is a summary of major equipment owned by the Company:
| | | | | | December 31 | December 31 | | | 2013 | 2012 | | Directional drilling - MWD systems (1) | 139 | 136 | | Production testing units | 72 | 69 | | (1) The Company has 10 Geolink MWD systems that have been excluded from the December 31, 2013 and 2012 figures as they are held for sale. | | |
RESULTS OF OPERATIONS - THREE MONTHS ENDED DECEMBER 31, 2013
| | | | | | | | | | | | | | | | | | | | | | Three months ended December 31, 2013 | | Three months ended December 31, 2012 | | | | | | | | | | | | | | | | | Directional | | Production | | Resale and | | | | | Directional | | Production | | Resale and | | | | Revenues | | drilling | | testing | | rental | | Total | | | drilling | | testing | | rental | | Total | | Canada | $ | 19,320 | $ | 9,241 | $ | - | $ | 28,561 | | $ | 16,777 | $ | 6,791 | $ | - | $ | 23,568 | | United States | | 23,536 | | 7,150 | | - | | 30,686 | | | 12,682 | | 6,391 | | - | | 19,073 | | International | | - | | - | | 5,991 | | 5,991 | | | - | | - | | 2,195 | | 2,195 | | | | | | | | | | | | | | | | | | | | | Total | $ | 42,856 | $ | 16,391 | $ | 5,991 | $ | 65,238 | | $ | 29,459 | $ | 13,182 | $ | 2,195 | $ | 44,836 |
Revenues2013 Q4 revenues were $65,238which represented an increase of $20,402or 46% from 2012 Q4 revenues of $44,836. All areas were up on a year-over-year basis.
Canadian directional drilling revenues increased from $19,320in 2012 Q4 to $16,777in 2013 Q4; a 15% increase. This increase was the result of: i) an 18% increase in activity days from 1,425 in 2012 Q4 to 1,683 in 2013 Q4; net of ii) a 3% decrease in the average day rate from $11,782in 2012 Q4 to $11,480in 2013 Q4. The increase in Canadian activity days on quarter-over-quarter basis is due the Company's ability to replace work after one significant customer suspended drilling activity in late 2012 Q3 as well as work deferred from 2013 Q3. Canadian activity days in 2013 Q4 were expected to increase over 2013 Q3 levels but certain clients ceased their 2013 drilling programs earlier than expected; such work was deferred into 2014.
U.S. directional drilling revenues increased from $12,682in 2012 Q4 to a record level of $23,536in 2013 Q4; an 86% increase. This increase was the result of: i) a 60% increase in activity days from 1,266 in 2012 Q4 to 2,027 in 2013 Q4; and ii) a 16% increase in the average day rate from $10,018in 2012 Q4 to $11,611in 2013 Q4 (when converted to Canadian dollars). The increase in U.S. activity days were due to market share gains in the Texasregion and to a lesser extent the Rocky Mountain area as well as expansion into Oklahoma(Oklahomacommenced operations in November 2012). The increased average day rate was due to increases that were achieved due to performance based pricing.
Canadian production testing revenues increased from $6,791in 2012 Q4 to $9,241in 2013 Q4; a 36% increase. The Canadian operating days were up in each month of the quarter compared to 2012. Canadian activity days increased as certain clients had deferred work from earlier in the year to 2013 Q4.
U.S. production testing revenues increased from $6,391in 2012 Q4 to $7,150in 2013 Q4; a 12% increase. This increase is attributable to having 3 additional units in 2013 Q4 versus 2012 Q4 and increased utilization of units. On a quarter-over-quarter basis revenue declined in 2013 Q4 compared to 2013 Q3 due to loss of a customer and another customer which had planned to have low activity levels in 2013 Q4. 2013 Q3 had established the record for divisional revenues.
The international resale and rental revenue relates to the resale of assets by Cathedral's subsidiaries to Vencana Servicios Petroleros, S.A. ("Vencana"). This amount includes only the portion of the resale revenue related to the other joint venture partner's share (60% of total selling price).
Gross margin and adjusted gross margin The gross margin for 2013 Q4 was 12.9% compared to 16.3% in 2012 Q4. Adjusted gross margin for 2013 Q4 was $13,474(20.7%) compared to $12,444(27.8%) for 2012 Q4. The decrease in adjusted gross margin of 7.1% was primarily due to increases in field labour costs, non-recoverable battery usage in directional drilling and equipment rentals.
In Canadadirectional drilling field labour rates have remained fairly constant with the prior year, but due to the decline in the average revenue day rate, the cost as percentage of revenue has increased. In U.S., the work performed in Oklahomaincreased and it had higher per day labour costs relative to revenue levels. As activity levels increase in Oklahomawe are expecting to average these costs down with the mix of staff levels.
Depreciation allocated to cost of sales decreased slightly from $5,071in 2012 Q4 to $5,036in 2013 Q4. Depreciation included in cost of sales as a percentage of revenue was 7.7% for 2013 Q4 and 11.3% in 2012 Q4.
Selling, general and administrative expenses ("SG&A")SG&A expenses were $6,719in 2013 Q4; an increase of $1,146compared with $5,573in 2012 Q4. As a percentage of revenue, these costs were 10% in 2013 Q4 and 12% in 2012 Q4. Total non-cash expenses were a recovery of $57for 2013 Q4 and an expense of $448for 2012 Q4. In 2013 Q4, there was a non-recurring cost for severance in the amount of $1,494. Excluding severance, SG&A, net of non-cash items, adjusted SG&A was $5,282in 2013 Q4 compared to $5,125in 2012 Q4, an increase of $157. This increase was primarily due to increased wages; 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.
Gain on disposal of property and equipmentDuring 2013 Q4 the Company had a gain on disposal of property and equipment of $1,462compared to $957in 2012 Q4. 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.
Additionally, in 2013 Q3 the Company completed the sale and leaseback of its Calgaryand Nisku, Albertaland and buildings. In 2014 Q4, there was an adjustment to reduce the gain by $460due to costs incurred to complete renovations of the Niskufacility.
Write-down of investment in associate and related assetsSubsequent to year-end, Cathedral decided to discontinue operations in Venezuela. Management determined the expected political, financial and operational risks do not warrant continuing to pursue business opportunities in Venezuela. Furthermore, management is of the belief there are greater growth opportunities in the North American market and particularly in the U.S. In 2013 Q4, the Company recorded a charge in the amount of $13,066related to the write-off of its investment in Vencana as well as certain assets located within Venezuela.
Management has taken action to reduce Venezuelacosts and on-going costs associated with the wind down of Venezuelaoperations are expected to be significantly reduced. In 2013 Cathedral incurred $2,017(2012 - $2,221) of SG&A (this figure excludes the recovery of $1,438from its joint venture partner in 2013 Q1 in relation to previously expensed SG&A) related to its Venezuelan operations.
Cathedral will be providing its joint venture partner, a wholly-owned subsidiary of Petróleos de Venezuela S.A. ("PDVSA"), the state-owned oil and natural gas corporation of the Bolivarian Republic of Venezuela, with notice that it is pursuing its contractual alternative to find a third-party to purchase Cathedral's 40% interest in Vencana or having Cathedral's joint venture partner purchase its interest. Future proceeds, if any, with respect to the sale of its joint venture interest will be recorded on a cash received basis as a recovery of this write-down. Cathedral expects to re-deploy existing equipment currently located in Calgary, Albertathat was previously scheduled for Venezuelato its current North American operations including six Measurement-While-Drilling ("MWD") tools systems as well as Logging-While-Drilling ("LWD") tools.
Foreign exchange loss The Company had foreign exchange loss of $372in 2013 Q4 compared to $136in 2012 Q4 due to the fluctuations in the Canadian dollar compared to U.S. dollars. 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 Q4 foreign currency gain are unrealized losses of $336(2012 Q4 - $156) related to intercompany balances.
Finance costs Finance costs consist of interest expenses on operating loans, loans and borrowings and bank charges of $661for 2013 Q4 versus $464for 2012 Q4. The increase in finance costs relate mainly to an increased utilization of the Company's operating loan and to a lesser extent increases in interest rates.
Income taxFor 2013 Q4, the Company had an income tax recovery of ($146)compared to expense of $456in 2012 Q4. Included in the 2013 Q4 amount is an adjustment to prior year's deferred tax recovery of $313. Due to the write-off of investment in associate in the quarter the effective tax rate is not meaningful and is not presented.
Net loss for 2013 Q4 was $(11,248)($0.31loss per share) compared to net earnings of $1,578($0.04per share - diluted) in 2012 Q4.
LIQUIDITY AND CAPITAL RESOURCES
OverviewOn an annualized basis the Company's principal source of liquidity is cash generated from operations. In addition, the Company has the ability to fund liquidity requirements through its credit facility and the issuance of debt and/or equity. In 2013 Q3, the Company completed a sale/leaseback of Niskuand Calgary, Albertafacilities with net proceeds of $22,260. These net proceeds were used to reduce the Company's bank debt including $8,000of long-term debt. For the year ended December 31, 2013, the Company had funds from continuing operations of $24,997(2012 - $33,270). The decline in funds from continuing operations is due to the Company's reduced levels of Canadian source revenues on a year-over-year basis.
Working capitalAt December 31, 2013the Company had a working capital position of $26,031(December 31, 2012- $29,173) and a working capital ratio of 1.66 to 1 (December 31, 2012- 1.75 to 1).
Credit facility The Company has a $20,000demand operating line of credit with a major Canadian bank that bears interest, at the Company's option, at the bank's prime rate plus 0.50 % to 2.00% or bankers' acceptance rate plus 1.75% to 3.25% with interest payable monthly and is secured as described in note 14 of the audited consolidated financial statements. Interest rates spreads for the credit facility will depend on the level of funded debt to EBITDA (earnings before interest on long-term debt, taxes, depreciation, amortization and non-cash compensation expense - as defined in the credit agreement).
The Company also has a secured revolving term loan with a major Canadian bank at an authorized amount of $55,000, bearing interest at the bank's prime rate plus 0.50 % to 2.00% or bankers' acceptance rate plus 1.75% to 3.25%, without repayment terms, maturing June 30, 2014subject to an annual extension upon agreement between the borrower and the bank for a further one-year period. Interest rates spreads for the credit facility will depend on the level of funded debt to EBITDA (earnings before interest on long-term debt, taxes, depreciation, amortization and non-cash compensation expense - as defined in the credit agreement). Prior to maturity the borrower may convert its revolving term loan to a non-revolving term loan repayable monthly over 36 months with interest only for the first 12 months. The Company's credit facility includes a $35,000accordion feature which is subject to approval of the Company's bank.