CALGARY, ALBERTA--(Marketwired - May 13, 2015) - Total Energy Services Inc. ("Total Energy" or the "Company") (TSX:TOT) announces its consolidated financial results for the three months ending March 31, 2015.
Financial Highlights | ||||||
($000's except per share data) | ||||||
Three Months March 31 | ||||||
(unaudited) | ||||||
2015 | 2014 | % Change | ||||
Revenue | $ 92,490 | $ 115,113 | (20 | %) | ||
Operating Earnings (1) | 14,575 | 25,660 | (43 | %) | ||
EBITDA (1) | 21,875 | 35,679 | (39 | %) | ||
Cashflow (1)(5) | 7,988 | 34,023 | (77 | %) | ||
Net Income | 9,183 | 21,028 | (56 | %) | ||
Per Share Data (Diluted) (2) | ||||||
EBITDA (1) | $ 0.71 | $ 1.02 | (30 | %) | ||
Cashflow (1) | 0.26 | 0.98 | (73 | %) | ||
Net Earnings | 0.30 | 0.63 | (52 | %) | ||
Mar. 31 | Dec. 31 | |||||
2015 (unaudited |
) | 2014 (audited |
) | % Change | ||
Financial Position | ||||||
Total Assets | $ 587,383 | $ 595,906 | (1 | %) | ||
Long-Term Debt, Convertible Debentures and Obligations Under Finance Leases (excluding current portion) | 2,826 | 69,468 | (96 | %) | ||
Working Capital (3) | 19,205 | 82,332 | (77 | %) | ||
Net Debt (4) | nil | nil | - | |||
Shareholders' Equity | 389,445 | 382,063 | 2 | % | ||
Shares Outstanding (000's) | ||||||
Basic | 31,000 | 31,005 | n/m | |||
Diluted (2) | 31,019 | 34,114 | (9 | %) | ||
Notes 1 through 5 please refer to the Notes to the Financial Highlights set forth at the end of this release. |
Total Energy's results for the three months ended March 31, 2015 reflect a significant reduction in North American oil drilling and completion activity as producers responded to a substantial decline in crude oil prices that began in the later part of 2014. Cashflow for the first quarter of 2015 was also negatively impacted by the payment of $12.7 million of income taxes that related to 2014 taxable income due to the Company not having been required to make income tax installments in 2014. Total Energy is required to make income tax installment payments during 2015.
Total Energy's Contract Drilling Services division achieved 17% utilization during the first quarter of 2015, recording 263 operating days (spud to release) with a fleet of 18 rigs, compared to 1,015 operating days, or 70% utilization, during the first quarter of 2014 with a fleet of 16 rigs. Revenue per operating day decreased 7% for the first quarter of 2015 relative to the first quarter of 2014 due to lower spot market pricing. A sudden unexpected and substantial reduction to a significant customer's winter drilling program disproportionally impacted this division given its customer concentration entering 2015. The Rentals and Transportation Services division achieved a utilization rate on major rental equipment of 38% during the first quarter of 2015 as compared to a 51% utilization rate during the first quarter of 2014. The Rentals and Transportation Services division exited first quarter of 2015 with approximately 10,000 pieces of rental equipment and 119 heavy trucks as compared to 9,900 rental pieces and 109 heavy trucks at the end of the first quarter of 2014. The Compression and Process Services division generated revenues of $57.4 million for the three months ended March 31, 2015 compared to $54.7 million for the same period in 2014, an increase of 5%. The Compression and Process Services division exited first quarter of 2015 with $86.6 million backlog of fabrication sales orders as compared to $49.0 million at March 31, 2014. At March 31, 2015, approximately 38,400 horsepower of compression equipment was on rent compared to 51,400 horsepower on rent at March 31, 2014. The gas compression rental fleet operated at an average utilization rate of 77% for the three month period ended March 31, 2015, as compared to 91% for the same period in 2014.
During the first quarter, Total Energy declared a quarterly dividend of $0.06 per share to shareholders of record on March 31, 2015. This dividend was paid on April 30, 2015.
Outlook
Total Energy expects that 2015 will be a challenging year for North American energy services providers. Beginning in the first quarter, steps have been taken in all divisions to right size operations to reflect lower activity levels and the Company will remain focused on the prudent management of its operations and preservation of its balance sheet strength. Total Energy will seek to maintain a focused and disciplined approach to conducting operations to ensure that all business divisions are able to profitably compete without compromising the quality or safety of operations.
Total Energy's financial condition remains strong, with a positive working capital balance of $19.2 million (after reclassifying as a current liability $66.9 million relating to the convertible debentures to be redeemed on May 19, 2015) and no bank debt as at March 31, 2015. As at March 31, 2015, long-term debt to long-term debt plus equity was nominal given the re-classification of the convertible debentures as a current liability and the Company had no net debt (net debt being long-term debt plus obligations under finance leases plus current liabilities minus current assets). Shareholders' equity increased by $7.4 million, or 2%, during the first three months of 2015 due primarily to an increase in retained earnings.
In connection with the recently announced redemption of the $69 million of convertible debentures, Total Energy has secured a new $50 million five year term bank loan. The term loan is secured by certain of Total Energy's real estate holdings, bears interest at a fixed annual rate of 3.06% and requires monthly principal and interest payments of $278,800. At the end of the five year term in May 2020, approximately $40.2 million of principal will be outstanding assuming only regular monthly payments are made. The redemption and refinancing of the convertible debentures is expected to result in annual interest savings of approximately $1.8 million and eliminate a significant potential source of dilution to existing shareholders.
Total Energy's strong liquidity position and balance sheet strength positions the Company well to pursue investment opportunities that might arise in this challenging industry environment. The Company's $65 million revolving credit facility, which is secured by cash, inventory and receivables, is currently undrawn and fully available. With the exception of approximately $72 million of real estate that has been mortgaged to secure the $50 million term debt facility, the Company's capital assets remain available to secure future debt financings as may be required. In April of 2015, the Company received an independent third party report indicating the current market value of its real estate holdings to be approximately $110 million as compared to a net book value of $49.9 million at December 31, 2014.
During the first quarter, Total Energy's wholly-owned United States subsidiary completed the acquisition of a private oilfield transportation company based in Casper, Wyoming. This acquisition not only provided an established market presence in Wyoming, but also provided the Rentals and Transportation Services division's United States operations with required federal and state operating licenses in a number of jurisdictions that will facilitate future growth in the United States.
The Company recently received correspondence from the Canada Revenue Agency ("CRA") advising that, subject to submissions by the Company, CRA was proposing to reassess certain of the Company's income tax filings related to its conversion from an income trust to a corporation in 2009. Such proposed re-assessment, if issued and successfully upheld, would result in approximately $14.8 million in income tax payable. Subsequent to issuing such proposal, the CRA has confirmed that its position is based solely on the application of the general anti-avoidance rule as the CRA has not challenged the legal effectiveness of the Company's conversion transaction. The CRA has also confirmed the existence of business reasons supporting such conversion transaction. As such, it appears that the proposed re-assessment is part of an overall trust conversion re-assessment initiative by the CRA that has little regard to the facts and circumstances of each individual taxpayer.
Total Energy has received both legal and tax advice relating to its conversion from an income trust to a corporation confirming that the Company's filing position is strong. The Company intends to make submissions objecting to the proposed re-assessment, vigorously defend any re-assessment that might be issued and seek reimbursement from the CRA for the costs arising from any such re-assessment to the fullest extent possible. Total Energy believes that it will be successful in defending its tax filing position and no provision has been or will be made in respect of income taxes payable as a result of this possible re-assessment.
Conference Call
At 2:30 p.m. MST today, Total Energy will conduct a conference call and webcast to discuss its first quarter financial results. Daniel Halyk, President & Chief Executive Officer, will host the conference call. The call is open to Shareholders and all other interested persons. A live webcast of the conference call will be accessible on Total's website at www.totalenergy.ca by selecting "Webcasts". Persons wishing to join the conference call live may do so by calling (800) 355-4959 or (416) 340-2216. Those who are unable to listen to the call live may listen to a recording of it on Total Energy's website. A recording of the conference call will also be available until May 19, 2015 by dialing (800) 408-3053 (passcode 8423697).
Annual Meeting of Shareholders
Shareholders and other interested persons are invited to attend the annual meeting of Shareholders which will commence at 10:00 a.m. (Calgary time) on Thursday, May 21, 2015 at the Calgary Petroleum Club, 319 - 5th Avenue S.W., Calgary, Alberta.
Selected Financial Information
Selected financial information relating to the three month period ended March 31, 2015 and 2014 is attached to this news release. This information should be read in conjunction with the condensed unaudited interim consolidated financial statements of Total Energy and the attached notes to the consolidated financial statements and management's discussion and analysis to be issued in due course and reproduced in the Company's first quarter report.
Consolidated Statements of Financial Position | |||
(in thousands of Canadian dollars) | |||
March 31, | December 31, | ||
2015 | 2014 | ||
(unaudited) | (audited) | ||
Assets | |||
Current assets: | |||
Cash and cash equivalents | $ 8,115 | $ 7,745 | |
Accounts receivable | 80,738 | 98,920 | |
Inventory | 60,862 | 54,348 | |
Prepaid expenses and deposits | 3,092 | 5,576 | |
152,807 | 166,589 | ||
Property, plant and equipment | 421,174 | 419,991 | |
Other assets | 9,349 | 5,273 | |
Goodwill | 4,053 | 4,053 | |
$ 587,383 | $ 595,906 | ||
Liabilities & Shareholders' Equity | |||
Current liabilities: | |||
Accounts payable and accrued liabilities | $ 46,758 | $ 59,837 | |
Deferred revenue | 14,117 | 7,430 | |
Income taxes payable | 1,293 | 12,754 | |
Dividends payable | 1,860 | 1,860 | |
Current portion of obligations under finance leases | 2,713 | 2,376 | |
Convertible debentures | 66,861 | - | |
133,602 | 84,257 | ||
Obligations under finance leases | 2,826 | 3,107 | |
Convertible debentures | - | 66,361 | |
Deferred tax liability | 61,510 | 60,118 | |
Shareholders' equity: | |||
Share capital | 88,884 | 88,899 | |
Contributed surplus | 7,008 | 6,880 | |
Equity portion of convertible debenture | 4,601 | 4,601 | |
Retained earnings | 288,952 | 281,683 | |
389,445 | 382,063 | ||
Commitments and contingencies | |||
$ 587,383 | $ 595,906 |
Consolidated Statements of Comprehensive Income | |||||
(in thousands of Canadian dollars except per share amounts) | |||||
Three months ended March 31 |
|||||
2015 | 2014 | ||||
(unaudited) | (unaudited) | ||||
Revenue | $ 92,490 | $ 115,113 | |||
Cost of services | 63,076 | 72,693 | |||
Selling, general and administration | 7,728 | 8,448 | |||
Share-based compensation | 128 | 690 | |||
Depreciation | 6,983 | 7,622 | |||
Results from operating activities | 14,575 | 25,660 | |||
Gain on sale of property, plant and equipment | 317 | 2,397 | |||
Finance income | 133 | 1,159 | |||
Finance costs | (2,546 | ) | (1,502 | ) | |
Net income before income taxes | 12,479 | 27,714 | |||
Current income tax expense (recovery) | 2,370 | (829 | ) | ||
Deferred income tax expense | 926 | 7,515 | |||
Total income tax expense | 3,296 | 6,686 | |||
Net income and total comprehensive income for the period | $ 9,183 | $ 21,028 | |||
Earnings per share | |||||
Basic earnings per share | $ 0.30 | $ 0.67 | |||
Diluted earnings per share | $ 0.30 | $ 0.63 | |||
Consolidated Statements of Cash Flows | ||||||
(in thousands of Canadian dollars) | ||||||
Three months ended March 31 |
||||||
2015 | 2014 | |||||
(unaudited) | (unaudited) | |||||
Cash provided by (used in): | ||||||
Operations: | ||||||
Net income for the period | $ 9,183 | $ 21,028 | ||||
Add (deduct) items not affecting cash: | ||||||
Depreciation | 6,983 | 7,622 | ||||
Share-based compensation | 128 | 690 | ||||
Gain on sale of property, plant and equipment | (317 | ) | (2,397 | ) | ||
Unrealized loss (gain) on other assets | 1,000 | (1,108 | ) | |||
Finance costs | 1,546 | 1,502 | ||||
Current income tax expense (recovery) | 2,370 | (829 | ) | |||
Deferred income tax expense | 926 | 7,515 | ||||
Income taxes recovered (paid) | (13,831 | ) | - | |||
7,988 | 34,023 | |||||
Changes in non-cash working capital items: | ||||||
Accounts receivable | 18,182 | (24,466 | ) | |||
Inventory | (6,514 | ) | (739 | ) | ||
Prepaid expenses and deposits | 2,484 | 1,348 | ||||
Accounts payable and accrued liabilities | (4,977 | ) | 7,292 | |||
Deferred revenue | 6,687 | (3,107 | ) | |||
23,850 | 14,351 | |||||
Investments: | ||||||
Purchase of property, plant and equipment | (6,493 | ) | (19,908 | ) | ||
Acquisition of business | (1,231 | ) | - | |||
Purchase of other assets | (5,075 | ) | (2,879 | ) | ||
Proceeds on disposal of property, plant and equipment | 1,228 | 12,925 | ||||
Changes in non-cash working capital items | (7,220 | ) | 718 | |||
(18,791 | ) | (9,144 | ) | |||
Financing: | ||||||
Repayment of obligations under finance leases | (720 | ) | (890 | ) | ||
Dividends to shareholders | (1,860 | ) | (1,559 | ) | ||
Issuance of common shares | - | 1,193 | ||||
Repurchase of common shares | (69 | ) | (712 | ) | ||
Interest paid | (2,040 | ) | (2,051 | ) | ||
(4,689 | ) | (4,019 | ) | |||
Change in cash and cash equivalents | 370 | 1,188 | ||||
Cash and cash equivalents, beginning of period | 7,745 | 3,210 | ||||
Cash and cash equivalents, end of period | $ 8,115 | $ 4,398 | ||||
Segmented Information
The Company operates in three main industry segments, which are substantially in one geographic segment. These segments are Contract Drilling Services, which includes the contracting of drilling equipment and the provision of labour required to operate the equipment, Rentals and Transportation Services, which includes the rental and transportation of equipment used in drilling, completion and production operations and Compression and Process Services, which includes the fabrication, sale, rental and servicing of natural gas compression and process equipment.
As at and for the three months ended March 31, 2015 (unaudited) | |||||
Contract | Rentals and | Compression | |||
Drilling | Transportation | and Process | |||
Services | Services | Services | Other(1) | Total | |
Revenue | $ 5,230 | $ 29,871 | $ 57,389 | $ - | $92,490 |
Cost of services | 3,030 | 15,375 | 44,671 | - | 63,076 |
Selling, general and administration | 554 | 3,950 | 2,431 | 793 | 7,728 |
Share-based compensation | - | - | - | 128 | 128 |
Depreciation | 614 | 4,198 | 2,157 | 14 | 6,983 |
Results from operating activities | 1,032 | 6,348 | 8,130 | (935) | 14,575 |
Gain on sale of property, plant and equipment | 5 | (73) | 385 | - | 317 |
Finance income | - | - | - | 133 | 133 |
Finance costs | (204) | (439) | (304) | (1,599) | (2,546) |
Net income (loss) before income taxes | 833 | 5,836 | 8,211 | (2,401) | 12,479 |
Goodwill | - | 2,514 | 1,539 | - | 4,053 |
Total assets | 119,357 | 259,261 | 199,434 | 9,331 | 587,383 |
Total liabilities | 18,201 | 52,755 | 55,988 | 70,994 | 197,938 |
Capital expenditures (2) | $ 334 | $ 4,666 | $ 2,620 | $ 104 | $ 7,724 |
As at and for the three months ended March 31, 2014 (unaudited) | |||||
Contract | Rentals and | Compression | |||
Drilling | Transportation | and Process | |||
Services | Services | Services | Other(1) | Total | |
Revenue | $ 21,741 | $ 38,628 | $ 54,744 | $ - | $115,113 |
Cost of services | 11,570 | 18,118 | 43,005 | - | 72,693 |
Selling, general and administration | 1,018 | 3,802 | 2,378 | 1,250 | 8,448 |
Share-based compensation | - | - | - | 690 | 690 |
Depreciation | 1,866 | 3,824 | 1,932 | - | 7,622 |
Results from operating activities | 7,287 | 12,884 | 7,429 | (1,940) | 25,660 |
Gain on sale of property, plant and equipment | 20 | 44 | 2,260 | 73 | 2,397 |
Finance income | - | - | - | 1,159 | 1,159 |
Finance costs | (203) | (522) | (252) | (525) | (1,502) |
Net income (loss) before income taxes | 7,104 | 12,406 | 9,437 | (1,233) | 27,714 |
Goodwill | - | 2,514 | 1,539 | - | 4,053 |
Total assets | 116,158 | 251,252 | 170,590 | 12,334 | 550,334 |
Total liabilities | 25,088 | 55,878 | 39,035 | 69,399 | 189,400 |
Capital expenditures | $ 8,319 | $ 3,495 | $ 7,238 | $ 856 | $ 19,908 |
(1) | Other includes the Company's corporate activities, accretion of convertible debentures and obligations pursuant to long-term credit facilities. |
(2) | Includes the acquisition of a private oilfield transportation company based in Casper, Wyoming as described in note 4 to the first quarter financial statements. |
Total Energy Services Inc. is a growth oriented energy services corporation involved in contract drilling services, rentals and transportation services and the fabrication, sale, rental and servicing of natural gas compression and process equipment. The common shares of Total Energy are listed and trade on the TSX under the symbol TOT.
Notes to Financial Highlights
- Operating earnings means results from operating activities and is equal to net income before income taxes minus gain on sale of property, plant and equipment, minus finance income, plus finance costs. EBITDA means earnings before interest, taxes, depreciation and amortization and is equal to net income before income taxes plus finance costs plus depreciation minus finance income. Cashflow means cash provided by operations before changes in non-cash working capital items. Operating earnings, EBITDA and cashflow are not recognized measures under IFRS. Management believes that in addition to net income, operating earnings, EBITDA and cashflow are useful supplemental measures as they provide an indication of the results generated by the Company's primary business activities prior to consideration of how those activities are financed, amortized or how the results are taxed in various jurisdictions as well as the cash generated by the Company's primary business activities without consideration of the timing of the monetization of non-cash working capital items. Readers should be cautioned, however, that operating earnings, EBITDA and cashflow should not be construed as an alternative to net income determined in accordance with IFRS as an indicator of Total Energy's performance. Total Energy's method of calculating operating earnings, EBITDA and cashflow may differ from other organizations and, accordingly, operating earnings, EBITDA and cashflow may not be comparable to measures used by other organizations.
- Per share data (diluted) and the number of common shares outstanding on a diluted basis includes the impact of the approximate 3.1 million common shares issuable upon the entire conversion of the $69 million principal amount of convertible debentures issued by the Company in February 2011. At March 31, 2015 the shares issuable upon conversion of convertible debentures were antidilutive and were excluded from the dilutive shares outstanding count.
- Working capital equals current assets minus current liabilities. At March 31, 2015 current liabilities include $66.9 million relating to the convertible debentures that are scheduled to be redeemed on May 19, 2015.
- Net Debt equals long-term debt plus obligations under finance leases plus convertible debentures plus current liabilities minus current assets. As at March 31, 2015, all amounts relating to the convertible debentures were re-classified as a current liability.
- Cashflow for the three months ended March 31, 2015 is net of $12.7 million of income taxes paid during the period that relates to 2014 taxable income as a result of the Company not having been required to make income tax installment payments during 2014.
Certain statements contained in this press release, including statements which may contain words such as "could", "should", "expect", "believe", "will" and similar expressions and statements relating to matters that are not historical facts are forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties which may cause the actual results, performances or achievements of Total Energy to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Such factors include fluctuations in the market for oil and natural gas and related products and services, political and economic conditions, the demand for products and services provided by Total Energy, Total Energy's ability to attract and retain key personnel and other factors. Reference should be made to Total Energy's most recently filed Annual Information Form and other public disclosures (available at www.sedar.com) for a discussion of such risks and uncertainties.
The Toronto Stock Exchange has neither approved nor disapproved of the information contained herein.
Contact Information:
Daniel Halyk
President & Chief Executive Officer
(403) 216-3921
Total Energy Services Inc.
Yuliya Gorbach
Vice-President Finance and Chief Financial Officer
(403) 216-3920
investorrelations@totalenergy.ca
www.totalenergy.ca